BiQ Journal: March 16, 2025 (MYO)

I decided to take a closer look at Myomo (MYO) yesterday to evaluate it for possible addition to the BiQ Active Portfolio. At first glance, there's a lot to recommend the company:

• Large TAM, with a prevalent patient population of 600K in the US and ~50K new patients added to the pool each year.
• No direct competition.
• Recent upgrade to Medicare Part B coverage guidelines and favorable CMS reimbursement rates.
• Growing interest by O&P centers now that Medicare Part B coverage has been secured under favorable terms.
• Growing international revenues.
• Acceleration in revenue growth over the past few quarters after Medicare Part B changes were enacted.
• Declining patient acquisition costs and improving gross margins.

I found a lot to like about the company; however, there's one aspect to the story that worries me enough to preclude Myomo from further consideration for the Active Portfolio. I can't seem to find a competitive moat.

I don't doubt that MyoPro is a valuable device, and I expect it will do well in the marketplace now that Medicare coverage has become more favorable. The company has a healthy backlog and had nearly 1,400 new patients in its pipeline at the end of Q4. Margins and cost of acquisition for new patients have been trending favorably, and the onboarding of new O&P centers seems to be proceeding well. This should lead to better future growth, revenue, and cash-flow metrics.

However, thinking about the device itself, as far as I can tell, it consists of the following basic components:

• A prosthesis.
• An EMG sensor.
• A signal processor & amplifier.
• A controller.
• Some servo motors.

The ongoing revolution in robotics and AI has made all these parts relatively easy and inexpensive to obtain or manufacture. I can't imagine it would be too challenging for a competitor to create a device like MyoPro for mass production, especially with access to today's AI learning algorithms and improvements in sensors and servo motors. I know Myomo has a patent portfolio, but I'm guessing it would be reasonably easy to work around any patents Myomo may have. So far, there's nothing here that I can see that constitutes a technological moat. Also, since MyoPro is classified as a brace, I don't see the FDA as a barrier to entry, either.

Without genuinely foundational and proprietary technology, product companies often rely on brand awareness or scale (or both) to create a moat. I don't think Myomo has either of these advantages. And while the company is trying to build brand awareness, that takes a lot of time–and money. Also, I see MyoPro as a functional product, not an aspirational one like an iPhone or a BMW. I think this could limit the scope of any potential competitive advantage branding offers.

So, if we assume that I'm right and it's easy for a competitor to enter the market, why haven't they already? I think it's because, until the recent opportunity offered by the changes in Medicare Part B coverage, there has been little financial incentive for a competitor to do so. However, if the market truly is as big as management thinks it is, and now that Myomo has done the heavy lifting and paved the way for favorable reimbursement, I think the risk of potential competition becomes a much more significant concern.

To be clear, I'm not bearish regarding Myomo, and I think there may be near-term upside for the shares. I see several tailwinds that can support growth for the foreseeable future. I also realize I'm worrying about a potential threat that doesn't even exist (yet). And even if new competition enters the space, several arguments can be made about why Myomo could still be successful in the near term and the long term.

However, the BiQ Active Portfolio is designed around key principles of valuation, growth, risk, and the potential for long-term alpha generation. Myomo meets my valuation and growth criteria, but I think the competitive risks could jeopardize the potential for long-term value creation. As such, and as much as I like the company, I won't be adding it to the BiQ Active Portfolio at this time–though that is always subject to change in the future.

I would love to hear your feedback! If you have any questions or comments (or corrections) to share regarding this article, please click the "Comments" icon below to go to the online version of this article, scroll to the bottom of the page, and enter your question or comment in the Member Discussion area.

The BiQ Active Portfolio consists of my top biotech and medtech ideas and is updated regularly for BiQ Premium members. You can view my past and current performance on the Biotech iQ website. If you would like to test drive a BiQ Premium membership, please click the blue Account or Subscribe button on your screen to sign up for a risk-free 7-day trial membership. Or, if you're ready to join BiQ, click here for information on how to get a 20% discount for life on an annual subscription.

Biotech iQ is 100% subscriber supported. If you find this information helpful, please spread the word. You can also follow me on X @ Biotech iQ (_Biotech_iQ).

Biotech iQ is not an investment professional, and nothing on this page or this website should be considered investment advice. Please consult with a licensed investment professional as necessary. Past performance is not indicative of future results.