Northland Securities cuts ECTE to perform from outperform
Where is the rating change? They maintain a $4 price target.
Subject: ECTE: Q1 In Line, ATM Agreement a New Overhang, ADA an Upcoming Catalyst, Maintain Estimates, Rating
Essentially in-line Q1 results, no change to estimates: Echo Therapeutics filed its 10-Q for Q1 2012, reporting a net loss of ($0.08) on revenue of $31,000 compared to our estimates for an ($0.08) net loss and $31,000 in revenue, and consensus of ($0.07) and $84,000. No change to our forward estimates, rating, or price target.
New financing agreement announced, could be overhang on stock: The Company entered into an At The Market (ATM) issuance sales agreement with an investment bank, which enables the company to issue and sell up to $20 million in common stock at the company's option. The sales agreement will terminate upon the earlier of the sale of all common stock subject to the sales agreement or termination of the sales agreement by the company or the bank. To date, no shares have been sold under the sales agreement. The agreement provides the company with financing flexibility as it continues to move its products through development. However, the ATM agreement vehicle resembles an equity line, and as such will be seen as an overhang on the stock by investors who are worried about possible dilution, which could serve to limit the near-term upside for the shares.
Upcoming catalysts: Completion of the last of three pre-IDE studies for the Symphony transdermal continuous glucose monitor sensor (tCGMS) is still expected in Q2 2012. After successfully testing the device in healthy volunteers and diabetics, the third study is evaluating Symphony in hospitalized critical care patients. Echo recently announced positive data from one of the two sites involved in this third study, showing that the Symphony achieved a mean absolute relative difference (MARD), or error rate of 12.3%. This error rate is consistent with the expected recommendation that accuracy for intermittent blood glucose measurements in critically ill patients should be less than 12.5% error, and compares favorably with the proposed 15% standard being proposed for whole blood glucose meters. When completed, this study could be a near-term catalyst that validates an important component in the company’s commercialization strategy. Assuming a successful completion to the pre-IDE studies and final agreement with the FDA on trial protocol, a 200-patient pivotal trial for Symphony could commence by mid-2012. Submission of a PMA Supplement could take place by the end of 2012.
Data from the first two arms of the pre-IDE study to be presented at ADA. Detailed data from the first two arms of the Symphony pre-IDE study of Type-1 and Type-2 diabetics.are scheduled to be presented at the annual meeting of the American Diabetes Association on Friday, June 8, followed by an investor meeting that evening.
Maintain rating, price target: We estimate the stock is worth approximately $4.00 per share based on our 2017 revenue estimate of $93 million discounted at 20%, which assumes the shares trade in line with the comp group median of 7.4x and that the company has approximately 80 million shares outstanding in 2017. We do not include revenue from a consumer product in our valuation estimates.
Bruce D. Jackson Senior Research Analyst Northland Capital Markets 612-851-4978 (direct) 651-315-2260 (cell) firstname.lastname@example.org