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CombiMatrix - Can We Predict A Bright Future? Jul 24 2013, 13:59 by: Spencer Osborne | about: CBMX (CombiMatrix Corporation), includes: ARNA (Editors' Note: This article discusses a micro-cap stock. Please be aware of the risks associated with these stocks.)
Taking a small test and having your future health outlined for you may seem like science fiction, but the ability to assess human health and potential for disease is getting to that point, if not already there. For some the concept may not seem comforting, but for others, knowing that a potential exists will enable fast and early treatment, thus avoiding a terrible fate that might have come.
CombiMatrix (CBMX) is a company that conducts DNA-based genomic testing services in the areas of Prenatal and Pediatric developmental disorders and Oncology. The company carries a $12 million dollar market cap and has a 52 week high of an impressive $14.14 with a 52 week low of $1.40. CombiMatrix currently trades at $3.33. At the moment this stock is highly speculative, highly volatile, and full of potential. The trick is gauging whether or not that potential can turn into something much bigger.
The Potential
In order to gauge the potential of this company we must first understand exactly what it does. We must then determine if there is a market for it, and lastly what the size of that market could be. We want to see if growth is possible, where finances stand, and how the company can derive revenue.
CombiMatrix turns discoveries in human genetics into diagnostic, prognostic and predictive tests that inform physicians, patients and families about specific diseases and clinical manifestations that previously went undetected by older technologies. The theory here is that a predisposition to certain conditions or diseases can be determined on a much more scientific level now. This offers a degree of accuracy that until now was based more on supposition and a look into "family history". In the past you might hear statements such as, "grandpa had high cholesterol, dad had high cholesterol, so I think I will have high cholesterol." Sometime a patient would act on that information and try to maintain a healthy lifestyle and diet that would better his chances of avoiding high cholesterol. However, and perhaps more often, people might take the stance that "it wont happen to me" only to realize too late that they now have high cholesterol and need medicine to deal with the issue. The concept here is predicting for the purpose of treating before the fact.
CombiMatrix is an industry leader in microarray-based clinical testing. The company employs a core team of array CGH-pioneering physicians, scientists and technicians to maintain and evolve that leadership role. CombiMarix is a growing company, That presents a world of opportunity, but also inherent challenges. Keeping this core team in tact will be an important factor in the success of this company. By example, CombiMatrix recently received the recommendation of the American College of Medical Genetics (ACMG) which positioned its DNAarray™ testing as a first line option for the detection and clarification of prevalent developmental disorders such as Autism. Autism is seeing the number of incidents rise substantially over the last decade. While there is still a lot of debate about the reasons for a rise in Autism, there is also a need to be able to diagnose early so that families can work on preparation and proper treatment options. The value of diagnosis and detection is massive.
Over the past six years the predictive testing in oncology has been a critical path item for CombiMatrix. The company has established itself as a sector leader in the implementation of clinical genomic profiling services for hematological malignancies and solid tumors. Certainly no one want to hear that they have cancer. However, if diagnostic testing can give a patient and physician a better understanding of the odds of cancer, that patient and doctor can make the necessary changes to perhaps create changes that do not allow the odds to increase. For patients already diagnosed, the DNAArray tests can give a better understanding of treatment options.
In theory the diagnostic technologies can have even broader capabilities as time passes. As healthcare shifts from a reactionary stance to a more proactive approach, testing early can become beneficial to patient, doctor, as well as insurer. While there are certainly privacy issues that may concern people, there still exists the tried and true doctor/patient confidentiality as a foundation for how medical care will continue.
What Is Happening Now
By all appearances CombiMatrix looks to be a company that is making moves to grow and expand. The company does have challenges. It has fallen below some Nasdaq listing requirements, and at the moment must supply the necessary documentation by August 20th to correct that matter. Other concerns I have are convertible Series C stock and warrants. There are 2,400 shares of Series C Stock outstanding, which are convertible into an aggregate of 839,870 shares of Common Stock at a conversion price of $2.85759. There is a set of warrants to purchase 491,803 shares of Common Stock at the current exercise price of $3.55 and other warrants outstanding to purchase 491,803 shares of Common Stock at an exercise price of $3.77. Convertibles and warrants are sometimes necessary to obtain financing and liquidity, but they can be dilutive later on, especially if they are in the money. With just over 3 million shares currently outstanding, you can imagine the impact of an additional 1.8 million shares in the float.
With that being said, part of this story is potential and business moves that are accretive to the company. In the last month CombiMatrix has been quite busy:
The company has seen substantial growth in prenatal testing subsequent to a study that the company partnered in which was published in the New England Journal of Medicine.CombiMatrix was selected by Pathology, Inc., as the exclusive source for POC testing used in assessing potential and reasons for miscarriages. The state of New York has also approved the Combimatrix tests. This is a fast growing, revenue generating segment of the CombiMatrix business. It appears that this will be one of the core revenue generators for the company.The company inked an impressive deal with Blue Sheild of California for a wide range of testing. Blue shield covers 3 million lives, bringing the total insurance deals to over 60 million lives. This represents about 20% of the population, which leaves a lot of room for growth. A key element of success for CombiMatrix is in insurance, The more insurance companies that come on board, the more the services of CombiMatrix will be utilized by patients and physicians.Perhaps the most important move that CombiMatrix has made in the past month is appoiting Robert Hoffman to its Board of Directors. Hoffman is a seasoned professional in the biotech space and is currently the Chief Financial Officer at Arena Pharmaceuticals (ARNA). Arena recently launched an anti-obesity called Belviq with marketing partner Eisai. The experience that Hoffman can bring to the table is second to none. Hoffman was an integral part of a company that developed a technology, secured financing, developed a product from that technology, secured a partner to market the product, and essentially was an architect in the inner workings of taking Arena from a concept to a company with a $2 billion dollar market cap and one of only two anti-obesity drugs to gain FDA approval in the last decade. Essentially, the path that Hoffman just navigated down is the path that CombiMatrix want to follow. Hoffman will bring insight to CombiMatrix at a critical juncture in its corporate story.
While there are still substantial risks with an investment in CombiMatrix, there is also substantial potential. The company will have several hurdles to navigate, but with good management and an experienced Board of Directors, the company is making some good moves early in the process. In my opinion this is an equity that saw a run, saw a correction, and has settled to a great starting point. At $3.33 it is worth some serious consideration.
Source: CombiMatrix - Can We Predict A Bright Future?Disclosure: I am long ARNA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
Additional disclosure: I have no position in CombiMatrix
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