Little California medical company Thermogenesis (NASDAQ:KOOL) has caught our attention. While we usually steer clear of smaller unproven stocks, we do love companies on the verge of their first profit, which can mean great investment gains.
The last couple of years have positioned Thermogenesis to take advantage of the blood stem cell cryopreservation industry for many years to come. The company's flagship products are the BioArchive and the AutoXpress systems.
The BioArchive System is a liquid nitrogen based storage unit that is designed to cryopreseve umbilical cord blood. The AutoXpress System is a semi-automated instrument that can be utilized by cord blood banks for harvesting hematopoietic (blood related) stem cells, from the preserved blood.
These stem cells are capable of differentiating and maturing into the different cells of the immune system, which can theoretically be used in patients following chemotherapy.
The business of preserving a new born baby's blood has exploded in the last few years, and is expected to gain as parents become more aware of the potential health benefits. While some argue that the odds of needing the preserved stem cells in the future are remote and believe donating them to public banks is the moral choice, many parents choose to pay the hefty costs for many years as insurance against future potential maladies.
As the business grows, so does the competition. Cryopreservation banks are a dime a dozen, as many public, private, institutional, and hospital cord blood banks continue to emerge all around the world.
This is where Thermogenesis stand to profit. Instead of entering this overcrowded arena, it caters to the players. It provides the necessary tools to preserve and harvest the stem cells to the banks! The idea can be lucrative enough to catch the eye of the ever hungry healthcare unit of giant General Electric (NYSE:GE).
Last year, GE Healthcare entered into a global distribution agreement with Thermogenesis to market the AutoXpress and BioArchive systems! As soon as the agreement was announced, GE was already selling the AutoXpress system to cord blood banks, including the New York Blood Center.
GE was not Thermogenesis's first foray into sales and marketing. The company had already been distributing the BioArchive System globaly. In its fiscal 2006 report, it noted the sale of 135 units in over 29 nations.
The sale of the systems is not the major source of the potential profits -- it is the sale of the disposable instruments that cord blood banks using the systems must continue to buy. One sold BioArchive or AutoXpress system will bring Thermogenesis a lifetime of recurring sales. This is were the true revenue and earnings potential can be realized.
But the company is not relying on the stem cell business alone. It also boasts a long list of blood processing instruments and wound care treatments that can make any investor's mouth water. These include:
- Thrombin Processing Device [TPD]: a hand-held device capable of harvesting thrombin from a patient's own blood in the surgical room. Biomet (Pending:BMET) and Medtronic (NYSE:MDT) initiated distribution of the divice in Canada and Europe. Asahi Medical has filed for approval in Japan.
- Cryoseal Fibrin Sealant: company awaits an FDA decision on the marketing of this product in liver ressection surgeries. If approved, this would be the very first FDA cleared fibrin sealant produced from a patient's own blood for wound repair.
- Clotalyst: a custom thrombin processing device to be used exclusively with Biomet's Gravitational Platelet Separation System.
The most interesting observation regarding the above list is that all the events occurred or were initiated during the last fiscal year!
Now you see why we are excited about the near future of Thermogenesis. But it does not end there.
While the company had not made a profit yet, its last fiscal year results were impressive. Yearly revenues improved by 18% and net loss decreased by 33%. It is not expected that Thermogeneis will make a profit next year, but should show its first positive net earnings during fiscal year 2008.
As soon as the company comes close to that fateful day investors will be fighting for its stock.
The balance sheet is also favorable as the company holds cash and equivalents of $39 million and only $26 thousand in debt as last reported on Yahoo! Finance.
Also, company insiders bought $300,000 worth of company stock in May of 2006. Philip Coelho purchased 25,000 shares and Hubert E Huckel, MD purchased 50,000 shares at around $4.
As the stem cell preservation business expands, the marketing agreements with biotech and healthcare giants continue, and the road to profitability gets shorter Thermogenesis stands to become a highly respected medical equipment company.
The future looks bright for Thermogenesis. And at the current price of $3.86, one can get a better deal on the stock than what company insiders paid for it.
Disclosure: Author holds a long position in Thermogenesis stock.