Lifecore Biomedical, BioMimetic Therapeutics: The Upside to Dental Care

The news of an impending root canal, cavity filling or crown replacement could be enough to put a damper on anyone’s day—unless you’re Lifecore Biomedical, Inc. (Nasdaq: LCBM) or BioMimetic Therapeutics, Inc. (Nasdaq: BMTI), two companies that are benefiting from increased spending on dental care.

The American Dental Association predicts that dental care spending will grow to $146.9 billion by 2014 from $84.1 billion in 2005. Demand is rising due to population growth, the aging of baby boomers and increased awareness of the benefits of preventive dentistry in combating disease.

The market for advanced dental technologies includes some 160,000 practicing dentists in the United States and at least 700,000 dentists worldwide. U.S. dentists perform over 200 million hard tissue dental procedures annually, including cavity preparation, inlays, crowns and root canals. In addition, some 1.2 million soft tissue procedures typically involving gum-line alteration or gum grafts are performed annually.

All good news for Lifecore Biomedical, which manufactures biomaterials and medical devices, and operates through its hyaluronan and dental divisions.

The hyaluronan division manufactures products containing hyaluronan, a naturally occurring polysaccharide distributed in the matrix of connective tissue. The Dental division develops and markets surgical and prosthetic devices for the restoration of missing dentition, including dental implants permanently implanted in the jaw for tooth replacement therapy and as long-term support for crowns, bridges and dentures. This division also markets bone regenerative products for repairing bone defects caused by periodontal disease and tooth loss.

Lifecore’s dental products are distributed through a direct sales force in the United States and internationally through distributors.

During the company’s first quarter ended Sept. 30, 2007, sales of its Prima Implant System were a primary growth driver, increasing 70% compared to the first quarter one year ago. Going forward, Lifecore plans to build on this product’s momentum by introducing its Prima Ceramic abutment system, which was recently cleared for U.S. marketing.

Lifecore’s overall sales rose 5% year-over-year in the first quarter of FY 2008 to $15.7 million from $15 million. dental division sales increased 6% year-over-year to $10.8 million from $10.2 million. Profit gains were impressive, with dental division operating income up 20% year-over-year to $614,000 from $510,000 and overall corporate net profits rising 11% year-over-year to $1.26 million, or $0.09 per share, from $1.14 million or $0.08 per share.

The company anticipates 10% to 13% sales growth in FY 2008 and annual sales in the $76.5 to $78.5 million range. Analysts look for this company to produce 26% growth next year and 13.5% average annual longer-term growth. Shares of Lifecore closed at $12.05 on Tuesday, while the stock has ranged between $10.32 and $20.14 over the last 52 weeks. My price target for Lifecore Biomedical is $18.

BioMimetic Therapeutics is also a prominent small-cap player in the dental area; the company develops and commercializes bio-active protein-device combination products for the treatment of bone diseases and injuries.

BioMimetic’s lead product, GEM 21S, is approved by the U.S. Food and Drug Administration as a grafting material for bone and periodontal regeneration. GEM 21S works by physically filling bone defects and providing a biocompatible scaffold that encourages new bone formation. The company advanced its GEM 21S product from inception to U.S. marketing in just 4 ½ years and is leveraging the data and experience it gained with GEM 21S to develop additional GEM products for the treatment of orthopedic fractures, ligament injuries and osteonecrosis of the jaw.

BioMimetic Therapeutics estimates that more than one million of the 3.3 million periodontal procedures performed annually in the United States would benefit from GEM 21S therapy.

The company plans to market GEM 21S worldwide through a partnership with Osteohealth Company, which is part of global health-care giant Dalichi-Sankyo, Inc. GEM 21S is already being marketed in the United States and Canada and is awaiting approval in the European Union.

During the nine months ended Sept. 30, 2007, BioMimetic’s revenues increased 14% year-over-year to $2.5 million from $2.2 million. Nine-month 2007 net losses totaled $17.7 million or $0.99 per share, up from $11.9 million or $1.34 per share one year ago as a result of increased research and development spending. Two GEM product candidates entered clinical studies in the June quarter and the company anticipates a $5 million milestone payment from its GEM 21S marketing partner during the December quarter.

The company is forecasting full-year 2007 revenues, excluding milestone and royalty payments, at approximately $5 million. Full-year net losses are estimated to range between $24 million and $28 million. At year-end 2007, the company expects to have cash of at least $64 million remaining, which it believes sufficient to fund its 2008 R&D and marketing initiatives. Analysts forecast this company will produce 30% annual growth over the next five years. Shares of BioMimetic (BMTI) closed at $10.99 on Tuesday. Over the last 52 weeks, the stock has ranged between $9.70 and $19.25. My price target for the small cap is $15.

Disclosure: none