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  • Why Oculus Innovative Sciences (OCLS) Offers The Potential For Dramatic Returns In The Wound Care Market 0 comments
    May 23, 2013 1:07 PM | about stocks: OCLS

    Premise: Small undiscovered/ overlooked stocks in growing markets frequently provide investors with significant equity growth opportunities. Matching the right company, at the right price, to the right market is key to successful selection. I believe that OCLS has the perfect storm of just the right ingredients.

    Wound Care Market: Current research (http://www.kaloramainformation.com/) puts the wound care market at about $16 billion dollars, with projections to grow to $21 billion over the next several years. A very large market…especially if you are a small player trying to get a small piece of the pie.

    While there are large players in this market, such as Johnson & Johnson (NYSE:JNJ) , Smith & Nephew (NYSE:SNN), they don't address anything close to the full market opportunity. In fact, current treatments and technologies are being more closely examined in order to determine their true effectiveness. In short, questions about lack of effectiveness and significant costs are being raised. This of course creates potentially huge opportunities for new/emerging players. This is where Oculus Innovative Sciences (NASDAQ:OCLS) comes into play.

    Why Oculus:Oculus has been a healthcare company developing and marketing products based on their Microcyn technology for the wound care market. The simple explanation of their technology platform is that as a wound treatment technology, it helps treat a wide range of pathogens, including antibiotic-resistant strains of bacteria, viruses, fungi and spores (www.puracyn.com) . Unlike other products it does not harm healthy tissues and thus speeds healing. See http://oculusis.com/dialogue/?p=76 for additional information.

    The Microcyn technology platform has been broadened and packaged for use in a multitude of markets. The company represents that over 4 million treatments have been made with their products with no serious safety side effects. The company marches on with products for hospital acute care patients, home health/skilled nursing applications, dermatology, animal health care, and women's health. Oculus has a growing list of distribution partners that is giving it an amazing global reach for such a small company. My expectation is that this growing global distribution partnership strategy will dramatically accelerate sales over time. It's called leverage.

    Oculus has had a tumultuous past. While this article is not intended to rehash years of history, suffice it to say it has had its ups and downs. Putting the past behind us, looking squarely at what the company has with regards to products for specific markets, a growing list of regulatory approvals, an ever growing list of global distribution partners, and an aggressive path towards profitability, all add up to the potential for dramatic price appreciation in the stock

    OCLS is significantly undervalued as has been pointed out in other articles. With a current market cap of approximately $20 million as of this writing, it is grossly undervalued in my opinion. With a current stock price of about $4, there had been talk of a $20 stock price..or more. Very big price increases. These potential price increases are really not very dramatic when put in the context of market cap. A $20 per share price would put OCLS at about a $100 million market kcap. While beyond the scope of this article, if one looks at some comparable comps, revenue run rates, market opportunity, turning profitable, and ever increasing market opportunities , it's not hard to see the $100 million market cap opportunity.

    Like many significant opportunities, one man's over looked junk, is another man's gold. It appears that the trials and tribulations of a small company trying to exist, get on the map, take on global distribution, navigate dramatically fluctuating financial markets, the regulatory environment, and product development efforts have caused much turmoil over the years. The stock price and financial condition of the company have fluctuated dramatically. OCLS has left some wounded soldiers in its wake…this risk of business and war. Some of these folks (likely past shareholders, employees, etc) seem to surface with some strong aggression towards the company . And of course we have "market movers" that try to discredit low float stocks in order to take advantage of shorting the stock. All distractions in my opinion. Look at the company today and moving forward and make your own conclusions.

    Another issue that is worth mentioning is the recurrence of the comment "it's just diluted bleach" . Here is an interesting comment on the subject… http://oculusis.com/dialogue/?p=9 . In short, it's not just diluted bleach. I am not a chemist, so no technical comments from my end. If it is (which I doubt), it really makes no difference. The company has proven its ability to package, market, and distribute its products to a discerning consumer and medical community worldwide. Heck, go to Amazon and do a search on Microcyn . You will see a number of the company products..but most importantly, look at the reviews. It works, and users are happy with the product. If someone thinks its diluted bleach, and that's the argument why the company won't succeed..go pound salt. Go home, dilute some bleach, and start your own company. That line of logic leads us to say..hey soda is nothing more than sugar and water..yet it's a multi billion dollar industry. OCLS and Microcyn are established on the ground floor of a rapidly growing market. And as to comments of an overpaid CEO….perhaps, and perhaps not. Let's see what happens with the stock, sales, profits, and the Ruthigen IPO. I can assure you if all goes well, and we see the stock appreciation I believe we will see, no one will be complaining about the CEO's compensation.

    While human nature never changes (regrets, grudges, etc), what is clear is that the company for those that have hung tough or new investors buying in now, the future has never looked brighter. We are in a phase of significantly increasing sales, close to profitability, and an ever increasing product/regulatory landscape. Throw in the exploding cost of wound care, increased attention to players in the market, and you can clearly begin to see where OCLS is a diamond in the rough. In fact, my opinion is that the diamond in the rough story will be an old one sooner than most think. We are on the cusp of multiple game changing catalysts that are likely to propel the stock significantly higher. In my opinion, it is one of the most compelling microcap investments opportunities in the med tech/health care space.

    Bonus Time: Many of you have heard about the Ruthigen IPO. So this spinoff is not only of necessity, but also brilliant in my opinion. An IPO in the wound care market, targeting what could be an FDA approved "biotech pharm " treatment could propel both Ruthigen and OCLS into the big leagues. Quoted from Oculus published information:

    Ruthigen, Inc. is a wholly owned subsidiary of Oculus Innovative Sciences, Inc. . Ruthigen focuses on the development of RUT58-60, a drug candidate intended for accelerating patient discharge post-surgery. RUT58-60 is a new and unique chemical formulation containing twice the concentration of hypochlorous acid as compared to Oculus Innovative Sciences, Inc.'s proprietary Microcyn® Technology, along with magnesium and no sodium hypochlorite. It is specifically designed for internal use, targeting organ exposure.

    RUT58-60 has been formulated based on several clinical studies in international markets including a 2006 retrospective case-controlled study involving 40 post-surgical peritonitis patients. The 20 patients in the study group, who were treated with the preliminary RUT58-60 formulation and saline, were in the hospital on an average of 22.4 days following surgery, whereas the control group, which was treated with saline alone, demonstrated a longer hospital stay on average of 31.9 days. Both groups were treated with systemic antibiotics.

    So, assuming the plan is executed well, we end up with an approved drug in the exploding wound care market. Oculus transfers over operating expenses it has currently been absorbing, to the new Ruthigen entity. What does that mean ? Reduced operating expenses for OCLS, more profits, and likely more market opportunities for both companies. Oh…and did I forget to mention…OCLS will retain ownership ofa large percentage of Ruthigen. That makes you, an OCLS shareholder, a Ruthigen shareholder. When one looks at the possible IPO valuations that are likely to come to the Ruthigen IPO, you don't really need a calculator to figure out what it means to you. My math suggests likely $3 to $8 per share added to the OCLS price.

    Stock Price: Valuations and stock prices are very fickle. This is even more so with small cap low float stocks. Winds in either direction can move the stock. Looking below we can see that about April 1, John Ford published a well written article highlighting the opportunities for OCLS and the wound care market. The stock made a nice climb. Then on May 7th, a negatively biased article was written, and you can see the downward pressure on the stock. That's what happens to low float stocks.

    (click to enlarge)OCLS Price History

    Where is the right price for the stock ? I believe the stock should fairly be sitting at a market cap of 30 to 40 million as we speak today..perhaps even more. That suggests a stock price of $6 to $ 8. When earnings are released in early June, I believe the numbers and future guidance will help propel the stock closer to $10 per share. While the timing of the Ruthingen IPO is not known, we do know it is targeted for this year. Given the strength of the IPO market, the wound care market, and the opportunity for OCLS and Ruthigen, you can bet the pressure is on for "sooner as opposed to later" . So, it is possible that you could wake up tomorrow with an IPO announcement. This would add about $ 5 per share to the then current OCLS price, and you could be looking at a $15 to $20 stock in relatively short order if all goes well.

    Did you every mumble these words " I should have bought some of that stock when….." My opinion is that this is one of those stocks. Due your own due diligence and perhaps you will come to the same conclusion. I am long this stock and continue to buy on weakness/dips.

    Disclosure: I am long OCLS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Themes: long-ideas Stocks: OCLS
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