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Edison Investment Research discusses Biocompatibles valuation

Last week, Surrey-based medical technology company Biocompatibles (AIM: BII) released their FY09 results, which demonstrated a substantial improvement in its sales performance delivering revenue growth of 50%, ahead of the company’s expectations. Today, a note by Edison Investment Research said the company has high potential and it is undervalued.

Specifically, the research-house drew attention to the company’s CM3 diabetes product, being jointly developed with AstraZeneca (LSE: AZN), which is now in Phase I and according to Edison adds 120p to the Biocompatibles’ indicative value.

“This project is given no long-term value as yet by investors. However, as this is a partnered Phase I/II project, it would normally feature highly in the valuation of a listed biopharmaceutical company. Potentially, this is a huge source of additional value”, Edison stated.

In terms of up coming news-flow, the note pointed to the interim data from the PARAGON II trial, expected in June 2010, which Edison believes will provide interesting insight by comparing the histological examination with clinical responses examined in surgically removed tumours.

Edison estimated that Biocompatibles current enterprise value (NYSE:EV) is £54m and said that the EV/sales ratio of 2.0x looks unadventurous, given a yield of 2.9%, net £30.5m cash and marketed products. “Our indicative value is 360p, with a further 120p of value due to CM3 that is currently unrecognised by the market”, Edison noted.

Disclosure: The author holds no positions in the company