Verisante Technology: Time To Make MoneyLaser focus on commercialisation
Verisante Technology (OTC:) is focused on effective commercialisation of its laser Raman spectroscopy (LRS) technology, initially through Aura, a skin cancer diagnostic probe with global regulatory approvals. Fast, accurate and versatile, Aura could succeed where others have struggled. Potential de novo 510(k) FDA clearance for Aura is a key near-term catalyst. Core also applies LRS to aid the diagnosis of internal cancers, particularly lung cancer, which offers longer-term potential. Our fair value for Verisante is C$45m (C$0.55/share), but a c C$5m financing requirement is an overhang.
Fast and accurate
Aura is a rapid, easy-to-use, non-invasive Raman spectrometer that can distinguish between benign and malignant skin lesions in one second, with decent accuracy (sensitivity at 90-95% = specificity of 66-52%). Data from a key validation study (1,000 skin lesions over nine years) indicate Aura is highly complementary to existing diagnostic techniques, still largely based on visual assessment (followed by biopsy of suspicious lesions) by a dermatologist. This can be highly variable depending on the clinician’s experience and the patient’s age and melanoma history.
Specific value
Aura’s ability to confirm benign lesions (ie with higher specificity than competing products) suggests particular value in reducing unnecessary biopsies, which can leave scarring and cost >C$80 each time (excluding pathology testing). Biopsy ratios (negative:positive biopsies) can range from 58:1 to 21:1 by visual assessment, yet with Aura the ratio was as low as 1:1. Aura can also distinguish between certain types of pigmented lesions that other probes/scans cannot.
Time to make money
Having used distributors in Canada and Europe (with modest revenues), Verisante is taking over direct commercialisation of Aura. This provides control, but requires investment and the next two years are crucial in generating revenues from Aura and Core. FDA clearance for Aura and regulatory approvals for Core (a commercial prototype is now available) are key to achieving this.
Valuation: C$45m or C$0.55 per share
Our fair value for Verisante is C$45m, or C$0.55 per share, based on a 10-year sum-of-the-parts DCF. This is based on modest assumptions for Aura uptake (5-10%), so upside would come from greater penetration rates. With estimated cash of C$0.2m at 31 March 2014, the financing requirement is an overhang, but we estimate C$5m could transform Verisante’s prospects.
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