In November of 2011, I wrote this article covering a selection of MicroCap Medical Technology Companies. In this article I mentioned six microcap medical technology companies: Bacterin International Holdings (BONE), Zynex (ZYXI), Verisante Technology (VRSEF), Response Genetics (RGDX), Patient Safety Technologies (PSTX), and Medgenics (MDGN). The performance below is what I would expect to see. Five of the six companies were down slightly as a group with the sixth (Medgenics) outperforming bringing the overall performance of the group to +55% YTD.
Medical Technology broadly includes medical devices, information technology, biotech, and healthcare services. Since the beginning of the year the PowerShares SmallCap Health Care Fund (PSCH) is up 10%, compared to the iShares Russell MicroCap Index (IWC) up 7%, and the S&P, which is up 4%.
The microcap medical technology arena continues to be a place of innovation and growth, and I would expect larger companies to go down the food chain to acquire growth. Here are five more MedTech microcaps we are discussing at MicroCapClub:
Spine Pain Management (SPIN), PPS $1.15, $20m Market Cap: Spine Pain Management is a medical services and technology company facilitating diagnostic services for patients who have sustained spine injuries resulting in traumatic accidents. The company pre-funds diagnostic, non-invasive testing and surgical care, expediting patients care. Spine Pain Management is the only public company addressing a potential multibillion-dollar annual market opportunity. The company is profitable, has a recession proof business model, which can organically grow 50%+ per year. Spine Pain operates six affiliate centers in Texas and Florida with plans to open two additional centers in Q3 2012. The company’s CEO and largest shareholder in Feb 2012 converted over $1 million in debt owed to him into equity at $1.83. The company currently has no analyst coverage.
OptimizeRx (OPRX), PPS $1.00, $15m Market Cap: OptimizerRx is rolling out their proprietary SampleMD technology platform for marketing communications in the branded pharmaceutical industry. SampleMD automates drug sample and co-pay coupon distribution for the branded pharmaceutical industry through this software offering. SampleMD has partnered with several of the largest electronic prescription and or electronic health record software players in the industry including leaders such as Allscripts Inc. (MDRX). This relationship has allowed SampleMD to be integrated right into tens of thousands of care providers work flow as an opt in option for electronic fulfillment of samples and or coupon offerings for patients, that can be printed or sent electronically to any pharmacy for a fill. OPRX generates revenue every time a coupon or sample voucher is issued. This revenue is then shared with the partnering software company. SampleMD is expecting to be accretive in Q3&Q4 of FY 2012.The expected user metrics are 60,000 to 80,000 users in late 2012, with over 70-80 branded drug offers available in the SampleMD virtual inventory by end of FY 2012. Zacks has a $5.00 price target on the company.
Auxilio (AUXO), PPS $0.80, $15m Market Cap: Auxilio is the nations only independent health care exclusive managed print services (MPS) company. The company has been cited as a “true pioneer” in the MPS industry by Quocirca, a leading global research company. Auxilio can save a facility with 1,000 beds that averages 5 million documents per month (60% printer/40% copier) around $43,000 per month. The company currently has over 70 hospitals under contract (up from 35 hospitals 10 months ago) that represents just over 1% of the market opportunity. Last week Auxiolio announced a $35 million 5 year contract with Bon Secours Health System representing 14 hospitals. Auxilio is expected to save the hospital chain $7 million over the life of the contract. This week Auxilio announced a $10 million 5 year contract with Sharp Healthcare. The company has organically doubled the size of its business in the last six months from $20m – $40m in annual revenues. New contracts deployed take 9 months on average to cash flow, so the company has been managing its growth rate to coincide with cash flows produced from mature contracts and through a recently announced line of credit. Zacks has a $2.00 price target on the company.
SDIX Inc (SDIX), PPS $1.10, $22m Market Cap: SDIX provides anti-bodies for use in laboratory development programs and in diagnostic tests. Many of these anti-bodies are commodities but an increasing share are higher value polyclonal anti-bodies generated using the company’s proprietary Genomic Anti-Body Technology (GAT). This method based on genomic information produces effective anti-bodies against difficult targets where traditional methods fail. The company has made significant investment in R&D in recent years related to GAT Technology. In particular, GAT has been extended from polyclonal antibodies for use in laboratory and diagnostic tests to “Advanced GAT” that produces monoclonal anti-bodies. “Advanced GAT” monoclonal antibodies are potentially higher value as they can have drug-like characteristics. A second food safety product line implements proprietary phage technology in test kits for salmonella, listeria, and E. coli. The phage technology in the “Rapid-Check” product line provides test results in less time than traditional test methods. No analysts cover SDIX but there has been buying interest in the company from health-care and bio-tech hedge funds in recent years. The company currently has no analyst coverage.
ImmuCell (ICCC), PPS $5.60, $17m Market Cap: Dairy farmers worldwide have a huge problem on a daily basis and it is called Mastitis. Estimated losses exceed $1 billion annually in the U.S. alone. Treatment to this day has been run of the mill antibiotics, but the FDA is pushing to change this due to increasing amounts of bacterial strains that are becoming resistant to traditional antibiotics. Immucell has a drug that uses pharmaceutical grade Nisin which is known for its anti-bacterial qualities and is commonly used as a food preservative. The drug is called Mast Out and if all goes well could be approved by the FDA within the next 18-24 months. Should this drug be approved it could easily take a large portion of the $40 million that is spent annually on antibiotics to treat Mastitis. In addition, the company has received the go ahead from the FDA for no-milk discard in 2011 which no antibiotic currently on the market can claim. The company estimates that this could potentially double their potential addressable market to ~$80 million in the U.S. alone as this would be the first economical solution to treat sub-clinical cases of Mastitis. Should Mast Out receive approval it could produce $1.00-$4.00 annual EBITDA for Immucell. On top of this, the company has an existing business that is once again profitable (after heavy development expenses for Mast Out incurred from 2008-2011) and tangible book value of approximately $3.00 per share. Given this information the market is valuing Mast Out at well under $10 million even after the most recent run up in the shares.
Disclosure: MicroCapClub Members may be long all companies mentioned. Ian Cassel is LONG SPIN.
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