For months investors had speculated upon a key catalyst for Implant Sciences (IMSC.PK) that could potentially launch the company into the mainstream of homeland defense and global security, but a notable update from the company on Tuesday helped turn that speculation into a swift dose of reality. It had been previously known that the Implant Sciences Quantum Sniffer (QS) B220 benchtop explosive trace detection (ETD) device was being tested by the Transportation Security Laboratory (NYSE:TSL), the testing body of the Transportation Security Administration (TSA), as part of an ongoing process to gain "approval" by the TSA for use in the arena of homeland defense in the United States.
Earlier this week I incorrectly noted that the date of August 27th had been "long advertised" by the company as the expected decision date by the TSA, but the truth is actually that the late summer time frame is the more accurate representation of this statement and the exact date of 27 August was merely speculation on the part of various sources on the Internet, based mainly on filings and routine TSA standard operating procedures.
Implant, however, provided an accurate representation of current expectations via a Tuesday afternoon press release that stated the company received notice last week that the QS-B220 Explosives and Narcotics Trace Detector had "successfully completed the certification readiness testing" with the TSL and that the device was heading into the final stages of approval by "undergoing the final independent validation testing for TSA qualification for air cargo screening."
That last statement in itself could be very telling as the one date that is a certainty is the December 3rd mandate by the TSA that all inbound-US air cargo on passenger airliners will be screened for explosive traces. Given that President and CEO, Glenn D. Bolduc, noted in the Tuesday release that "we remain confident in our system's performance and are hopeful that we will have good news to report to our shareholders by the end of our fiscal first quarter (ended September 30, 2012)," the B220 could receive the necessary approvals in plenty of time to help the TSA achieve its December mandate. Because the device is being streamlined and tested in the final phases specifically for air cargo, indications are that the company has specifically communicated its intentions to the TSA to apply for contracts and/or lobby for sales specifically related to this cargo screening mandate.
The next few weeks, as also noted by CEO Bolduc, will be a quiet period for the company as the approval and validation process concludes, but it is crunch time now for the company and its investors as a potential TSA approval would have similar implications for Implant Sciences as an FDA approval for a small biotech or pharmaceutical company. Knowing the size and scope of similar government security contracts, which recently have been valued at as much as half a billion dollars, and predicting the drastic growth in airport and airline security over the next few years, it is fairly easy to speculate that IMSC's current market cap could multiply significantly, should this approval come through.
Investing solely on catalysts could sometimes prove risky, as shares in companies not receiving expected approval often rapidly decline, but the news that the device has made it to the final phases of approval are a worthy validation of its success thus far and increase the possibilities, in my opinion, that a full approval could take place. Investors may be starting to take notice, too, as IMSC shares quickly rebounded on Wednesday following a Tuesday slide before the news hit the wires.
In terms of preparation for this key catalyst, Implant has compiled a solid management and advisory team full of officials already linked to government agencies that would likely play significant roles in the process of Implant landing the necessary cargo screening contracts that would make it a relevant player in the field of homeland defense. Some of its new team also defected from competing firms and were quickly enthralled with the potential of Implant's Sniffers in the ETD arena. Darryl Jones, for example, previously served at Morpho Detection and GE Security (NYSE:GE), but currently acts as Implant's VP of sales and marketing.
Implant's foundation for growth and success is currently well set, but the main catalyst missing at this point is this key approval by the TSA that would validate the company and its products to investors - and to potential customers. With this approval, Implant could move to the mainstream of government contracting and start chipping away at achieving the growth long envisioned by enthusiastic followers of the company. Another factor to consider is that many investors - both small and large - pay little attention to pink sheet stocks. Should this approval come through, the next logical step would be to add as much validation to the company as its product would have received, and that would most likely mean a move to a larger and more-established trading board in order to attract the investor base that successful companies need and desire for long term stability. Keep in mind, however, that is pure speculation on my part.
I also believe that Implant is going to be heavily watched by much larger players in the defense contracting sector as a potential buyout play, should the company land the approval and also look like contracts are coming its way as a result.
Given the trading action already seen this week and the ensuing "quiet period," expect to see high fluctuations in the IMSC share price between now and the end of September. As always, there's nothing wrong with trading a handful of 'trading shares,' in my opinion, to bank at least some profits before a key catalyst plays out. There's no guarantees that a catalyst will turn out for the positive and the name of the game is to protect profits as much as possible. A modest trade here and there along the way can have one on 'house money' or more by the time the big news hits.
For the next few weeks, at least, this is a company to keep a heavy eye on.
Disclosure: I am long IMSC.PK. 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.