iCAD stock: the decline seems limited (NASDAQ: ICAD)
“By working faithfully eight hours a day, you could eventually become the boss and work twelve hours a day.” -Robert Frost
Today we take an in-depth look at a small medical issue with an interesting and evolving product portfolio plus some recent insider buys. The stock has been on a substantial decline lately and the company recently appointed a new CEO as well. A full analysis follows below.
iCAD, Inc. (ICAD) is a Nashua, New Hampshire-based medical technology company that provides early detection and radiation therapy solutions to cancer patients. The company markets several products for the discovery of breast cancer and a product (Xoft Axxent Electronic Brachytherapy System) for the treatment of cancers. iCAD was established in 1984 as printer and copier manufacturer Howtek, pivoting the medical imaging market in 2001. It went public the same year it was established, generating gross proceeds of $36 million to $25 per share, after giving effect to a 1 for 5 Reverse Stock Split. Shares of ICAD are trading around the $6.00 level, which translates to a market capitalization of approximately 155 millions of dollars.
Marketplaces and respective products of iCAD
About 39 million mammograms were performed in the United States in 2020. Although it is the most accurate form of detection, about 20% of breast cancers go undetected by this process – about half of the time due to observational error. In addition, full-field digital mammography (FFDM) generates a significant number of false positives, which generates unnecessary reminders and anxiety in patients. Digital breast tomosynthesis (DBT) has demonstrated the ability to improve these measurements and as such is replacing FFDM as a screening method. Additionally, artificial intelligence [AI] and computer-aided detection [CAD] the systems helped negate observation errors. However, due to the hundreds of images produced by DBT compared to only four for FFDM, radiologists face an additional workload, which makes them less efficient.
To solve this problem, iCAD has developed a suite of sensing solutions for 2D and 3D mammography, which includes AI and image analysis, CAD systems and workflow solutions for DBT, FFDM, MRI and Computed Tomography. These are marketed to the ~8,677 mammography screening facilities across the US, which house ~22,553 FFDM and DBT machines. Its first detection system is ProFound AI with an installed base of approximately 1,350 people in the United States, marketed by a sales force of only 13 people. In cancer detection and breast density assessment, the company competes with Holological (HOLX), Volpara (OTCPK:VPAHF), the Norwegian ScreenPoint Medical, the Canadian Densitas and the French Therapixel.
The other market in which iCAD participates is that of radiotherapy. There are three types of radiation therapy: external beam radiation therapy, which involves a radiation source positioned outside the body, with treatment typically requiring up to 40 sessions; systemic radioisotopes, which are administered by infusion or oral ingestion; and brachytherapy, which uses sealed radioactive sources placed precisely inside the body. Electronic Brachytherapy (eBx) – marketed by iCAD – uses a miniaturized high dose rate X-ray source to deliver radiation directly to the tumour.
Specifically, the company has developed Xoft System, an eBx platform that delivers isotope-free (non-radioactive) radiotherapy at a dose compatible with the size and shape of the tumor while sparing healthy tissues and organs. The source is placed inside a disposable applicator (balloon) and powered to deliver an accurate, prescribed dose of radiation in a single procedure. Due to its relatively small size, the Xoft system can be transported to the operating room where intraoperative radiation therapy (IORT) can be administered.
The initial and primary use of the Xoft System was for early stage breast cancer, gynecological cancers and non-melanoma skin cancer. Due to its approval for treatment anywhere in the body, emerging applications include brain, prostate and rectal cancers; although studies proving its effectiveness in treating specific cancers are usually a prerequisite for its adoption by the medical community. The disposable platform and balloons – modified for the cancer they treat – include a razor blade model, with each platform costing the buyer (hospitals, veterinary clinics, dermatology practices, cancer clinics, etc.) .) ~$165,000 – based on available data. In the first nine months of this year (YTD21), iCAD installed 28 Xoft systems, which compete with Carl Zeiss Meditec (OTCPK: CZMWY) and Sensus Healthcare (SRTS) IORT offers.
Unsurprisingly, the company has disaggregated its operations into two reporting segments: Detection and Therapy.
Through YTD21, Detection generated $16.5 million in revenue, an increase of 19% over the prior year period and 64% of iCAD’s total. With an installed base of approximately 1,350, supply and service revenue accounted for $4.7 million in Year 21, or 29% of the segment total.
Therapy generated $9.3 million in revenue in fiscal YTD21, growing 74% over the prior year period. This growth was helped by the fact that platform sales were severely hampered by the pandemic during the year 2020, offering easy compensation. It was also backed by strong demand from dermatologists.
Despite what appears to be high tech, ICAD shares have fallen 68% from their 14-year high of $21.44 reached on March 31, 2021. Responsibility for some of this downdraft lies to the company’s poor 2Q21 results, which included a $0.04 per share (non-GAAP) earnings shortfall (-$0.11 vs. -$0.07 expected) and a 1.3 million dollars ($7.82 million vs. consensus $9.15 million). Longer-than-expected corporate sales cycles for its detection offerings have been blamed. Its stock fell 24% from $15.40 to $11.77 in the following trading session (August 6, 2021).
The reaction to the 3Q21 results was not so quick, but just as severe. On November 9, 2021, iCAD reported Adj. Negative EPS of $0.09 on revenue of $9.4 million, compared to negative $0.07 on revenue of $7.1 million in 3Q20. Gross margins remain stable YTD21 compared to the prior year period at 72%. Even though revenue was up 31% year over year and a 20% sequential gain, it was $0.5 million below Street’s expectations. This time no reason was assigned for the failure and management said they were unaware”of a singular case where we lost [business]…due to competitive dynamics [owing to] the net difference between [its] offers and others who are there.” And although the company’s shares only fell 6% in the following trading session, its current price reflects a decline of around 30% since the announcement, also possibly helped by the sale. tax loss.
On December 6, 2021, the company announced that Chairman and CEO Michael Klein would be stepping down as CEO, replaced by current President Stacey Stevens effective March 1, 2022.
Review and analysts’ comments:
On a positive note, the current cash burn is such that iCAD should not have to return to the capital markets anytime soon, having raised net proceeds of $23.2 million to $18 per share in March 2021. It held cash and cash equivalents of $35.8 million against an operating cash outflow of $7.9 million year-to-date 2021.
Despite iCAD’s lackluster performance over the past six months, analysts are extremely bullish on the company’s outlook with one outperform rating and seven buy ratings and a 12-month median price target of around $20. , which is up nearly 250% from its current trading levels. Only JMP Securities lowered its price target ($22 to $18) following the company’s 3Q21 earnings report. On average, the street expects iCAD to lose $0.38 per share on revenue of $34.3m in FY21 (more than 20% from a downturn-hit FY20). pandemic), followed by a loss of $0.22 per share on sales of $43 million in FY22, reflecting 30% revenue growth.
The company’s outgoing CEO Klein – he will remain chairman – and board member Susan Wood were also bullish, who collectively bought 14,975 shares of ICAD below $7.40 on December 8, marking the first insider buying since 2017. It’s worth noting a week ago another director sold about $120,000 worth of shares, which was a tiny fraction of his overall holdings.
A rumor circulated in August 2021 that iCAD was exploring a potential sale. Obviously, nothing has come of it to date, but it provides a potential bridge between management and analysts’ assessment of its suite of detection and therapy products vis-à-vis the market. The trade at around 3.6x FY22 sales which reflects 30% growth with gross margins of 72% may be considered undervalued, based on the Eye of the Beholder. This spectator can take the form of Siemens (OTCPK: SIEGY) Where Becton Dickinson (BDX) — either of which could use their much more robust selling efforts to accelerate adoption — as ICAD shares are down more than 40% since that rumor first aired.
Trading near its 52-week low, it is never easy to catch a falling knife. And two quarterly misses in a row rules out that name for consideration from a major holding company, especially with the pandemic still among us. However, with a well-considered portfolio, iCAD’s decline from current levels appears limited and with at least a studied grip, the risk/reward ratio appears asymmetric. As such, iCAD deserves a little ‘watch the article‘ position at this time. Options are available against this equity, but at the moment they have low liquidity. Therefore, a covered call strategy is not currently viable.
“A dream is not what you see when you sleep. It’s what keeps you from falling asleep.”- Abdul Kalam
Bret Jensen is the founder and author of articles for the Biotech Forum, the Busted IPO Forum and the Insiders Forum