US Edition Biocompatibles International
270punch
Questor says BUY
The stock market poorhouse is littered with investors in biotechnology companies. It is a high-octane, high-risk sector that must be treated with extreme care.
However, Biocompatibles International is a different beast to the normal company in the sector. The company is profitable – a year earlier than expected – and management expects that the group will be consistently profitable from here on in.
It’s even paying a dividend, with the shares having a yield of 2.3pc. This is not spectacular in the context of income shares, but for a biotechnology group it is highly unusual.
Biocompatibles has developed some clever beads that can be used to treat cancer.
The “drug-eluting bead technology” can be implanted in the body to block blood supply to areas of disease and they can be used to deliver drugs to a specific area of the body.
The beads were designed to address toxicity of chemotherapy. Because the drugs are delivered very close to a tumour, side-effects are less likely. They also have a delayed release over 14 days to manage the dosage. The beads are currently used in the treatment of primary liver cancer in more than 40 countries.
Biocompatibles is looking to expand the range of treatments in which the beads can be used to include strokes and cardiac diseases and secondary liver cancer. Bead revenues rose 38pc to £9.1m over the six months to June 30. Next year, the beads are also expected to go on sale in China, which could prove to be a significant market for the group.
The company’s interim results showed a move to profit and good sales growth. Total revenues rose 22pc to £17m and the company swung to a pre-tax profit of £1.14m from a pre-tax loss of £857,000 in the first half of last year.
Management also said that it expected “sustainable profitability” and in June increased its revenues guidance for the full year to between £31m and £34m from £28m to £32m. The company expects its year-end cash position to be £26m, down from £33.4m at the interim stage, and to make an after-tax profit of £1.5m. The current market capitalisation is £106m, so one-third of the group’s market value is actually underpinned by cash.
The company is also developing a type-2 diabetes treatment with AstraZeneca that could lead to a €25m (£21m) windfall in 2012. The treatment is currently going through trials and a report from the programme is expected in 2011. If positive, AstraZeneca is expected to exercise its option-to-license in 2012.
The company’s BrachySciences division develops delivery systems containing radioactive seeds used for the treatment of early-stage prostate cancer.
This market remains tough, but it is a solid business for the long term.
The company has also been developing its product as a cosmetic dermal filler. Basically, the beads can be injected into deep wrinkles in the face for a smoother appearance, although there have been adverse reactions in a small number of patients so shipments have been suspended. However, some analysts believe the product could be back on the market before the end of the year.
The shares are trading on a December 2010 earnings multiple of a staggering 58.6 times but, based on current forecasts, this falls to 32 next year and 19 in 2012. The company has an exciting pipeline of products and a small investment in Biocompatibles is suitable for the more speculative part of your portfolio.