Email : info@otcjournal.com
URL : http://www.otcjournal.com
To
OTC Journal Members:
History never looks like history
when you are living through it. It always looks confusing and messy, and
it always feels uncomfortable.
John W. Gardner from No Easy
Victories |
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Diomed (AMEX:
DIO)- Now Is the Time To Be Aggressive |
|
Those of you who believe history
repeats itself should be enthusiastic about Diomed by the end of
today's edition. The editors of the OTC Journal believe this there
is strong evidence to suggest this company has a blockbuster clinical solution,
and the stock is poised for a move to the upside. If you have any risk
capital set aside for a special situation, you should own some of this
stock at today's levels.
Different markets favor different
trading styles. In the last bull market fortunes were made by momentum
investors. Once a stock moved higher, it kept moving higher, and you could
still make money chasing stocks up the charts.
Today's market favors a different
style. The NASDAQ's large cap technology companies are making new lows
everyday. Only a few select stocks make new highs and continue higher.
Astute investors can identify low risk entry points, filter out the noise
around them, and take positions with minimal exposure.
We demonstrated the power of this
philosophy in our April
20th edition on XML Global. The stock has risen 42% over
a mere eight trading days. It's still very speculative, but the
market provided a very low risk entry point.
We believe those same conditions
exist today with Diomed. Here's some evidence to consider:
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Understanding
EVLT (EndoVenous Laser Treatment)- What It Could Mean For the Company and
Investors |
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Diomed's immediate future
is tied to the roll out of EVLT, the revolutionary new clinical
solution recently approved by the FDA for the treatment of Varicose
Veins.
50% of women and 35% of men over
the age of 50 are plagued by varicose veins in their legs. They are painful
and ugly. Until EVLT's recent approval by the FDA, the alternatives
for treating varicose veins were as follows:
-
Ligation and Stripping: A surgical
procedure requiring general anesthesia where the vein is stripped out or
tied off. This is the most widely used treatment. The leg is bandaged and
bruised, and recovery times can be 4 to 8 weeks.
-
Sclerotherapy: A chemical is
injected into the vein causing it to be inflamed and close up. Can be temporary
and is ineffective about 40% of the time.
-
VNUS Closure®: Similar to
EVLT
as a probe is inserted in the vein. The probe is heated by a radio frequency
generator. The heat is supposed to seal the vein. It takes twice as long
and costs twice as much as EVLT with a much lower success rate.
There is additional risk associated with the heat characteristic of the
treatment.
The EVLT treatment is clearly
superior to the alternatives listed above. In an outpatient procedure taking
about 45 minutes, a strand of fiber optic is threaded into the vein. Laser
light is pulsed in, and over 30 days the vein simply dies and is absorbed
into the blood stream. A band aid is placed over the incision, and an elastic
sock may be worn up to a week. The procedure is effective over 95% of the
time.
EVLT received European Approval
last Fall, and FDA Approval this past January. The company has embarked
on a worldwide sales and education effort for physicians and treatment
centers who treat varicose veins.
The company was able to achieve $7.7
million in revenues last year. The company has not publicly released
any formal projections, but we believe they are on track to achieve $14
to $20 million this year.
According to the company's recent
10K filing, there are approximately 1 million stripping procedures performed
annually on a world wide basis.
If their far superior, more
effective, and less invasive EVLT procedure can attain 10% market share
of stripping procedures, this would equate to about $50 million in annual
sales between lasers and the disposable fiber. Gross margins on the sale
of the laser runs about 50%, and the disposable fiber is about 65%. This
would give the company nearly $30 million in gross profits.
We believe this would equate to a
$10
to $15 stock (100% to 300% above today's levels.) We will be carefully
monitoring any public disclosure concerning the
EVLT roll out. As
more evidence builds concerning their progress, the OTC Journal will
bring it to you. Currently, no other company has filed for an FDA Approval
for a similar process, giving Diomed a significant head start should
any competition appear on the horizon.
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Consider
the Case of Merit Medical Systems (NASDAQ: MMSI) |
|
If you think no one has made money
in the market over the last year, take a look at the chart of Merit
Medical Systems. One year ago this stock was trading in the $4.50 range,
just as Diomed is today. Had you invested in Merit before
they were profitable and no one knew about them, you would have made 300%
to 400% on your money over the past year in a horrendous market.
The company manufactures disposable
medical products used primarily in the treatment of heart disease. They
focus their energies on the 510K FDA Approval process for their products.
The application process does not require new clinical trials, as the products
are generally approved already in other applications. This is similar to
the way Diomed obtained its FDA Approval for EVLT.
We believe history could repeat itself
using this example. Diomed's development over the coming year could
easily mirror the progress of Merit Medical. Merit, after
several years of 510K FDA Approvals and setting up a distribution network,
turned profitable. Sales were only up 14% from 2000 to 2001, but net profits
went from $828,000 to $6.7 million.
If Diomed can convert 10%
of the annual stripping procedures to EVLT, $50 million in
sales would easily equate to strong bottom line profits and a stock chart
mirroring Merit Medical one to two years later.
The chart also tells us that once
the stock of Merit Medical began to move, it was a smooth ride for
investors who accumulated the stock in the $4 to $5 range. The stock ran
from $6 to $16 in two months.
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Diomed
(AMEX: DIO)- The Stock Could Be Poised to Move Higher |
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The chart shows the high of $9 Diomed
made on March 11th shortly after coming public through a reverse merger.
There was unprecedented early interest in the stock, mostly focused on
the potential for EVLT. Over $4 million worth of Diomed was
changing hands daily.
The stock has now made a good double
bottom at about $4, and rebounded to trade very quietly at about $4.50.
The NASDAQ has been pounded down under 1700, and many biotechs have been
clobbered in the last two weeks.
In the case of Diomed, the
volume has completely dried up, suggesting that sellers are no where to
be found. The yellow line indicates support level, suggesting today's level
is a low risk entry point.
Short term upside brings us somewhere
into the mid range of the blue lines, or about $6.50 per share.
Simple common sense tells us that in this market, anybody who wanted to
sell at these levels would have done so already. There may be sellers at
higher levels, but today's entry level is low risk in the short term.
Investors are carefully watching
the company, waiting for signs that EVLT is gaining market acceptance.
As the company sells more laser systems to treatment facilities (they run
about $30,000), sales of disposables will provide strong bottom line growth
for years (a razor/razor blade business). The company is focusing its initial
sales efforts of high volume facilities where as many as 6 or 7 doctors
could be using the same laser. Recent announcements of laser sales to Massachusetts
General and the Mayo Clinic in Florida represent facilities
where the disposable sales could be more than the original laser sale over
the first year.
Diomed should be accumulated
between $4.50 and $5 right now with your risk capital. As with Merit
Medical, when the rest of the market realizes the value, you could
be computing your profits. Our price target for 2002 continues to be $10.
We will bring you any breaking news.
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