iCAD: FDA 510(k) Clearance Around the Corner

On Thursday I wrote to you about Labopharm being an undervalued play at around $1.50 a share. Another stock that appears to have some room to run is iCAD (NasdaqCM: ICAD). iCAD, Inc. is an industry-leading provider of advanced image analysis and workflow solutions that enable healthcare professionals to better serve patients by identifying pathologies and pinpointing cancer earlier. iCAD offers a comprehensive range of high-performance, upgradeable Computer-Aided Detection (CAD) systems and workflow solutions for mammography (film-based, digital radiography (DR) and computed radiography (CR), Magnetic Resonance Imaging (MRI), and Computed Tomography (CT). Since receiving FDA approval for the Company’s first breast cancer detection product in 2002, over 3,500 iCAD systems have been placed in healthcare practices worldwide. iCAD’s solutions aid in the early detection of the most prevalent cancers including breast, colon, prostate and in the future, lung cancer.

News is right around the corner for this company as they wait to hear from the FDA for 510(k) clearance of their Veralook detection product for colonoscopy procedures. This data package was submitted back in May of 2009, usually a three month process for 510(k) clearance, the agency is admittedly behind and looking to make a ruling any day now. iCAD has been in contact with the agency and has confirmed that at this point, there is no further information requested by the FDA. After waiting for the clearance for this long, their plan is to get this product to market as quickly as possible.

What makes iCAD so unique is their ability to improve the quality of image analysis using CAD. With virtual colonoscopy, radiologists can use an image analysis tool that detects and marks potential polyps in an effort to improve detection of pre-cancerous polyps. VeraLook technology is currently available in Europe. International revenue jumped to almost one million dollars in the fourth quarter of 2009 alone, this was in comparison to $669,000 in the same quarter one year ago. Total revenue for the fourth quarter of 2009 was over $8 million dollars.

As CEO Ken Perry stated recently, “We are pleased with our fourth quarter performance and sustained profitability throughout the second half of the year as well as generating positive cash flow in the face of macroeconomic challenges.  Our confidence as we enter 2010 is supported by two quarters of sequential revenue growth, the strongest balance sheet in iCAD’s history, a highly competitive and broader product line, and prospects of a strengthening economy.  We believe iCAD is well-positioned to capitalize on the continuing growth resulting from the transition from film-based to digital technology in the mammography market, and in the ongoing need for more advanced image analysis and workflow solutions to improve the diagnosis and treatment paradigms for leading cancers.”

Looking deeper into the numbers and what the potential is for the market for iCAD’s technology, it appears that this stock has some serious room to run. Shares currently trade around $1.70 a share with a book value of $1.45. iCAD has over $16 million in cash on hand and no debt with approximately 45 million shares outstanding. With revenue of over $28 million last year, likely clearance of iCAD’s Veralook detection product, the desire of healthcare professional to focus on early detection of cancer in patients, and the growth in digital cancer detection from film based cancer detection, there is excellent room for growth in iCAD’s revenue.

Based on my own research, should Veralook be approved and brought to market this year as iCAD expects, revenue could easily double or even triple in a short period of time, reaching $75 to $100 million. The company is on the cutting edge of this new technology that is starting to be accepted more and more worldwide as healthcare professionals look for better ways to detect cancer early and effectively. Once the Veralook product receives 510(k) clearance, iCAD’s stock could be an easy double. I would suggest that with such a strong balance sheet and such great technology that will continue to grow revenues over time, iCAD’s stock could conservatively reach $3 to $3.50 in the short term and much higher by year’s end. I invite you to do your own research on iCAD and learn more about the technology behind this winner.

Disclosure: Long ICAD

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