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Healing Nerve Damage With Cadavers

Tedra DeSue

NEW YORK ( TheStreet) -- When it comes to the biotech space, many investors may be overwhelmed by the sheer number of companies clamoring to prove that their developments are the next great thing. Unfortunately, many of these companies are startups that have not been truly vetted in terms of receiving approval from the Federal Drug Administration or even passing crucial clinical trials.

Still, there are companies that have reached several critical milestones with their cutting edge products. This is particularly the case when it comes to the subset area of the space called regenerative medicine. I dug further into the space and found a couple of companies that are making their marks with allograft products. Allograft is tissue that is taken from a human donor's body (cadaver) and placed into live person; or patient's body.

While large cap companies are making considerable strides in the area, they are joined by smaller cap players who are charging forward with their own products.

One of the small cap companies making a name for itself in regenerative medicine is MiMedx . It processes, markets and distributes amniotic tissue for use in several surgery procedures. Through a program called "Give the Gift of Healing," MiMedx receives human amniotic membrane tissue that would otherwise be discarded.

Surgeries performed include those in the areas of ophthalmology, spine, chronic wounds, dental, orthopedic surgery, sports medicine, and urology. The company reports that more than 50,000 of those amniotic tissue grafts were delivered in 2012 alone.

MiMedx's patented products are possible due to its PURION Process. It is the foundation of the MiMedx AmnioFix and EpiFix products. Advantages of using the products in surgeries include reduced inflammation, reduced scar tissue formation and enhanced soft tissue healing. MiMedx touts its PURION Process as being able to preserve human amniotic membrane tissue by dehydrating the tissues. The procedure can reduce the financial burden on the healthcare system, as well as increase the patient's quality of life.

Another player in the regenerative nerve space, and an immediate competitor to MiMedx that is making a name for itself is AxoGen . It's managed to carve out market share in regenerative medicine with three products that repair peripheral nerve damage. One of its most notable products is the Avance Nerve Graft, which AxoGen touts as being the only commercially available nerve allograft that can bridge nerve gaps that result from a nerve being severed. The product works by eliminating the need for a second surgery to harvest the patient's own nerve tissue to use to repair the damaged nerve. AxoGen's other products include the AxoGuard Nerve Connector and the AxoGuard Nerve Protector.

AxoGen's products is that they come from cadavers. Furthermore, they are not considered as medical devices, so the company escapes the 2.3% medical device tax that is part of Obamacare. (Note:legislation to do away with the tax is pending.)

AxoGen's products are considered biologics, which are not subject to the medical device tax. This is important because many of the companies that are subject to the tax are finding it difficult to pay the tax and commit the funds needed to advance their R&D efforts.

AxoGen reports the results for its fiscal 2012 second quarter in early May, and I expect that we will see several improvements to its income statement. This includes improvements in its gross margin, which was 5.7% in 2012. It is estimated to grow to 10.3% this year and to 18.7% by next year. One troubling fundamental is the company's earnings per share. They lost 85 cents per share last year, and are not expected to improve until next year when they are estimated to be 53 cents per share.

Integra Life Sciences and CryoLife are among the larger cap, publicly-traded companies that are making meaningful contributions to the field of regenerative medicine. However, the smaller cap companies like MiMedx and AxoGen are making strides that are equally impressive.

This year, AxoGen revenue grew by 60% and MiMedx almost tripled its revenue. The regenerative medicine space is estimated to be a multi-billion market and companies with unique products are well-positioned in this space.

Keep in mind that biotech stocks can offer high risk/rewards, so they should be reserved for those with the stomachs to tolerate the risks. I gleaned several rules of thumbs that may guide your decision from Stock Rock and Roll.

Whether you are in the market to invest in a large cap company in this space, or any of the smaller ones, there are opportunities that can afford you the chance to get into this sector while they are rising in value.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

  • Does the company have solid financial resources in place, as well as a skilled medical team in place?
  • Can the company show that that it has at least two years of operating reserves of cash.
  • How successful has its product pipelines been in providing a steady stream of revenue?
  • How much debt does the company have?

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