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“Why Do I Believe This $1.55 Medical Technology Stock Will Break $20?”

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That’s the headline of a very brief teaser that’s been circulating from Andy Obermueller, one of the StreetAuthority newsletter editors — he started out with the Government-Driven Investing newsletter about a year ago, a letter that brought us plenty of interesting teasers, and also apparently edits Fast-Track Millionaire, a new service that they’re launching soon to focus on “innovative technologies and ‘game-changing’ trends.”

And in order to get folks excited about this new service, they’re having a special “free webcast event” next week, on June 15 — an event at which Obermueller will apparently talk about four of his favorite high-octane stocks. I have no idea how much information they’ll actually give away for free (assuming you consider an investment of your time to listen, and your information on a registration form, is “free”), but I do know that today is not June 15 … and I want to know the stocks he’s thinking about now.

Unfortunately, the very short ad only teases one of his investment ideas — but still, one is better than nothing, right? I don’t know if his idea will be a great one, but he did tease at least one great performer in the past (Dyadic International, the fungus company — he teased this as the “next Budweiser or next Exxon” last July and it’s up from about 40 cents to $2+) … they haven’t all been winners, other picks of his that we’ve sniffed out have been the ethanol play Verenium (just about flat), and desalination plant part-maker Energy Recovery (down substantially — so of course, this is the one that I happen to own shares of).

But still … the clues are out, and your friendly neighborhood Gumshoe can’t help it, I want to follow the clues to the end of the rainbow. So what’s the tease?

“How would you like to make some serious money while helping 50,000 people beat a killer disease?

“I’ve discovered a company that is about to take a huge step forward against America’s #2 cause of cancer death — colon cancer — while reaping a windfall of profits in the process. Early investors who get in on this opportunity could be making money hand-over-fist.

“Colon cancer is serious matter. About 50,000 people die from it each year. There is a test for it, but it is so unpleasant that only half the people who should get tested actually do.

“Thanks to this company, there is now a more pleasant alternative: a virtual colonoscopy. This machine scans your colon from the outside. It’s fast, accurate and pain-free. This company is on the verge of getting FDA approval for their virtual colonoscopy tool and I see this as an opportunity that is about to pop. ”

So … not a lot of clues, right? Virtual colonoscopy, priced around $1.55, “on the verge” of getting FDA approval. Throw that data into the mighty, mighty Thinkolator and we find that this must be:

iCAD, Inc. (ICAD — click here for the free instant analysis of ICAD from Marketclub, one of my advertising partners)

This is indeed a computerized imagine company that works on cancer detection, so far it looks like their virtual scans are primarily used for mammographies, for which their system has been approved for about eight years. They don’t actually make the devices, as far as I can tell — they’re not building and selling the x-ray machines, MRIs or other tools, they apparently improve those tools with advanced image processing software and “workflow solutions.”

And yes, they have been awaiting the approval of their VeraLook system from the FDA, a system that is indeed already being used in Europe. Here’s how they sell it on the website:

“VeraLook* from iCAD uses sophisticated image processing software to automatically identify polyps in CTC images. Working in conjunction with state-of-the art hardware and image visualization software from partners that include Viatronix, Tera Recon and Vital Images, our solution highlights polyp locations to the interpreting physician. iCAD’s VeraLook can:

* Identify colon polyps to aid in the reading process
* Integrate with specialized CTC reading environments
* Improve accuracy, productivity and workflow
* Streamline the reading process and improve consistency”

And to be clear, you CAN get a virtual colonoscopy in the US today, you just can’t get one that uses iCAD’s image processing software. The medical community seems to be somewhat split on virtual colonoscopies, with the gastroenterologists generally favoring the actual colonoscopy and some public health folks and other specialists pushing for virtural colonoscopies. I haven’t seen anyone who argues that the virtual colonoscopy does a better job, and of course since it’s virtual you can’t snip off a polyp for testing along the way, but there are certainly compelling arguments that people are avoiding potentially live-saving colonoscopies because they’re too squeamish to accept an rectal probe and go through the prep work for a colonoscopy. I had a “real” colonoscopy last year, and my doctor urged me not to settle for the “virtual” since it wouldn’t give as definitive an answer and “if we find anything, we’ll have to go in anyway.” (It was perfectly fine, by the way — drinking the prep stuff the night before was unpleasant, but the procedure itself was a much-needed nap … as one whose father passed away from colon cancer at an early age, I can’t urge you strongly enough to get screened somehow).

So … there is an FDA decision pending, and one would think that they’d have to decide something soon — by all accounts they’re way past the “average” timeline for approval of medical devices, though they can sometimes take years — the FDA says they try to respond in 90 days, they’re swamped and many investors use a mental six month timeline for medical devices, but it’s been over a year now (this is all very different and usually less intensive than FDA drug reviews, which can often take far longer — medical device apply for a “510(k)” marketing approval, and iCAD submitted their application in late May of 2009.

Binary events, as FDA responses tend to be, attract traders who appreciate that news should move the stock, even if they’re not sure which direction it will move … and this is no different. If you want some opinion, here’s a bullish case for iCAD predicated on the approval coming soon and US sales starting by later this year, but do be careful, there’s nothing “magical” about the one year timeframe from the first application, and the company was reportedly optimistic that they’d have a response months ago.

This is a little different than a stock for a little biotech with one drug that awaits approval, though — the company is not worth zero without the VeraLook approval for the US, they’ve been around for years and may not be all that far from profitability with their current products. Of course, it would help if they could get some revenue growth, as of the last quarter their sales have been going down fairly sharply, which is never great news. Still, if you believe that the VeraLook system in the US would be a big hit with radiologists in improving virtual colonoscopies, there may be some room for hope if the FDA approval comes — this is really a software company, so they have truly massive gross margins (they don’t have to “make” anything), which means that a significant boost in sales could go to the bottom line very, very quickly. They also have 36 cents per share in cash and no debt, and $27 million in sales over the last year … so they’re worth something, though I’m hard pressed to say whether it’s one dollar or twenty without knowing a lot more about the competitive landscape in their image processing business.

That said, clearly the stock is reacting to some degree to the possibility of FDA approval — the first estimates of possible FDA response were late last year, and the stock ran up above $2 into September, October and November before tailing off when no response came. This is a tiny company, the share price has recently been around $1.55 and is currently at about $1.40, which gives them a market cap of just about $65 million. It would not be at all surprising to see the shares move significantly just based on this note to the mighty hordes of Stock Gumshoe readers, and I’d not be shocked to see it take a jump on Obermueller’s attention, too, assuming that I’m right about him picking this for the seminar that will launch his new newsletter. And, of course, attention can be fleeting — so without actual company or FDA news, any spike caused by this new attention could easily erode quickly.

So what do you think? Interested in a little software provider to the cancer imaging market? Think iCAD will be headed to $20 as Obermueller seems to believe? Prefer your colonoscopy to be virtual or up-close and personal? Let us know with a comment below.

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15 Responses to “Why Do I Believe This $1.55 Medical Technology Stock Will Break $20?”

  1. I am a student investor and I jumped on this, looks pretty solid and since it looks like a software maker rather than a new drug maker. Possible chance of returns look high. Fingers crossed

  2. Where I can see this technology coming into play would be in countries where very few have access to more than rudimentary health care or in countries where health care is nationally administrated with very tight rules regarding treatment. The rationalization would be that they could detect most colonic cancers for the least cost – - if a few cancers got by without detection that might have been found in a real colonoscopy, it would be excusable their minds because on a holistic basis as the availability of a virtual colonoscopy would raise the sum of cancers detected across the whole population and conserve fiscal resources for use in health care aimed at other maladies.

  3. I'm sold on both the technology and the potential FDA approval, not to mention avoiding invasive procedures whenever possible. $20/sh sounds good but I'll settle for $5/sh.

    All this talk about colonoscopies makes me want to run away fast and eat more turmeric.

  4. As a physician, I can tell you that gastroenterologists will always promote colonoscopies as the best screening tool since they are the ones perfoming them. There are questions currently in the medical literature as to how many cancers are missed by colonoscopies. I think patients would consider a virual screening quicker than an actual colonoscopy for screening as, even today, many choose to start with a simple and cheap stool test.Enter text right here!

  5. I'm wondering if initial cancer detection is better with the virtual colonoscopy? Maybe Docw60 could comment? My father in law has stage 4 colon cancer which was never detected by traditional colonoscopies. Would it have been detected by the virtual scan?

  6. There is perhaps a better alternative not depending on radiation type tests. It is a blood test named CD 24. It has some good reviews. An Israel company has developed this. I did not research more into if it's a publically traded company. This would be more acceptable to a larger group of people as colonoscopies.

  7. I dont know what to think about the stock, but I do think that your commentary and analysis is Great….as it usually is.
    Keep up the good work.

  8. I also bought shares in Energy Recovery, Inc. (ERII), one of Andy’s previously hyped stock picks. I think that I paid around $6, and now it’s around $3, so I’m not too happy with him at the moment. However, I still like the stock. I just wish that I had purchased at a better price.

    ICAD reminds me of Electo-Optical Sensors (MELA), which does something similar for skin cancer. That stock was also hyped aggressively (not by Andy Obermueller as far as I know), but at least it’s been trading in a relatively flat range lately instead of free-falling like ERII.

  9. Well, Obermueller’s webcast is tomorrow and there isn’t any company news today, but the stock is spiking up this morning anyway, up about 12% and getting near those April highs.

  10. I have e had a couple of "traditional" colonoscopies now and can highly recommend them. My only recollection was–what a beautiful sleep I had–all too short–cup of coffe and a sandwich–then home –a nice afternoons work.
    Great for your health and peace of mind-my dad had 4 polyps nipped in the bud in the last 20 years of his long and healthy (cancer free) life.
    Get checked now! Down with colon cancer! Up with the rectal probe!!!

  11. This one is a good candidate for a short term trade. Watch the charts carefully and dump it within a few days of any FDA report, positive or negative. Traders buy the rumor and sell the facts. Once the news hits, it's old news two days later.
    If it does get a run up by Obermuller, sell 1/2 if it hits a double from your entry point. The rest you can hold for any FDA news.
    Don't be greedy…take your profits off the table and have some money for the next trade!

  12. Thank you sir, Greedy is the key word over here. For a small investor like me, Icad has grown handsomely so far. I think I will follow what you said and dump it when any news hits

  13. I did see the webcast, and, yes, he gave ICAD very strong support. He's expecting great things of this stock, no doubt about it.

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