With varied opinions on where the overall markets could be headed in early 2014, I have reduced my small capitalization biotech exposure to investments with near-term catalysts. While these investments are not without risk, I believe immediate downside is less likely in these types of companies than their less-imminent catalyst development-phase counterparts. Venaxis (NASDAQ:APPY) is one of my favorite investment candidates going into the new year with multiple catalysts expected between now and the end of Q1 2014. With a current market capitalization of just under $45 million, Venaxis common shares closed Friday at $2.09, mid-range of its $1.15-$2.99 per share 52-week range. Shares have been trading with a bullish trend over the last month with a volume of just under 370,000 per day. I believe the company is a bit overlooked by many but could have a dramatic increase in investor interest in the coming days and weeks due to the catalysts described below.
On November 7th, Venaxis announced that it was nearing completion of a pivotal Phase III trial evaluating its APPY1 in vitro rapid, multiple biomarker-based assay for identifying patients who are at low risk for appendicitis. The test is intended for use in emergency room situations to minimize the need for high radiation computed tomography (CT) scans or abdominal ultrasounds (US). While a positive test from the APPY1 would likely lead to such diagnostic imaging for final determination or before surgery, the test does reduce the need for such radiation exposure and diagnostic evaluations if the APPY1 yields a negative result for appendicitis. With about 250,000 cases in the U.S. reported annually, the company is focusing on a large indication target for its first U.S. marketed product. However, it is not this number that should garner potential investor interest. According to the company's website, about 22 million people visited emergency rooms in 2010 complaining of abdominal pain in Europe and the U.S. Depending on the actual percentage of these that were suspected of possible appendicitis, the sales potential could be substantial if clinical data and marketing campaigns are successful. The press release noted, "The Company remains on track to complete patient enrollment for its pivotal clinical study of the APPY1 Test in the United States at or around the end of the year," giving indication that the enrollment completion announcement is now an imminent event as we approach the New Year's holiday. While enrollment may have slowed a bit during the holiday season, I would still anticipate the announcement sometime this week - a significant catalyst for the company.
In the same press release and confirmed in its Q3 financials also released on November 7th, Venaxis noted that topline data will be released in Q1. Construed as a pivotal trial, this data will be statistically powered for regulatory filing to the FDA. The company has already had regulatory success via marketing approval by CE marking in Europe on January 7th, 2013. Venaxis initially targeted key territories, including the UK, Italy, France, Germany and Benelux countries and added additional markets as the year progressed. Initial marketing partnerships included Netherlands-based EMELCA Bioscience as announced on February 7th and MOSS S.p.A. of Italy and SAVAS Medikal Inc. of Turkey, for their respective countries per a March 18th press release. With an apparently-slow launch in the EU, sales for APPY1 were only $56,000 for the third quarter. The release of 2013 financials should be very telling as investors (hopefully) begin seeing signs of sales ramping up as marketing campaigns continue and likely additional partners and countries come into play. 2012 financials were released on March of 2013, so investors could likely expect 2013 financials to be released sometime in March of 2014, another significant catalyst as the company would have just under a full year of marketing behind it since EU marketing approval.
Leading into its final anticipated significant events in the near-future, Venaxis intends to apply for regulatory approval to the FDA via 510(k) (medical device) application late in Q1 2014 as well (per the Q3, 2013 filing). This anticipated application and subsequent wait for regulatory decision should keep shareholder interest strong with varying degrees of interest likely based on the strength of the Phase III data. Also adding to or detracting from investor interest will be the strength of sales in the EU in Q4 and additional marketing partnerships for the region. Solid feedback from physicians along with growing sales would help to give evidence of need and legitimacy in the U.S. while poor feedback and paltry sales could cause investors to doubt actual sales potential in the U.S. even if regulatory approval is garnered here.
Venaxis is still basically a development-stage company until sales ramp up in the EU, regulatory approval is given and the company begins marketing in the U.S. It is for this reason that the market capitalization is in the current $45 million valuation. The company is still operating predominantly via shareholder funding until sales increase significantly or until more substantial partnerships are garnered. As of September 30, 2013, Venaxis had cash and equivalents along with short-term investments of $17.3 million. Even with costs associated with the 2000 patient Phase III trial diminishing as the trial winds down, regulatory filing fees for the U.S. and sales/marketing fees for the EU will necessitate additional financing in the near future. I anticipate this financing will occur in early Q1 2014. If under favorable terms pertaining to pricing and warrants, I would expect a solid year ahead for Venaxis shareholders as there are multiple catalysts throughout the year for the company. While overall market conditions will also come into play for investor returns over the course of the year, I believe the company has enough catalysts to keep investor interest strong -- at least relative to its other development-phase, small capitalization counterparts.
As with any such investment, investors should take into consideration the downside risks associated with these smaller medical device companies. While regulatory approval has been garnered in the EU, this is certainly no guarantee of success in the U.S. The Phase III data remain blinded, with the only input thus far from a Data and Safety Monitoring Board (DSB), which last reported in September that it recommended "continuation of the pivotal clinical trial, based upon completion of the second and final futility analysis included in the clinical trial design". Poor pivotal data or FDA rejection would both be catastrophic for share price despite the EU marketing already underway. Interested investors should perform additional research via the company's regulatory filings, press releases and most recent investor presentation as well as other sources before opening a position in Venaxis' common shares. 2014 will likely be a transformative year for the company. Investors should be aware that the transformation could come via positive or negative developments. Invest wisely while considering all possibilities.
Disclosure: I am long APPY. 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.