Bacterin (AMEX:BONE) received Wednesday initial analyst coverage from Northland Capital Markets, which started the developer of bone graft material and antimicrobial coatings with an outperform rating and a bullish $4.80 price target.
The company has developed a proprietary technology
for processing human donor tissue (also known as allograft) into
surgical graft material in a sterile, ready-to-use product that retains
the native growth factors from the donor tissue.
equities research firm said the product works "as well or better than
synthetic growth factors at one third the price, a value proposition
that ought to play well with hospitals".
extended its product offerings, expanded production capacity, and built a
direct sales force, with all these factors expected to come together
this year to generate high revenue growth and margin expansion,
ultimately leading to profitability, said Northland.
research report, Northland noted Bacterin's new products, which
represent upside to Northland's estimates, as the company started in
bone products for use in orthopedic prodcedures such a spinal fusions,
but recently expanded its offering with two new product areas.
senior research analyst, Bruce D. Jackson, said: "Though the company
will continue to innovate, it now has a core set of products hitting the
market. More than 100,000 Bacterin grafts have been implanted as of Q3
The first new product, OsteoSponge SC, is a chondral tissue product that can be used for knee repair.
projections for OsteoSponge are supported by two-year results from a
study comparing OsteoSponge to rhBMP-2, where OsteoSponge patients
generated equivalent fusion results with significantly less leg pain at
one year relative to the rhBMP-2 group.
This study has also been
accepted for publication in a peer-reviewed medical journal, which
should serve as a future catalyst for the stock, Northland said.
The second new product line, hMatrix, is a skin product for use in soft-tissue repair procedures.
recently-launched products are not in management guidance and therefore
represent potential upside, the capital markets firm added.
addition to this, Northland forsees Bacterin's direct sales effort
taking off, as since implementing a direct sales network in July 2009,
it now has more than 70 sales reps. These reps should accelerate sales
growth, Northland said, leading to better overhead absorption and margin
Management is also planning to add 30-35 new sales
representatives in 2012. Currently representing 40 percent of total
revenue, Northland expects direct sales and stocking orders to represent
50 percent of the revenue mix by the end of 2012.
Jackson noted: "Bacterin’s acellular biologic scaffolds offer surgeons
superior flexibility and handling characteristics without destroying the
native bone growth factors.
"Surgeons get an easy-to-use graft
material that is both osteoinductive and osteoconductive, thus providing
for better patient outcomes. In addition, these are the only allograft
products on the market that are sterilized and ready-to-use. Bacterin’s
bone products work as effectively as products like INFUSE from Medtronic at a fraction of the cost, offering both physicians and hospitals a compelling value proposition."
holds proprietary technology in two areas, being surgical allograft and
biomaterial coatings, which are used for medical devices to prevent
According to Northland, catalysts to Bacterin's
share price include additional indications for the OsteoSponge SC to
include primary repair of cartilage in the second half of 2012,
expansion of H-matrix availability, the expansion of its anti-microbial
product offerings this year, as well as additional group purchasing
In May 2010, Bacterin signed a
three-year contract with Broadlane, the number five group purchasing
organization (GPO) in the United States with more than 1,100 member
hospitals. Broadlane was subsequently acquired by number four GPO MedAssets, providing access to an additional 1,700 hospitals.
Jackson concluded: "After years of product development, we believe the
company is more than ready to focus on marketing and distribution. So
far, the company has diversified its supply of donor tissue, expanded
its production capabilities, developed the infrastructure of a strong
sales force, and refined the deliverable message to the market.
Q3 2011, the company signed four new procurement agreements, and
management believes they now have enough donor supply to support
anticipated growth through 2013.
"Management plans to ramp up
production further in late 2011 with the addition of a second shift. We
view these plans as a bullish indicator for future product demand, which
gives us increased confidence in our estimates."
achieving Northland's price target include competition from larger
companies, the availability of sufficient quantities of raw material,
and unpredictable rates of uptake for new products, the firm said.
Bacterin is currently changing hands at $2.96, with its shares up more than 13.4 percent Wednesday on the bullish research note.