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Small Cap Play on Collagenase-Based Therapies

02/14/2020 5:00 am EST

Focus: HEALTHCARE

Douglas Gerlach

President, ICLUBcentral, Inc.

BioSpecifics Technologies (BSTC) is a biopharmaceutical company. It is best known as the originator of collagenase-based therapies currently used to treat twelve clinical indications, explains Douglas Gerlach, editor of SmallCap Informer.

Collagen is a structural protein that exists between cells in various connective tissues in the human body, but these proteins sometimes don’t function properly leading to several kinds of disorders.

Collagenase (collagenase clostridium histolyticum or CCH) is an enzyme that breaks the peptide bonds in collagen. BioSpecifics’ injectable form of collagenase is marketed as Xiaflex in the U.S. by the company’s partner, Endo International plc.

Xiaflex is presently used for two collagen-based disorders, Dupuytren's contracture (affecting the fingers and hand) and Peyronie's disease (affecting the male genitalia).

BioSpecific’s Xiaflex/CCH research and development pipeline includes several additional promising indications: cellulite, adhesive capsulitis, human and canine lipomas, lateral hip fat, uterine fibroids, and plantar fibromatosis. Treatments of any of these conditions could provide significant updrafts for the company.

BioSpecifics Technologies’ partnership with Endo allows it to maintain a lean corporate structure, with just five full-time employees and three independent contractors at year-end 2018.

Since 2011, BioSpecifics Technologies’ revenues, primarily comprised of royalties, have grown at an annual average rate of 18.4%, reaching $33.0 million in fiscal 2018, making it the smallest company by revenues in the SmallCap Informer coverage universe. In the same period, EPS grew at an annualized 21.0% rate. Earnings growth is well supported by free cash flow.

We project revenue and earnings growth to run at an approximate 15% annual pace over the next few years. The only analyst covering BSTC on Wall Street sees the potential for annual EPS growth to be as high as 22% a year through 2023, and EPS in the next two fiscal years to be around our 15% projection.

As a very small company, BioSpecifics Technologies brings with it some additional volatility, but share prices have had a good upward trajectory over the last half-decade. As long as earnings growth persists, share price will eventually follow.

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