BULL POINTS:
■ Main product brings proven benefits
■ Sales moving ahead
■ Scope for product development
■ Expansion into emerging markets
BEAR POINTS:
■ Still small scale
■ Expansion costs
Chicago-based medical company Lifeline Scientific has the lowest of low profiles in the UK. But, after a very strong trading update earlier this month, that may present an opportunity to invest before the rest of the market catches up.
| IC TIP RATING | |
|---|---|
| Tip style | Speculative |
| Risk rating | High |
| Timescale | Long term |
| What do these mean? Find out in our | |
Lifeline's main product is LifePort, a specialised system to preserve human kidneys while they are being transported to recipients. Traditionally, organs were shipped in simple ice-boxes. But clinical trials, published in the New England Journal of Medicine, have shown that organs transported within Lifeline's perfusion technology can aid a patient's long-term recovery prospects. Perfusion means that super-chilled liquids are pumped through the kidney to minimise damage before transplantation. This scientific credibility means LifePort is now used in 102 hospitals around the world and this helped revenues to reach an expected $23m (£14.6m) for 2010, up from $18.3m in 2009 and more than analysts at broker Seymour Pierce had forecast. It also helps Lifeline that LifePort is not just a piece of capital equipment, but includes disposable parts that generate a regular flow of income, much of which, thanks to the company's fixed costs, will flow straight through to profit.
There is also scope to expand the perfusion concept into other areas of transplant. The company is funding trials this year for a LifePort liver transporter, with a possible launch in 2012. The kidney transport system can also be modified with new features such as GPS tracking and better data monitoring, which will add value. This year should also see the first contribution to sales in emerging markets, such as Brazil and China. Lifeline looks particularly well placed in Brazil where a sales and marketing team will be on the ground early this year.
| ORD PRICE: | 235p | MARKET VALUE: | £45.5m | |
| TOUCH: | 220-235p | 12-MONTH HIGH: | 238p | LOW: 130p |
| DIVIDEND YIELD: | nil | PE RATIO: | 14 | |
| NET ASSET VALUE: | 25p | NET CASH: | $3.76m | |
| Year to 31 Dec | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2007 | 6.00 | -22.9 | -146 | - |
| 2008 | 7.16 | 3.66 | -23.2 | - |
| 2009 | 17.0 | 2.77 | 17.5 | - |
| 2010* | 20.7 | 3.60 | 20.1 | - |
| 2011* | 22.7 | 4.80 | 27.3 | - |
| % change | +10 | +33 | +36 | - |
Normal market size: 1,600 Market makers: 2 Beta: 0.2 *Seymour Pierce estimates £1=$1.60 | ||||
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Lifeline's balance sheet also looks robust with net cash of about $3.8m. The company has secured additional financing from Silicon Valley Bank in the form of an increased credit line of $3m, which will fund further clinical trials and expansion this year.
True, the big risks with investing in medical devices companies is that too many which lack scale can be taken over before their potential is reflected in their share price, or they may end up being pushed out of their markets by much larger players. Lifeline's bosses must also avoid getting locked into restrictive partnering or distribution agreements that could stifle growth. Equally, they could be tempted to expand too quickly at the expense of profits. But investors should sleep soundly if the basic expansion plan in emerging markets is adhered to, but be prepared to fund it if necessary through a share issue.
