The diagnostic company Venaxis (NADSAQ: APPY), formerly known as AspenBio Pharma, saw declines of 9.56% by the closing bell following news that the company has fulfilled requirements for "CE Marking," which allows the company to market its rapid blood-based appendicitis test APPY1 in Europe. Venaxis estimates that it can target about 10 million emergency room patients that are brought in for abdominal pain in the US alone.
The most recent development paves the way for a market launch in Q1 2013 in the largest EU markets, which could provide revenue to offset the company's quarterly cash-burn rate of $2.5 million. Although a drop seems paradoxical following this positive development, keep in mind that investors have not been very confident in APPY recently, and a large number of them may be looking for a reason to sell after the stock's rally that accompanied the rebranding of AspenBio Pharma into Venaxis Inc.
Venaxis also saw some insider buying in 2012 although the actual sizes of the transactions were not very large, and shouldn't entice anyone to jump into the stock on an "insider buy strategy" alone. The most recent buy was by Donald Hurd, who accumulated 15,000 shares of APPY at $1.99 on September 21, 2012.
There is also lingering resentment towards the company for the huge share dilutions and reverse stock splits throughout the last few years. These essentially shaved off chunks of shareholder wealth for little to no benefit, since APPY1 is still not cleared by the FDA. The most recent dilutions were performed in November 2012, when the company offered 1,476,000 shares at $2.10.
Mitigating the negative effects of share dilution is the market capitalization of Venaxis, which is about $19 million. This somewhat "makes up for the fact" that the company only has 1 product with a questionable history to bring to market.
In conclusion, although APPY1 could have potential in averting expensive and potentially harmful (to children) CT scans through additional screening, I think that the company will have serious trouble operating in the diagnostics market without a partnership with a larger company or an outright acquisition. Venaxis, with an estimated $12 million in cash at this point, is simply too small. Investors should keep this in the back of their minds as the company prepares to market the test in Europe.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.