Spinal cord and peripheral nerve injuries have long been among the most difficult to repair because of the lack of medical technology innovation available to treat them. However, many advances being made in stem cell research and the regenerative medicine space have positioned both small and large companies on the cutting edge of medical innovation.
As the markets for these smaller companies develop, larger, mega-cap medical technology companies have been turning their sights to companies that have innovative products in early developing markets. These companies have been actively searching for acquisition targets in the regenerative medicine space. The takeout multiple for regenerative medicine companies has been in the range of five to seven times revenues.
Highlighted in this piece are a few of the products that publicly-traded companies in this area are selling that make them attractive to investors who want to get in on this small, but growing market.
Although there are several companies in various stages of FDA approval, AxoGen (AXGN) is a unique player within its peer group as its innovative technology is commercially available. AxoGen is establishing its self as a formidable player in peripheral nerve repair and regeneration through the roll out of several proprietary Avance and AxoGuard products.
AxoGen gained worldwide exposure when the Avance Nerve Graft was noted in a study at The Buncke Clinic, where the company's nerve graft achieved efficacy levels that significantly exceeded the standard of care and existing nerve conduit products that are on the market today. The company reports that its products have been used in more than 7,000 implant procedures with no adverse reactions.
Noble Financial, which currently rates AxoGen shares a "Buy" with an $8 price target, specifically states that AxoGen's technology up-seats any procedure, technology or other nerve repair product suite outside of a direct nerve repair. At the time of this article AxoGen's shares were trading at $2.51.
AxoGen reported record first quarter revenues of $1.7 million, which even beat Wall Street estimates of $1.6 million. It will release its second quarter earnings on Aug. 14, after the closing bell and will host an earnings conference call on Aug. 15.
Another interesting idea in the regenerative space focuses on spinal cord injuries. InVivo Therapeutics (OTC:NVIV) is in the midst of getting its biocompatible polymer scaffolding devices into human trials to eventually be submitted for approval by the Food and Drug Administration.
The devices are ideal in treating people who are paralyzed. Through the use of polymers, InVivo hopes to treat people whose paralysis is caused by a traumatic spinal cord injury. Polymeric materials are increasingly being used for tissue engineering, regenerative, implants, stents and medical devices.
InVivo can be considered a long-term play. And while the company currently generates no revenue, Aegis Capital recently initiated coverage on the company with a $5 price target, which compares to $2.49 as of Aug. 8. When commercially available, the market opportunity for InVivo's product will be large. According to Aegis' analyst model, InVivo isn't expected to generate revenues until 2015 during which the company is expected to generate $53 million. Also noteworthy is the amount of cash InVivo has on hand, which totals $20 million. Aegis believes that should be sufficient to fund operations well into 2014.
Investors may also consider biopharmaceutical company Shire PLC (OTC:SHPGF). The company's lead regenerative medicine product aids people who have foot ulcers caused by diabetes. Called, DERMAGRAFT, the product is a bio-engineered skin substitute used to treat the condition. Another product is called VASCUGEL . The company notes that this product is being developed to address improvement of arteriovenous access for patients on hemodialysis.
Also, Shire acquired Advance Biohealing last year in another sign that it is expanding its presence in the regenerative medicine space.
One of the largest and more recognizable companies operating in the regenerative medicine space is Baxter International (BAX). During the first quarter of 2012, it completed its acquisition of Synovis Life Technologies Inc. for $325 million to expand its portfolio of "regenerative medicine and biosurgery franchises." Synovis became widely known for its medical devices that are used in surgeries to repair soft tissue, such as patching the brain's lining.
A company that is noticeably not as active in the space is Johnson & Johnson (JNJ). I suspect that it will go the way of Baxter and acquire companies with established regenerative medicine products to add to its pipeline.
The regenerative medicine space offers significant opportunities in spine, peripheral nerve, wound healing/soft-tissue repair and bio-printing, to name a few. These markets, which are estimated to exceed several billions of dollars, provide considerable opportunity and upside potential for public companies operating in this space. While these companies face hurdles and barriers, ranging from FDA clearance to significant R&D and commercialization costs, investors who have the fortitude to weather the volatility can reap decent returns in this sector.