Just a few days after Given Imaging (GIVN) announced plans to seek a buyer in October 2012, the company allegedly entered into buyout talks with Japan's Fujinon, a division of Fujifilm. Israeli business newspaper Calcalist even suggested that the deal talks focused on a valuation of around $750 million (or $25 a share).
And then things got murky. It became increasingly unclear whether the rumored price was to be believed. And, if it was an accurate rumor, whether the price was enough to entice the company to sell itself. Regardless, management announced in January 2013 that Given Imaging had decided against a company sale for the time being. Shares collapsed and have been off of most investors' radars ever since.
Yet Given Imaging is about to move back into the spotlight, and a very timely trade is in the offing.
It's a Pill, It's a Camera... It's Both
Given Imaging revolutionized the field of gastroenterology by developing a pill-sized device that houses a sophisticated camera. Patients could swallow the pill, let it course through their digestive tracts, and simply excrete it a day later. Doctors loved the chance to get a glimpse of the digestive tract that had never before been possible.
Demand for the company's PillCam went through a solid growth phase, as sales grew from $65 million in 2004 to $178 million by 2011. But sales barely grew in 2012, giving the impression of a stalled business model.
Yet for the past few years, Given Imaging has been developing and testing a new, more advanced PillCam, known as COLON 2, which comes with a sophisticated wide-angle camera that is much more capable of identifying polyps in colons, especially when compared to traditional colonoscopies. Considering that it is recommended that all men over the age of 50 undergo regular colonoscopy exams, the market opportunity is quite significant.
Why should you care about COLON 2 now? Because next week company members will be in Orlando, Fla., at the annual Digestive Disease Week (DDW), presenting a series of medical research papers that highlight the new pill's efficacy. The meetings will be capped off on May 21, when Given Imaging will reveal clinical testing data for COLON 2 from a trial that included 884 patients over three years. After that meeting, the company will meet with Wall Street analysts to provide its expectations for the sales potential of this new PillCam.
There are two catalysts in place for this stock. First, when the company meets with the medical community and then Wall Street on Tuesday, it should create considerable buzz, and perhaps, rising analyst profit forecasts.
The second catalyst is eventual FDA approval for COLON 2. The company submitted its application in November 2012, and approval could come as soon as this summer.
My suggestion is that investors establish a position ahead of Tuesday's meetings in Orlando. If shares get a double-digit lift from the event, it's likely wise to book quick profits. If shares fail to appreciate, then you'll need to adjust your time horizons out a few months in anticipation of likely FDA approval for COLON 2 this summer. Suffice it to say, if shares fail to make a major move after each of these events, then it's wise to close out this position.
Downside support appears in the $13 to $14 range, as renewed merger and acquisition chatter would likely provide support at those levels.
Recommended Trade Setup:
-- Buy GIVN below $16.50
-- Set stop-loss at $14
-- Set initial price target at $22 for a potential 33% gain in four months