Whitefish, MT / March 10, 2014 / The healthcare industry has been attracting record amounts of capital in 2014, driven by biotechnology and pharmaceutical companies bringing new products to market. In fact, more than half of all money flowing into U.S. sector-focused ETFs, or $4.06 billion through February 28th, was placed in healthcare ETFs, according to data compiled by Bloomberg.
Over the past 52 weeks, the iShares NASDAQ Biotechnology Index ETF (NASDAQ:IBB) has risen more than 67% and the SPDR S&P Pharmaceuticals ETF (NYSE:XPH) has risen nearly 60% compared to a 21.44% rise in the benchmark SPDR S&P 500 ETF (NYSE:SPY). The outperformance is likely to continue given the greater number of insured individuals under Obamacare and new innovations.
Investors looking for the best bargains in the space may want to take a look at micro- or small-cap stocks, however, given both the potential overvaluation of mid- and large-cap players and their increasing propensity to make acquisitions to grow. Micro- and small-cap stocks in the space tend to trade at discounts to the overall industry and could offer greater upside potential.
In this article, we'll take a look at OxySure Systems Inc. (OXYS), a micro-cap developer of innovative emergency oxygen solutions with its “oxygen from powder” technology. While companies like Oxygen Biotherapeutics Inc. (OXBT) are focused on clinical solutions, OxySure Systems has focused on the mass-market potential for emergency oxygen to become the next AED. As a result, investors may want to take a closer look at the stock.
Improving Financial Condition
OxySure Systems has made significant progress in growing its revenue, narrowing its net loss, and improving its balance sheet over the past few quarters.
The company reported Q3 2013 revenues that increased 428% to $545,820 due to an increase in U.S. product sales, licensing/service revenues, and products developed for the military as part of a teaming agreement. On the bottom-line, the firm reported a 38.25% drop in its net loss to just $82,613, signaling a move closer to a break-even point.
OxySure Systems' balance sheet also improved dramatically over the past couple quarters. In January 2014, the company announced that it closed on a $750,000 private placement with accredited institutional investors at above-market conversion prices. Shortly after, the firm indicated that it removed nearly $1 million in debt by converting it to restricted stock at above-market prices up to $1.50 per share.
It's worth noting that the government shutdown and lack of appropriations on the omnibus funding bill may impact Q4 2013 revenues, but the bill's ultimate approval on January 17, 2014 should help revenues recover quickly in Q2 2014. Looking forward, top-line gains continue to be on-track while balance sheet improvements have left the stock on solid footing.
Strong Operational Progress
OxySure Systems' management team has made exceptional progress over the past couple quarters, setting the stage for higher top-line revenue and significant upside potential.
On a product level, the company has expanded its emergency medical offerings in February 2013 with six additional AED brands in order to provide a more comprehensive product offering. And in July 2013, the firm released a double wall cabinet for an AED/OxySure combination set aimed at making it easier for customers to house both products on-location.
OxySure Systems has also been actively building its distribution network in the U.S. and abroad. In March 2013, the company signed an agreement with Aero Healthcare to distribute its products in Australia, New Zealand, and the U.K. while seeking a CE Mark expected later in 2014. Additional distribution agreements were signed in countries like Chile and Hong Kong.
Finally, on the R&D front, the company has been closely working with the U.S. military to create new and innovative products. For example, the military is testing an emergency escape breathing device ("EEBD") to provide oxygen for high-altitude jumps by Navy SEAL teams, and these devices may also have applications in commercial responder markets such as police, fire and SWAT. These types of projects certainly represent longer-term opportunities but should not be discounted entirely.
Blue-Sky Potential Ahead
OxySure Systems ultimately hopes that emergency oxygen reaches the same status as AEDs have across the U.S., but even now the stock appears to be trading at a steep discount.
Companies like Medtronic Inc. (MDT) make hundreds of millions per year selling AEDs that have been required in schools, government buildings, and other places across 50 states since 2001. Emergency oxygen could arguably make a larger impact than AEDs given that it can be used in a greater number of situations to provide life-saving benefits, from asthma attacks to strokes.
Currently, OxySure Systems trades with a market capitalization of under $20 million, which represents just a fraction of its potential. Analysts covering the stock agree with price targets ranging from $1.75 to $2.10 per share - significantly greater than the current $0.73 per share price. These price targets largely discount the blue-sky potential from legislation.
In the end, management's ability to execute on its financial and operational plans, the company's blue-sky potential to become the next AED, and the apparent discount according to analysts make the stock worth a second look for investors. With the biotech space trading sharply higher, the firm well positioned to capitalize on a huge market with a unique product.
For more information, see the following resources:
- Company Website - http://oxysure.com/
- Company Presentation - http://www.oxysure.com/aed/3q13_earnings_presentation/
- Recent SEC Filings - http://www.oxysure.com/aed/index.php/sec-filings
- OxySure Saves Baseball Player - http://www.youtube.com/watch?v=iSSlxngn7eg
- Kylee Shea Save on Matt Lauer - http://www.youtube.com/watch?v=qGaTFFuRpDQ
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