nice very nice
To value Nuo Therapeutics, we are doing a simple "sum-of-parts" valuation for the two drivers of the top-line: Aurix sales and Angel royalties. We believe Aurix is a $50+ million product for Nuo. We believe Angel is a $75 million product for Arthrex, Inc., of which Nuo gets low-teens royalty. We apply no value for ongoing clinical programs with ALD-301 in peripheral arterial disease or ALD-351 in glioblastoma. However, just for kicks we will remind investors that data from Duke University on ALD-351 will likely be presented late 2015. Data from the PACE study, which is fully funded by the NHLBI-NIH, should be available mid-2016.
The wound care market is $3.4 billion in sales, with a dramatic shift towards cheaper, easier to use, more effective products expected in 2015 thanks to a monumental CMS decision in November 2013. Aurix is a highly effective product with favorable economics to both payers and providers. The label includes approval for use in all three major wound categories, providing a distinct competitive advantage over completing products looking to crack private formularies and gain use in VA hospitals and long-term acute care facilities. The three CED programs that Nuo plans to enroll in 2015 should generate over a million in sales alone. Assuming modest growth in the base business, Aurix sales should eclipse $5 million in 2016. Industry analysis of previous wound care products suggest that with 20 reps, Aurix could do $15 million in revenues in 2017. Based on these forecasts, our NPV analysis pegs the valuation of Aurix at $0.65 per share.
Arthrex Inc. should be able to turn Angel into a $50+ million product by 2018. They will accomplish this through a combination of dramatically increasing the sale and promotional effort, raising the price of the device, and coupling Angel with other Arthrex products and developing custom kits for things like bone marrow aspiration. Nuo receives a low-teen royalty on sales of all Angel and Angel-coupled products at Arthrex, plus a small mark-up on finished goods transfer (netting around 15% all-in economics). With $50-75 million in peak sales and 15% economics, applying the same NPV analysis done with Aurix, Angel is worth $0.15-0.25 per share.
Summing these parts two parts together and we believe Nuo shares are fairly-valued right now at a market $0.80 to $0.90 per share. We fully understand the stock is in "show-me" mode and both our target price and the stock price have gone nothing but down since we started recommending the name in April 2014. It's clearly been ugly. That being said, we believe the story remains intact and are eagerly awaiting some progress on the top-line. We are sticking to our 'Buy' rating because we believe fundamentals bottomed and are set to dramatically improve over the next 6 to 12 months.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
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Read more: Pacific Ethanol Q4 Earnings Beat (NASDAQ: PEIX) - 24/7 Wall St. http://247wallst.com/energy-business/2015/03/05/is-pacific-ethanol-finally-safe/#ixzz3Ti6DOgTk
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