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GUIDED THERAPEUTICS Message Board

  • mavricko mavricko Dec 18, 2009 4:35 PM Flag

    GTPH The Investment Thesis

    As a favor I began diligence on the company and have found some of the insight on this message board to be informative. In an effort to elicit additional information the following are my observations (based on my experience as a device executive with FDA and Wall Street background) not a recommendation. I am hopeful that this dialogue will provide additional information to help reach a conclusion.
    GTPH appears to be a remanent of a company known as SpectRx in early 2007. SpectRx apparently was using similar core technology (light and spectroscopy) to measure blood glucose levels but did not survive. It appears that remaining SpectRx employees started GTPH. The legacy of SpectRx is most likely a burden on GTPH-legacy shareholders, debt financing, public shell, shares outstanding and other unknowns.

    Technology aside I am currently focused on the ability of the company to sustain operations.

    Concerns center on the ability to finance the company. A review of the past couple of years of SEC filings does not indicate the company has been successful in attracting additional capital from the equity markets. A series of debt financings seem to be the only source of capital (one of the debt transactions 2007 places a lien on all company assets and the most latest carry a 17% interest rate).

    The development and market introduction of a medical device (diagnostic) is a time consuming and expensive proposition. The grants recently received are spread over a few years and do not provide the necessary capital to sustain the company. See the recent 10Q. The Konica agreement is too small as well (and the company may have given up significant future value for that Konica agreement).

    The company announced in December of 2008 the submission of the pre clinical module to the FDA (the first of 3) and indicated the remaining 2 modules would follow in early 2009.
    There has been no announcement of that submission thus one must assume they have not been submitted. The FDA will have 180 days to review the submission after it is received and without fail will take the full 180 days to respond. If there are additional questions from the agency the company must provide the information and the clocks start over (most likely 30 day cycles).
    So it appears that the earliest approval would not occur until July 2010 if docs. filed by Jan. 1, 2010 or late Q3 if submitted later. At the current 'burn rate' found in the last 10Q ($2.384M/9 months=$260K/month) the company will need almost $2M to operate, not including product manufacturing and necessary infrastructure to introduce the device to the market. A CE mark would allow for European sales but reimbursement in Europe is tough and a small percent of what the US market could bring. The company would need to have the funds necessary to manufacture the products and some infrastructure in place in Europe-technical support and training at the minimum. Seems that in order to sustain operations the company must secure a collaboration which invests or raise equity capital. Why are none of the companies in the female health sector stepping up if this technology is as promising as presented?

    Issues related to additional financing include:

    Pink Sheet stock-professional investors cannot invest in this type of stock.
    No float (thus no liquidity)
    Highly volatile (small number of shares traded yield large up and downs)
    Number of shares out (might require reverse split to reach acceptable level)
    Valuation of a financing
    Significant existing debt ($12.5M)
    Lein on primary assets

    What is the revenue model? When does the company become cash flow positive and how much money is needed to get to CFP? Docs are not spending on new equipment. Might have to provide the equipment at cost level to get disposable revenue.
    Where is the break even point and when could an investor expect to see profitability?
    Additional questions later:

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    • There are substantive, large-scale clinical trials conducted both by the company and the NIH (and published) that not only show sensitivity and selectivity of LiteTouch, but clear superiority to PAP, which is a rather tarnished "gold standard." Go to their website and you will be directed to the relevant publications.

    • I noticed a mention of a shareholder meeting at GTHP in 1/15/10. The slide (or correction) of GTHP may be related to the massive dilution coming when the debt to stock is approved as mentioned in the proxy. Will go from approx. 15M share to over 80M shares out. Massive dilution will equal much lower share price.
      I may be wrong but fundamentals will drive the price of this stock (and every stock) much more than hype of technology.
      Does anyone know if the last 2 modules have been submitted to FDA. The 180 day clock for review does not start until received by the FDA. Can the company finance its business while it waits for the next several months? More dilution coming with financing if they can raise any dollars. The management team needs to communicate a plan for financing. The grants and KM will not finance the company to market release.
      Watch for newer technologies in this space presenting at JP Morgan this week as well.

    • I appreciate your additional information. I too am encouraged by the technology potential. My experience with scientist managers in this type of company is less than encouraging. The largest life science investment conference will be the JP Morgan next week in SFO. A seasoned business team would have a presentation slot and send the scientists to Orlando for the MD conf. The ability of scientists in small companies to understand the banking world is not impressive. The street is littered with promising technology that failed to survive the business environment. The team at GTPH is to be congratulated for being the last man standing after the SpectRx flame out and a few of the directors seem to keep them going but without banking involvement the stock will continue to trade at small volumes with high volatility (like the last few days). A business team is needed and the company needs to communicate.

    • Mavrico, first I must say that you raise the proper questions regarding an investment in Guided Therapeutics. I've been invested in this company since their beginning (previously named Spectrx) in the later 1990's and I've researched the company, technology, people, and the competitive market ongoing since then. I enjoy doing the research.

      That said, I have an opinion, albeit a biased one, to your excellent question regarding their future financing. If you read the preliminary proxy statement (SEC Schedule 14A filed 12/22/09) and examine the Pro Forma balance sheet presented in the filing, you'll see that the post converted numbers show a positive owner's equity of 22 million (approx 26 million in short term assets versus 4 million in short term liabilities). This assumes the 2004 and 2007 noteholders convert to common and warrants and they exercise those warrants.

      Why would they convert and exercise their 65 cent warrants? Well, I'm still learning as I go, and if you read and interpret the above SEC filing I believe the company can legally disclose non public information to those warrant holders. So, I feel, with the necessary information disclosed to those holders (device clinical performance, marketing plan, etc) it would be a no brainer for the former note holders (now common and warrant holders) to purchase shares at the extremely discounted fixed price of 65 cents versus today's price of over 1.00 and future price appreciation based on their belief that future good news will occur. These holders are similar to you and I, in that they are risk takers in new and disruptive technologies with the expectation of a larger reward for being in very early before the technology has gained acceptance. Inherent in being an early investor, there is still plenty of risk that the technology will gain acceptance. I will say based on the number of groups working a point of care, biophotonic test for cervical cancer, that this technology is desperately needed. The test is especially needed in developing countries where the lab infrastructure, like in the U.S. doesn't exist (for PAP / HPV testing). A "see and treat" methodology is important in that you probably will only see that patient once in the poorer settings.

      So, to sum it up, I believe the necessary product launch capital will come from the long term risk takers. I think they will be provided with the necessary information to make their final investment to insure that this technology finds its way into the marketplace. Hopefully, they will be handsomely rewarded for their risk taking, and so will the early investors like us, assuming the technology is what I think it is.

      One more thing, there is nothing wrong with "scientists" running a company. Bill Gates was a science nerd and he did just fine. Based on my long term research, I feel the core group that has been developing the cervical cancer product for approximately ten years is extremely talented and ethical. They have parlayed their IP from both diabetes endeavors and their previously successful biophotonic Billichek (non-invasive biophotonic infant jaundice dectection) sold in 2003 to Respironics for approx 10 million. This one of only a small number of biophotonic, FDA PMA approved, medical devices on the market today. The technology is patent protected, just search see the Guided Therapeutics website and get the patent numbers.

      There is still a ton of uncertainty and risk here, as the company has not stated the final performance data for the pivotal PMA trial. It appears the company is going to be presenting the trial data at the important March 2010 ASCCP meeting. This is a group of influential OB-GYN physicians that recommends the protocol on how OB-GYN's treat patients. Given their intent to present the data at the meeting, I'm going to assume the data is on the Light Touch is positive. This is an educated guess, so we shall see.

    • This is helpful. My concern is that the company has not been successful in raising money. The grant and the KM agreement are not material to the amounts needed to manufacture and release a medical device for commercial use. The debt is large and growing. The submission to the FDA once sent in has a 6 month review cycle-if no issues by FDA-can they survive?
      Time will tell. Good luck in the interim.

    • thanks for your input. Hopefully the company will issue the necessary information in Q1 of 2010! I suppose only time will tell if I should have sold at $1.70 and ran with my profits as opposed to holding out for a bigger gain later on.

    • Mavricko have you decided to invest in GTHP?

      • 1 Reply to allenjt01
      • Maverick

        I really appreciate your input. There are not many that have done that kind of analysis on these boards.
        It is wise to look beyond the technology before investing too many dollars in any company. If they cannot get it off the ground or get a large partner to step up to the plate, then they may have something with great potential but the investor never makes any money.
        I bought 5,000 shares at .60 and sold 4,500 shares at 1.60. I was pretty sure it went up way too fast and keep checking back from time to time to see if and when I should buy back in based on the technology.
        After reading your analysis, I will keep my 500 shares as a reminder to keep checking back but will not be buying anymore for a while.
        I hope they make it...even if it means I miss the boat.

    • that is all very true and I suppose the risk with investing in Pink Sheet stocks...always the potential for a crash and burn! Let's just hope that we don't see that with this company. They have come so far since Spectrx, it would be nice to see this company a success and all of us investors get a nice return

 
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