5 Emerging Healthcare Stock Picks for 2008

The following are my top 5 emerging healthcare stock picks for 2008, based on expected positive catalysts, current valuations, and market caps of less than $500 million at the time of publication. Links to my full stock research reports and other useful links for these stocks can be found here; also check out my previously published Seeking Alpha articles on these companies.

EXACT Sciences (EXAS): My top pick for 2008 with exponential upside potential based upon expected American Cancer Society colorectal cancer guidelines inclusion for its stool DNA-based screening test, FDA approval for PreGen-Plus, and NCD approval for Medicare reimbursement of PreGen-Plus with all three catalysts likely to occur during 1H08.

Cytori Therapeutics (CYTX): On the verge of commercialization for its adipose-derived stem/regenerative cell therapy and banking applications in Europe & Japan, respectively, in early 2008. Also, continued progress on FDA approval on a device-based, 510(k) filing strategy in the USA for the individual components of its Celution System.

OraSure (OSUR): Working on approval (2H08) for an over-the-counter, rapid (20-minute) diagnostic test for HIV/AIDS (OraQuick HIV OTC) using non-invasive oral fluid samples. Also working with Schering (SGP) on a similar rapid, oral fluid test for hepatitis C (OraQuick HCV) designed for use by healthcare professionals with a FDA filing expected during early 2008. The Company is also working on an oral fluid substance abuse testing for laboratory system use.

Rochester Medical (ROCM): Expected cash award/settlement from Covidien (COV) during 1H08 based on previous legal settlements surrounding unfair urinary catheter marketing practices. The Company should also benefit from increased sales and use of its anti-infective catheter, Release-NF, as hospitals focus on preventing catheter-related infections due to legislative and Medicare reimbursement initiatives.

SuperGen (SUPG): Key survival data for Dacogen will be reported during 1H08, which will also support the filing/approval process for European partner Johnson & Johnson (JNJ). The US partner for Dacogen, MGI Pharma (MOGN), was recently acquired by Japan-based Eisai who expects peak US sales for Dacogen of $500 million from 2007 expected domestic sales of over $115 million. SuperGen also has an early stage cancer drug pipeline, a rapid discovery technology platform, and a solid balance sheet.

Disclosure: Author holds positions in the above-mentioned securities

Comments

[granger:]

ROCM - thanks for the update. I have been accumulating the last few months on weakness. About as boring a company, with a growing product line you can get, my kind of company.

2007 Dec 24 08:32 AM

[jimmy Turano:]

Mike Havrilla.
Twice in one week you've come up with very interesting Biotech Plays.
I applauded you the other day however an-chore is in order!
May you enjoy and have a 'MERRY CHRISTMAS' and most import of all
a 'HEALTHY NEW YEAR'.
P.S. PROSPEROUS TOO!

2007 Dec 24 01:05 PM

[Mike Havrilla:]

Best Wishes for a Merry Christmas & Prosperous New Year!

Also check out my investor survey at

mikehav.com/Ysurvey/su...

Please follow the link above to participate in an investor survey --> What is your top pick (stock name & ticker) among emerging healthcare companies for 2008? All stocks must have a market cap under $500 million, a share price over 50 cents and be listed on OTCBB, Nasdaq, AMEX, or NYSE to be eligible. Final results will be posted on my blog in two weeks on Sunday 1/6/08. Check my blog at mikehav.com/blog.html for results and updates on the survey.

2007 Dec 24 01:57 PM

[Phil Anthropy:]

I am interested in how OSUR was recommended as a pick, when there are several significant concerns that affect the company. Although this must be verified and is not to be taken as gospel, I understand that a supplier of one of their key component substances has stopped manufacturing that product, and that the company is looking for another supplier, although they may have found one by now. Their lawsuit about possible infringement or breach of contract with respect to their freeze off wart product doesn't seem to be moving very fast, and their bottom line has suffered in this sales area. Their insurance-based testing has not done well. Their principal hopes are a) expansion of government-funded HIV testing using their oral method; b) possible FDA approval of over the counter status for their oral HIV test. Even if they win in both these areas, there are no barriers to entry, as far as I know, for competitors offering similar tests. The Hep C and illegal drug tests do have upside potential, but both can be done as part of normal blood screening, and there does not appear to be the draw for these that an oral HIV test has. The FDA clinical procedures that go into application for the over-the-counter status are expensive, and take a signficant chunk of the company's assets to fund. There is promise in overseas use of their products, but I haven't seen the data on how expansion is going (new countries, expansion in existing countries, etc.). All in all, OSUR is a stock that, in my view, should be regarded as speculative. If over the counter status is approved, the stock could double overnight, but if not, then it may just be in for a long, slow ride downward. I think the fact that a large partner company could ignore contractual agreements with impunity and market a competing wart freeze product indicates to me that OSUR doesn't have the resources to protect its turf adequately, so even if it does get over the counter status for its oral HIV test, I don't know if it could stop another company from just selling the same product. These kinds of lawsuits take years to win, and OSUR doesn't have deep pockets. Disclosure: I haven't owned OSUR for several months. I have been in and out of it for several years in trades of relatively short duration. Nothing in the above should be taken as statements of fact, accusation or criticism against any entity.

2007 Dec 25 12:37 AM

[Mike Havrilla:]

All of my picks should be regarded as speculative, as they are micro/small-cap stocks from the healthcare sector with market caps below $500 million. OSUR is included because it could have an OTC version of its oral HIV test on the market bythis time next year, in addition to the oral HCV test for use by HC professionals. These are all high-risk, high-reward stocks.

2007 Dec 25 09:12 AM

[User 137067:]

Companies named in this article seem to have a lead on the global market for hiv testing. I would like you to comment on the possible competition. slimconomy.blogspot.co...

2008 Jan 07 04:58 PM

[cookies4bkfst:]

What do you think of Rochester Medical after hearing/reading the results of their Q1 2008 and the online conference?

2008 Feb 06 05:35 AM

[getsmart:]

Regarding ROCM, I was disappointed to hear that the lawsuit with Tyco had been delayed. The company has great products and state laws requiring disclosure of infection rates, and Medicare rule changes in Oct 08 that will disallow reimbursement for infections caused by catheters, will only increase demand. They continue to expand their sales force and the lawsuit settlements they have already won have opened up new channels to sell their products. With such a small market cap, $37M in cash, and a potential multi-million settlement from Tyco in the months ahead, I have to believe they will be acquired by Bard, Tyco or someone else. Too many good fundamentals from my perspective to hold this stock down for too long.

2008 Feb 06 05:40 PM