Minrad International (AMEX: BUF) develops and markets drugs and devices
for two distinct medical markets: 1) inhalation anesthesia, and analgesia
manufacture and> delivery and 2) real-time fluoroscopic surgical image guidance.
Minrad’s inhalation anesthetic and analgesic products are halogenated> ethers;
Minrad is active in three of the four primary halogenated ether markets
including isoflurane, enflurane and sevoflurane.> Minrad sells exclusively
through distributors and through Merck & Co., Inc. in Europe and Baxter
International Inc. in the United States and worldwide.
The company sells sevoflurane internationally, and there are indications the
firm could gain regulatory FDA clearance for the sale of this product in the
United States. Indicators of pending approval include Minrad working on product
labeling with the FDA and the firm’s sales force being trained in the
sevoflurane launch, among others.
Minrad entered the inhaled anesthetic market in 2001 through the purchase of a
manufacturing facility in Bethlehem, Pa., from biotech firm Celltech-Medeva.
Since then the company has impressively reduced the manufacturing costs of
several of these products by upwards of 70%, making it the low-cost
manufacturer.
The firm currently has approximately 40 contracts in place, all with minimum
purchase agreements. Current contracts call for minimum purchases totaling $21.0
million in 2006, $69.2 million in 2007, $116.5 million in 2008, and $127.7
million in 2008.
Additionally, Minrad has developed a suite of products that represent a quantum
advancement in image guidance. Their offering enables surgeons to pinpoint
treatment areas in real-time while reducing patient radiation exposure. Minrad’s
patented technology, dubbed SabreSource, enables surgeons to both visualize the
surface point of entry and the true angle of approach in real-time using
fluoroscopically- assisted laser targeting.
Minrad’s patented surgical image-guidance technology enables surgeons to reduce
a patient’s exposure to radiation by between 50% and 90%. Best of all, it can be
retrofit to any number of C-arm fluoroscopes already in use from various
companies. The U.S. market for kinematic navigation systems for various
precision-critical procedures was valued at $115 million in 2005.
Minrad also offers a line of surgical instruments, which leverage the properties
of the image-guidance device. The unique feature is that the instruments
illuminate when properly aligned, providing visual confirmation when the
instruments are on target.
For the year ended December 31, 2005, Minrad saw revenues increase 136.5% to
$8.3 million, from $3.5 million in 2004, on a pro forma basis (the firm changed
from a Sep 30 year to a Dec 31 year). In 2005, the firm saw a net loss of $12.1
million or $0.42 per basic and diluted share, compared with a loss of $4.8
million, or $0.21 per share, in 2004 on a pro forma basis.
For the three months ended September 30, 2006, Minrad generated revenues of $5.3
million, up 271% from $1.4 million for the same period a year earlier. The net
loss was $1.69 million, or $0.04 per share, versus a net loss of $1.73 million,
or $0.06 per share, in the year-ago quarter.
Consensus estimates call for revenues to grow 96.4% this year to $16.3 million
from $8.3 million in 2005. The consensus earnings estimate calls for a narrowing
of net losses from a loss of $0.42 per share in 2005 to a loss of $0.15 per
share in 2006. In 2007, the firm is expected to grow revenues 247% from the
estimate of $16.3 million in 2006 to $56.6 million. Earnings are also expected
to turn positive in 2007, to $0.22 per share.
We hold shares of Minrad International in our Growth Report portfolio, and rate
shares a Buy with a share price target of $7.00. Given its virtually locked-in
explosive growth and expected turn toward profitability in 2007, we feel 32X
forward earnings is a reasonable valuation for the firm. This represents price
appreciation potential of 31% from the recent price of $5.35.
