Cardica Takes Off on Bullish Initiation
NEW YORK (
) -- Shares of
Cardica
(CRDC)
continued to rally on Monday, rising for a second straight session following a bullish analyst initiation.
Wedbush Morgan started coverage of the Redwood City, Calif.-based medical device maker on Friday with an outperform rating and an estimated per share fair valuation of $4. The firm cited optimism about the company's upcoming
Microcutter multi-fire endoscopic stapling device
, saying it believes Cardica's so-called "staple on a strip" technology "holds best-in-class potential."
"The Microcutter is unique in being able to deploy up to 9 rows of staples without needing a refill, while existing devices can only deploy a single row of staples before a laborious refill process is needed," Wedbush told clients. "Moreover, the Microcutter's much smaller profile is also unique in that it can be used in the next-generation of minimally-invasive surgical procedures, such as single-port surgery."
The stock jumped 49 cents, or 17.4%, to finish at $3.30. That surge follows a gain of 16.1% on Friday. Monday's session high of $3.52 was a new 52-week peak and the stock's best level since mid-February 2009. Volume totaled around 815,000, roughly 13 times the issue's trailing three-month daily average of 62,000. Based on Monday's regular session close, the shares are up more than 140% so far in 2010.
The Microcutter is still in clinical trials. Wedbush Morgan expects the first version of the device, which the company says will be used for bariatric (weight loss), thoracic (which involves cardiac procedures and other organs in the chest) as well as general surgery, to secure European Union approval in the first quarter of 2011 and U.S. approval in the second quarter. The firm estimates sales of this first version, Microcutter ES8, could total $52.9 million by fiscal 2015.
Wedbush's theory is that revenue from the company's other products will provide "valuable" near-term cash flow that will go towards defraying costs related to Microcutter's development and funding the infrastructure of the company, whose saleforce currently consists of just two employees.
Further out, the firm expects the company could end up an acquisition target as soon as late next year.
"We project potential profitability in 2013 with the potential for an acquisition beginning as early as late 2011," Wedbush said. "While we believe Cardica could grow the Microcutter to $75 million-$100 million a year in peak sales, a more experienced device company could unlock significantly more value from the platform."
Another positive for Cardica from Wedbush's point of view is the company's licensing deal with
Intuitive Surgical
(ISRG) - Get Report
in August, which the firm describes as "valuable corroboration of the company's core technology as well as the potential for additional licensing revenues."
Intuitive Surgical, a developer of robotic surgical systems with projected annual revenue of $1.4 billion, paid Cardica $12 million in the deal and received 1.25 million Cardica shares as well.
"Although future revenues for Cardica here may currently be speculative, we view this license as a strong vote-of-confidence in both the ground-breaking nature of Cardica's 'staple-on-a-strip technology' and the strength of Cardica's intellectual property portfolio," Wedbush said.
If Microcutter is successful, it will push Cardica into a completely different league as the company's quarterly revenue currently runs around $1 million from its C-Port and PAS-Port anastomosis systems. At present, funding could eventually become an issue as the company's cash balance stood at around $15 million as of Sept. 30. Wedbush sees "moderate" near-term financing risk for the company, and expects the company could see additional monies before undertaking a full launch of Microcutter, possibly with a dilutive stock sale.
"While we expect such funding to come from the sale of stock, we note that Cardica could also generate cash by selling licensing rights to the device in certain international markets, such as Japan," the firm said.
Wedbush's initiation brings the number of analysts covering Cardica's stock to three, along with Needham & Co. and William Blair, which both have hold ratings on the shares.
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Written by Michael Baron in New York.
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