Australia | Jun 20 2013
– French Government paying for latest tests
– Sales growth ramping up
– Profit making by 2015
– Broker sentiment positive
By Andrew Nelson
GI Dynamics ((GID)) is a small cap Biotech company that designs, develops and sells medical devices for non-surgical applications. The company operates in a number of countries including Australia, Chile, Germany, the United Kingdom, the Netherlands and Austria. The home office is in Massachusetts, but the US$165m company maintains a listing on the ASX.
The Company’s flagship product is the EndoBarrier, a gastrointestinal liner, or implant that is designed to assist patients with uncontrolled type 2 diabetes and obesity. The treatment not only aids in the reduction of blood sugar levels, but it also assists with substantial weight loss programs.
Analysts at Bell Potter note the latest news from the company is quite promising. The company reported earlier this week that the French Government has approved and will even fund a clinical trial for EndoBarrier in France. The trial, which has a working name of ENDOMETAB, is expected to be conducted over two years, with the French Government kicking in 1.16m euros, or about $1.63m.
The intent is to look at cost-effectiveness, with the French Government wanting to gauge both the cost and excepted end results from EndoBarrier over 12-months compared to a traditional 12-month program of diet, exercise and lifestyle change. The desired end result is to develop a firm economic grasp of the value provided by EndoBarrier therapy versus current standards.
The broker is quite optimistic about the outcome, not only given results of previous tests, but also because this is the second set of tests and trial for EndoBarrier that has been paid for by the French Government. Last year France commissioned a pilot trial.
Morgan Stanley also notes this second trial is part of the French Government’s STIC program, the purpose of which is to establish reimbursements and provide funding for novel, CE-marked medical technologies that have successfully completed prior clinical studies. The program only funds a few trials each year. In short, it’s a fast track study to set prices and reimbursement levels for a product that is very likely to be purchased.
Thus the broker assumes the French are most likely already buyers, they are just looking to figure out how much they are willing to pay for various EndoBarrier applications.
The latest news supports the broker’s assertion this will be a strong growth year for GID. Outside of France, the broker sees evidence that revenue is already ramping up. There are currently 37 EndoBarrier resellers and the plan is to increase this number to 50 by December. On these projects, Morgan Stanley believes the company may be in a break even position by the fourth quarter of 2015.
Long before that, really as soon as sales start showing sign of ramping up and re-imbursements start flowing in, the broker sees a market re-rating taking place. Even more momentum is expected once the company’s plans for a US launch draw nearer.
Morgan Stanley’s bear case valuation sits at $1.72 a share, while the bull case points to $2.73. The broker’s long term price target is $1.70, with shares closing at 60c yesterday.
There is one other Australian broker covering the stock, CIMB, and the analyst is just as upbeat about the ENDOMETAB project. The broker said in a report today that the news not only goes a long way to addressing cash utilisation concerns given the French are footing the bill, but it also represents an important milestone.
It’s not every day a junior biotech company is a step away from securing its first national reimbursement, especially from a key EU market. A “compelling investment opportunity” is how CIMB labels the stock, with an Outperform call and $1.90 price target in place.
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