EDAP: Undervalued With An Alternative Treatment For Prostate Cancer
Scott Matusow | Jan 03, 2013 01:55AM ET
In doing some fresh scans for 2013, I found a company that has a very small market cap of only $38 million but competes in the very large market of prostate cancer. EDAP TMS SA (EDAP) looks like a very solid speculative play not only because of its future revenue prospects, but also because it brings in significant revenue right now. I always like to see companies who grow responsibly. In the pharmaceutical industry, a company with a low market cap that isn't burning a lot of cash relative to its size is pretty rare. Let's take a closer look.
Prostate cancer is the second most common type of cancer in men with third quarter conference call , EDAP spoke about its progress. Marc Oczachowski, EDAP's Chief Executive Officer, commented,
Our revenues for the first nine months of 2012 reflected the robust sales growth of our renewed lithotripsy device platform. We continue to pursue sales and marketing initiatives around the globe and recently strengthened our U.S. sales team with the appointment of a Senior Sales Manager experienced in lithotripsy.
The Company showed 13% revenue growth at the end of the third quarter of 2012, as compared to last year, and we foresee additional positive momentum for the remainder of this year. As we approach the last week of November, our replenished device backlog is comprised of nineteen lithotripsy devices and three Ablatherm-HIFU devices.
During the conference call, the company also noted that in October 2012, EDAP appointed Bill Brown as its U.S. based Senior Sales Manager. With more than two decades in the medical field and over ten years in lithotripsy device sales, Mr. Brown joins EDAP's U.S. team to enhance and strengthen the EDAP U.S. expansion program.
Also in October, urologists with long-term Ablatherm-HIFU experience participated in a panel discussions at Third International Symposium on Focused Ultrasound, in Washington, D.C. On two separate panels, they outlined their experience using ultrasound guided Ablatherm-HIFU to treat prostate cancer and highlighted Ablatherm-HIFU's substantial clinical track record, with more than 32,000 prostate cancer treatments successfully performed.
Other recent highlights:
· Recorded robust 13% sales growth over the nine-month period.
· Strong lithotripsy sales in third quarter and replenished fourth quarter device backlog in lithotripsy and Ablatherm-HIFU.
· Generated positive cash flow during third quarter 2012.
· Held productive pre-PMA meeting with U.S. FDA for Ablatherm-HIFU Phase II/III clinical trial.
EDAP recently broke out of an extended down trend dating back to November (shown in maroon) and has moved past the psychological resistance at $2. The stock also has formed a new uptrend that could push this much higher. It has found new support at that level and appears it wants to make a break higher to test $2.80. If we can get a large enough volume break at that point there is not much stopping it from testing $3.80 especially for such a low floater.
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When EDAP received European approval in 2006 the stock shot over $20. Obviously, the stock has been beaten down to around $2/share since. I would typically expect this scenario to be a result of big dilution which is not the case with EDAP. The revenue coming has allowed continued development without harming shareholders even more by printing tons of shares to raise cash. If a European approval could spark the stock this much six years ago, a U.S. approval would certainly seem very significant mainly because of this lack of dilution.
This is why I like a reasonable long play or at least an option play where you can minimize your risk while creating high reward potential. In addition, the company has also filed for Chinese approval. Since China tends to piggy back on American FDA decisions of this nature, it could add to the positive nature of an FDA approval. I will be watching the movement of this stock and its related options closely this year.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in (EDAP) over the next 72 hours.
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