VeriTeQ Projects Five Year Revenues Of $542.22M
George Ronan | Jan 16, 2014 03:37PM ET
In September 2013, the FDA released its here .
Risks
As with any development stage company, investment in VeriTeQ involves substantial risk. While recent events in the medical implant industry suggest there could be a market for devices the company produces, this remains as yet unproven. The company is basing its financial projections on widespread market acceptance of both the UDI and the radiation dosimeter, which may never materialize. The UDI in particular competes with simple direct marking of devices, which may make it difficult to sell to device manufacturers. Having said this, the UDI costs just $10.
Further risk lies in dilution of any early stage investors' holdings. Of the company's $7.2M in total assets, 92 percent is intangible, consisting of various patents protecting its product design and manufacture. VeriTeQ's current cash position suggests additional funding will be required to meet the market potential of its products, which will likely come in the form of equity financing. While in the long term this financing might add value, in the short term it will be dilutive.
In addition,The company's intellectual property rights are also at risk under the terms of an asset purchase agreement VeriTeQ entered into with SNC Holding Corp in December 2012. SNC is the company from which VeriTeQ acquired its radiation dosimeter technology, and as a result of the asset purchase agreement, owns approximately 19 percent of VeriTeQ. Under the terms of the agreement, VeriTeQ must meet certain royalty obligations and make sublicensing payments to SNC between now and 2017. If it fails to meet either of these requirements, the intellectual property rights associated with the technology revert to SNC. Such a reversion would make it difficult for the company to meet its dosimeter revenue projections. Mitigating this risk however, is the aligned incentives of the two companies resulting from SNC's large position in VeriTeQ.
The final rule issued by the FDA concerning medical device identification does not require implants to be identifiable. This final ruling differs from the FDA's initial indications, to which VeriTeQ refers on numerous occasions in its SEC filings and investor relations material. This could have an effect on the company's ability to meet its UDI revenue projections.
At its current market capitalization, $7.6M at Friday's close, the market for VeriTeQ stock is likely to remain illiquid for the foreseeable future. Illiquidity could make it difficult for investors to sell their stock in the event of a decline.
Finally, the company has just 9.3M shares outstanding and a float of just 2.52M. The laws of supply and demand subject the stock of a company with a float of this size to high price volatility.
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If VeriTeQ meets its own projections for the coming five fiscal years, the company could generate revenues exceeding half a billion dollars. At its current market capitalization, there could be huge upside potential in its stock. Having said this, investors should be wary of blindly following VeriTeQ's projections. They require widespread market acceptance of the company's products and, until this materializes, are just numbers.
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