Q1 Publishing ResearchMay 5, 2011
Get in on this Rapidly Unfolding Innovation Now
By Andrew Mickey, Q1 Publishing
We’ve only had this feeling a few times before.
It’s the feeling we’re onto something big – real big – at a very early state.
The same feeling we had about fertilizer stocks in July 2006. The same feeling about the Nintendo Wii when it exploded in Japan and its US launch was still months away. Or when Intuitive Surgical’s robotic surgery technology was just making it into hospitals.
You know the feeling you’re sitting on your next five- or 10-bagger, you understand it, you know it’s big, and you’re just waiting for everyone else to figure it out.
Frankly, it’s a rare feeling. It’s even rarer in a market like this where everything seems priced for perfection.
It’s rare, but it’s not impossible. Right now, we’ve got that feeling one small and fast-growing company is about to change a lucrative medical field for the better. And do it soon.
But we’re not alone here. Some of the leading medical journals and magazines see the enormous potential we’ve spotted.
Biotechnology Focus magazine calls this development “ingenious.”
The BC Medical Journal says, “Preliminary clinical results have so far demonstrated 100% efficacy.”
Darrell Rigel, a professor of dermatology at NYU's Langone Medical Center, told MIT’s Technology Review journal there’s “a need” for innovations like this.
Despite the medical community’s excitement, it still hasn’t gone mainstream…yet.
Our window of opportunity to buy into Verisante Technology (TSX-V:VRS or OTCQX:VRSEF) will not be open forever.
Right now Verisante is a small $35 million company, just on the verge of leading medical technology revolution, has shown stellar preliminary clinical results, and based on market comparables is a ten-bagger-in-waiting.
In a few months, all that will be history and Verisante will be value much higher. Let’s start at the beginning.
The Next Big Med-Tech Winner
If you’re like me, you’ve learned (the hard and often expensive way) to become highly skeptical when it comes to new technologies.
They consistently over promise and under deliver.
Well, I think Verisante has under promised and is set to over deliver.
Verisante is aquickly emerging medical technology (med-tech) company which, despite its small size, is on the verge of doing something truly revolutionary.
The technology has been in development for 10 years. Its development has been led by some of the world’s leading cancer researchers. It has received funding from leading cancer research organizations including the BC Cancer Society.
And, although it’s technology has the potential to change almost every field of medicine, it’s initially focused on a subsector of the medical field that’s overdue for innovation.
Now with a recent $5 million capital infusion to take it to final commercialization, Verisante is poised to make it very big, very soon.
10 Years of Development About to Pay Off
Verisante is has entered the final approval stages for its proprietary cancer screening device.
On the surface, Verisante’s Aura device is really simple. It detects cancerous cells by an advanced laser scanning system. And it does it with an astonishing rate of accuracy.
Think of a price scanner at the grocery store. It scans a bar code and tells you the price. Verisante’s Aura concern detection device scans a skin lesion and tells you if it’s cancerous. (For a complete explanation of how it works, follow this link to a recent feature on Canada’s BTV)
Again, it really is a simple concept. But the science behind it is much more advanced than that.
Most importantly though, the Aura has shown the potential to revolutionize cancer detection and save a lot of lives and money in the process.
Verisante has targeted melanoma, one of the most feared and costly to treat cancers, for its initial launch.
Future Market Domination
The Aura device has shown remarkable accuracy and consistency in detecting melanoma at a very early stage (more details below).
Skin cancer is one of the most common forms of cancer. More than two million Americans are diagnosed with it each year. It will affect one in five US residents. And at least 40% of Americans can expect to get non-melanoma skin cancer before they turn 65.
Melanoma specifically one of the most deadly types of cancer. If detected in the Stage I it has an 85% survival rate. In Stage IV the survival rate falls to an ominous 15%.
Melanoma and skin cancer is costly too. It costs $1.5 billion a year to treat melanoma alone.
Despite the high costs of treatment and its deadly nature, there has been little advancement in detection.
For decades, dermatologists have relied on their eyes and patients to self-identify abnormal growth in moles and skin lesions. These crude methods successfully identify about one in three cases of melanoma.
Recently, however, the markets had high expectations that one of Verisante’s competitors made a major breakthrough in melanoma detection. And investors were willing to pay top dollar merely speculating the technology worked effectively and consistently enough for regulatory approval.
Why Verisante is a True 10-Bagger
Knowing differences between the Verisante’s andMELA Sciences (NASDAQ:MELA) – Verisante’s closes competitor - devices reveals the true opportunity here.
MELA has been one of the most closely watched med-tech device stocks over the last year.
MELA’s melanoma detection device, MelaFind, was in the final stages of regulatory approval heading into the end of 2010.
Investors were willing to risk getting in early because the upside potential was massive. If approved, MELA would be dominating a mult-billion dollar market virtually overnight.
MELA shares ran to more than $9 per share in anticipation of U.S. Food and Drug Administration (FDA) approval. At its peak, the total market value exceeded $200 million. Keep in mind, MelaFind is only aimed at melanoma and not the many other cancers Verisante’s Aura has the potential to be used to detect. And it still was worth $200 million.
Then last November the FDA rejected MELA’s device and its shares plummeted.
But here’s the thing, MELA’s device was rejected for a number of reasons that Verisante will not be affected by.
MELA was rejected because of its low degree of accuracy and large number of false positives.
In my opinion, MelaFind was basically not much more effective than what a dermatologist can determine just by looking at a suspicious mole.
The FDA requires a device to have a certain level of accuracy and consistency. MelaFind had neither.
Now MELA is going to need more studies and more capital to complete those studies. Yet it still has a market value almost three times higher than Verisante.
Key to Success: The Molecular Signature
The key difference between MELA’s device and Verisante’s is how they identify potentially cancerous cells.
MelaFind takes a picture of a mole or lesion. It then analyzes it against a database of images of confirmed melanoma cases. It uses a proprietary algorithm to compare shapes, sizes, and abnormalities of the lesions. This method didn’t produce the accuracy or consistency required by the FDA.
Verisante’s device works in a completely different way.
The Aura device analyzes what I call the “molecular signature” of the mole or lesion to determine whether it’s likely cancerous or not.
The Aura uses Raman spectroscopy to detect the potential cancer at the molecular level. The studies conducted on the Aura device confirm how effective this process is.
In a six-year clinical trial conducted at the University of British Columbia’s dermatology department and Vancouver General Hospital (which has 80,000 dermatoligical patients per year), the Aura device has detected melanoma with incredible accuracy and consistency.
Over a preliminary sample of 274 lesions, the Aura identified 45 melanoma occurrences. Thirty four of those occurrences identified by Aura were confirmed by a biopsy.
These preliminary results give melanoma a 100% accuracy rate and, as a testament to the reliability of the device, a 70% specificity.
These rates are critical part of the regulatory review process. The accuracy rate shows Aura works. The specificity rate shows Aura doesn’t give too many “false positive” diagnoses. After all, you can’t have a device that gives too many false positives. It would be worthless if it did.
This kind of accuracy and specificity is the critical difference for Verisante. And it shows how revolutionary this product is.
But it takes more than a better mousetrap to be successful. And Verisante has laid out a business model that has been exceptionally profitable for many of the leading companies in the world.
A Dermatologist’s Perspective
The most impressive part of Verisante is its business model for commercializing the Aura device.
Once the Aura is approved, Verisante has planned a way to generate a profit by both selling its Aura devices and still earning an ongoing stream of revenue.
Verisante is using the “razor and blade model.”
Do you think Gillette makes a lot of money selling a Mach 3 razor for $12? They do, but they make a lot more selling $4 razors month after month after month. Verisante is using the same strategy.
Let’s take it from a dermatologist’s perspective.
A skin doctor would be able to buy an Aura device and generate a lot of revenue from it. They would be able to charge anywhere from $100 to $500 for a cancer screening and do it for thousands of patients each year.
Many, I’m sure, would be able to pay at least $50,000 for a device that could generate between $100,000 to $1 million a year in revenue from it.
Verisante will likely be able to be able to build Aura devices for about $10,000. This will likely improve as demand increases and economies of scale are achieved, but let’s take the more conservative $10,000 estimate. Verisante would be able to sell the device for between $30,000 and $60,000 to dermatologists.
That’s a solid margin. The real money, however, comes from the continuous revenue it would receive. The “blades” part of the razor and blade model.
Each screening with the Aura device requiresa new tip. The tip includes a lens and other proprietary features to prevent misdiagnosis. Verisante sells the specialized tips required for each use. The tips would likely cost dermatologists $10 each and significantly less to produce.
Verisante would be generating between $20,000 and $50,000 in gross profit per sale of each device. Then it would generate anywhere from $10,000 to $100,000 in additional revenues from the specialized tips from each device owner per year, every year.
Multiply those numbers out over a few hundred dermatologists (although there are thousands around the world) and you get some staggering numbers.
It’s a massive opportunity which has the potential to make Verisante a $1 billion company as the Aura spreads across high-demand markets in Canada, Europe, and the United States.
On top of that, it’s important to keep in mind that’s just with melanoma. Verisante’s technology has been proven to successfully identify many different types of cancers. Early trials have shown its effectiveness in identifying lung, cervical, and colon cancer.
Melanoma is just where Verisante’s technology has had most of the research and testing geared towards. Once you add in potential opportunities in the other cancers, Verisante's potential is exponentially higher over the long run.
Nearing the Finish Line
Verisante seems to have it all. It’s better, cheaper, and potentially very profitable. But the key with any investment in medical technology is completing the regulatory approval processes.
Verisante is aiming at completing the regularity approval process in a faster, less-costly way.
First, most of the expensive and time-consuming research is already completed. The Aura device has been in development for about 10 years. And it already has one six-year study completed.
Now Verisante is in the final stages of approval with Canadian medical authorities. Final approval is expected to be made by the end of 2011.
After that, Verisante has already started the European approval process. It expects to the “CE Mark” (the symbol of European approval) to be granted as early as the end of 2011.
If and when this is approved, Verisante has instant access to markets in the European Union, South Africa, and Australia.
Finally, with European and Canadian approval in hand, its’ going to then move to the United States. It needs more studies for U.S. approval, but like many other drugs and medical devices, it’s a lot more likely to get approval in the United States after Canada and Europe give the official thumbs up.
A Big Winner in the Making
Verisante Technology (TSX-V:VRS or OTCQX:VRSEF) is in position to have an exciting few months ahead as the story unfolds and even more great years beyond that.
It has all the elements of a giant med-tech success story.
It has superior, proven technology.
It has years of costly and time-consuming research behind it.
It’s very near to final regulatory approval in Canada.
It has shown the potential to save a lot of lives too.
On top of all that, Verisante was recently able to attract an addition $5 million capital infusion in a market where med-tech and biotech aren’t getting very much venture capital.
Perhaps most importantly, Verisante has huge growth potential. At a mere $35 market cap, the upside is tremendous. Remember, its closest competitor, MELAScience, had a market value of about $200 million just in anticipation it would be successful. And after it got rejected by the FDA, it still has a $90 million market value.
That’s the kind of potential here where once the Aura is approved; Verisante is on its way to being worth $1 billion.
Head over to Verisante.com to see for yourself.
Good investing,
Andrew Mickey
Chief Investment Strategist, Q1 Publishing
Disclosure: The editor does not own shares and is not paid by any of the companies mentioned for distribution of this report. It is, however, an open recommendation in Q1 Publishing’s President’s List premium research service.
If you like ideas and research like this, the President’s List is a premium investment research focused on the maximum risk-reward opportunities available anywhere in the world. You can learn more about a no-risk trial offer here.
do your own due diligence
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do your own due diligence
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