BST Trade Alert: November 26, 2013

| November 26, 2013

Latest Alert

November 26, 2013


Buy Venaxis (NASDAQ: APPY) up to $2.15 per share.

About the Company:

Venaxis is a Colorado-based biotech that was initially formed in 2000 to produce purified proteins for diagnostic applications.  Since then, the company’s mission has evolved into developing diagnostic products with high profit margin potential.

The company’s leading product candidate is a novel blood test designed to identify patients at low risk for acute appendicitis. 

Venaxis believes the test will help reduce the number of CT scans performed on patients, especially children, who enter emergency rooms with abdominal pain.  You see, CT scans are very expensive, and they subject patients to significant long-term health hazards associated with ionizing radiation.

By using the test, physicians will be able to identify patients with a low risk of acute appendicitis and avoid subjecting those patients to CT scans.

The most exciting part of the Venaxis story though is that the company has several important catalysts ahead. 

First off, the product is nearing the completion of a pivotal clinical trial in the US.  Top line results are expected in early 2014.  And the results are expected to support an FDA filing shortly thereafter.

What’s more, the product is already on its way to commercialization overseas.

Earlier this year, Venaxis obtained a CE mark for the product from the European Union. And the company commenced an initial launch there for market development purposes.

Last but not least, Venaxis is in solid financial shape.

The company ended the third quarter with approximately $17 million in cash and short-term investments.  This is more than enough money to see the product through completion of the pivotal study and submission to the FDA.

Let’s now take a closer look at the company’s leading product candidate…

About the Product:

Venaxis’ leading product candidate is a unique multi-biomarker diagnostic test called APPY1. As I mentioned earlier, the test is designed to identify patients at low risk for acute appendicitis.

How does it work?

The test consists of the company’s patented MRP 8/14 (also known as S100A8/A9 or calprotectin) and C-reactive protein (CRP), along with White Blood Cell count (WBC).

The scoring results of these individual components are analyzed using the company’s proprietary algorithm software embedded in the APPY reader to provide an APPY1 result.  These results are shown on the display screen and are also included on a patient print-out from the APPY reader.

The test is designed to be run in approximately 20 minutes by trained laboratory personnel.  The results are then reported back to the emergency room or urgent care physician to assist triaging the patient to a more conservative treatment route.

A negative APPY1 result can be used by physicians, as an adjunct to signs and symptoms, to allow for more conservative diagnostic and treatment planning.  As such, APPY1 should help physicians avoid subjecting patients at low risk for acute appendicitis to costly and potentially harmful imaging procedures.

Sounds great, but is the test accurate?

Results from a 2011 pilot study were presented at the Society for Academic Emergency Medicine national and regional meetings in 2012.  The data show that the test has a high sensitivity (96.5%) and high negative predictive value (NPV) (96.9%). In this way, the test is similar to adjunctive tests currently used by physicians in treating other conditions.

In other words, with an NPV of 96.9%, the physician could be 96.9% confident that the patient with a negative result did not have the disease.

The test is now undergoing a pivotal clinical study in the US which will involve a total of 2,200 patients at 28 participating hospital sites.  More than 1,700 patients have been enrolled so far, and the company expects to complete enrollment by the end of this year.

During the third quarter, the APPY1 Test successfully passed two interim futility analyses performed by an outside Data and Safety Monitoring Board (DSMB).  And in September, the DSMB recommended the study continue to completion after analyzing the first 1,100 patients to complete the study.

The most encouraging sign, however, is what emergency room doctors and hospital administrators are saying about the test.  According to Venaxis CEO Steve Lundy…

“Based on the enthusiasm and feedback we are receiving from thought leaders regarding the potential economic and clinical benefit of using the APPY1 Test, we believe Venaxis will be well positioned to gain significant traction in Europe upon full commercial launch, as well as when we enter the US market upon potential FDA clearance in 2014.”

All indications are that the APPY1 Test will complete its pivotal trial with flying colors. Of course, the stock should take off if the trial results are positive.

About the Markets for This Product: 

Venaxis expects to sell the APPY1 Test into the emergency medicine diagnostic market.  If the test is cleared by the FDA, it will be the only commercially available blood-based test specifically designed to aid in the evaluation of acute appendicitis for low risk children and young adult patients.

Consequently, the company believes there is a significant worldwide market opportunity for this product.

And we agree.

According to Venaxis, there are approximately 700,000 cases of appendicitis annually in the US.  And about 6 million patients enter US emergency rooms every year complaining of abdominal pain.

Venaxis plans to price the APPY1 Test between $75 and $80 in the US and about 25% to 30% lower in the European Union.

If just one-third of US patients with abdominal pain receive the test, Venaxis would generate sales of $150 to $160 million per year.  If half of those patients get the test, the company would rake in between $225 and $240 million annually.

And that’s not even counting sales in the large European market.

No question about it, APPY1 represents a huge revenue opportunity for Venaxis.  And with a market cap of just $41 million, the stock is clearly not yet factoring in the product’s sales potential.

About the Potential Catalyst:

Results from the pivotal trial of APPY1 in the US are expected near the end of the first quarter of 2014.

About the Shares:

APPY has made a strong move off the 52-week low of $1.15 set in June of this year. At a recent price of $1.92, the stock has gained nearly 67% over the past five months.

However, we think the shares have a lot more room to run.

Even with the recent run up, APPY is 36% below the 52-week high of $2.99.  If the stock were to just recover to that high, you’d be looking at a 56% gain from here.

That would be a solid return, but the shares could go much higher.

As I mentioned above, APPY has a market cap of just $41 million right now.  But potential sales for APPY1 (if approved) are in the several hundred million dollars a year range.

If the company’s market cap were to rise to a level consistent with those potential sales, the stock would have to increase by three to six times its current value.

Now, we doubt APPY will fully factor in potential sales leading up to or upon positive trial results.  After all, there would be substantial risks regarding regulatory approval and the company’s ability to market the product.

But there’s no question…

APPY has significant upside potential on positive news going forward.  Grab your shares of this exciting biotech as soon as possible.  It may not stay within our tight buy range for very long.

Key Facts:


Company: Venaxis
Ticker: APPY
Recent Price: $1.92
Market Cap: $41 million
Avg. Daily Volume: 683,729 shares





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