Gould Partners Issues "Strong Buy" Rating On Verisante Technology

Strong data points, early market support point to strong upside for medical device company.

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(PRWEB) November 19, 2012

In this environment of patent cliff after patent cliff, healthcare investors would be wise to back secular transitions in clinical treatment. Some of the most favorable risk/reward can be found in companies developing medical technologies that address demographic changes. An aging population, in particular, is driving greater demand for disease prevention. At the same time, limited clinical resources are pushing costs higher.

VERISANTE TECHNOLOGY, INC.

INNOVATION IN SKIN CANCER SCREENING
Every hour, an individual in the United States dies with melanoma. As the most common form of cancer, skin cancer costs the United States an estimated $2.5 billion annually. Unfortunately, as a result of the graying population, the ratio of patients to dermatologists is putting a strain on resources. While the survival rate for patients diagnosed with advanced stage skin cancer is 15%, the survival rate jumps to 99% for patients diagnosed in the early stages. Put differently, early detection is critical in saving lives and physicians are becoming increasingly less able to meet the demand.

Verisante Technology, a medical device producer, is optimally positioned to address this problem. Verisante Aura™ provides a quick and efficient way to detect all forms of skin cancer. This non-invasive device was developed by researchers at the BC Cancer Agency and then refined at the Skin Care Centre at Vancouver General Hospital. This non-invasive screen for tumor malignancy uses the Raman effect to analyze chemical composition of skin lesions. A near-infrared laser collects information on the skin, which then helps dermatologists make an informed decision on whether to perform a biopsy.

As a multimodality imaging and spectroscopy system that rapidly scans the skin, it reduces patient wait times and thereby helps bring down costs. In a human clinical study over 6 years on around 1,000 lesions, preliminary results released in 2008 revealed that Verisante Aura™ successfully found every melanoma case in 274 lesions flagged for biopsy. These data points were so groundbreaking that the device was named the "Best of What's New Award" by Popular Science Magazine in 2011.

Rapid commercialization in the Europe, Canada, and Australia is due this year. With solid preliminary data supporting its products and a low cost structure, Verisante can drive a large return on invested capital that dwarfs WACC, thereby creating substantial gains for early investors. Strong financial support has been provided to the company since it went public, but borrowing costs are likely to improve even more under proven top-line momentum.

The product is being rolled out to dermatologists that can then push its acceptance amongst general practitioners. These dermatologists are used to performing the "ABCD" method—examining lesion asymmetry, border, color, and diameter—to decide whether to recommend a biopsy. However, this screening method is largely antiquated, has a history of giving false positives, and fails to identify a surprisingly high 15 - 35% of melanomas. Since widely available melanoma diagnosis technologies can be highly inaccurate and time-consuming, Aura™, which has demonstrated superiority to the current gold standard, makes a welcomed entry.

The commercial rollout in approved markets will price Aura™ around $60,000. In addition to 1 thousand general practitioners that treat skin cancer, there are 500, 21 thousand, and 350 practicing dermatologists in Canada, Europe, and Australia, respectively. A 14% penetration planned by year 5 would make the stock several times undervalued when returns are discounted by 10%.

Aura™ has been approved in Europe, Canada, and Australia. It is expected be FDA approved by 2014.

INNOVATION IN LUNG CANCER SCREENING

With a claim on over 1.2 million deaths each year, the lung is the source of most deaths to cancer. Though it has an overall 5-year survival rate of just 16%, like skin cancer, screening changes the story dramatically. When diagnosed and treated in the early stages, lung cancer claims only between 10 - 30% of patient lives within 5 years.

Verisante Core™ is a non-invasive technology that is currently being studied. The product has produced excellent results and was ranked as one of the top 10 cancer breakthroughs of 2011 by the Canadian Cancer Society. In a small 26 patient pilot study, Core™ reduced the number of false positives by more than 75% compared to standard care. While the product represents a substantial catalyst on the bottom-line, the market has not yet factored it into the stock price given the extended timeframe until approval. In Zacks' equity research report, they gave the stock a $2.60 price target (more than 5x the prevailing price) and did not even value Core™ in their model.

CONCLUSION

Having produced strong trial data for its two core technologies, Verisante can move forward with the commercialization stage. Physicians are in high need of solutions that speed up care, and Verisante's solutions are a substantial improvement on existing “gold standards”. We see little reason to doubt Aura's™ ability to (1) gain acceptance in the medical community and (2) expand into related niches. The recent agreement with BO-Pharma BV, the largest independent medical device distributor in Luxembourg, the Netherlands, and Belgium, to distribute Aura™ is a testament to just how far Verisante has already come. The growth curve ahead is steep and offers early investors attractive risk/reward. We encourage aggressively buying shares consistent with out "strong buy" rating.

Disclaimer: The distributor of this research report, Gould Partners, is not a licensed investment adviser or broker dealer. We are a consultant to a third-party representing Verisante and have received one thousand five hundred dollars for independent research. Investors are cautioned to perform their own due diligence as information contained within this report has been derived from public sources and cannot be guaranteed by us to be fully accurate. Always discuss investments with a licensed professional before making any financial decision. Statements made herein are often "forward-looking statements" as defined under Section 27A of the Securities Act of 1933, Section 21E of the Securities Act of 1934, and the Private Securities Litigation Reform Act of 1995. Since these statements are uncertain, actual results may be materially different from those expected.


Contact

  • David Gould
    Gould Partners
    607-237-9633
    Email