Speculating in biotech penny stocks can be a bit like spending a few hours at the local casino.
Yes, there are risks and unknowns aplenty. But the payoff if the startup succeeds can be downright impressive.
Moreover, unlike the slots or the craps table, investors have the chance to improve the odds by picking companies with strong fundamentals or a pipeline of advanced products.
Theralase Technologies Inc. (TLT-TSX/VEN, $0.40) may be one such outfit. Not only is the Toronto-based company moving ahead with the commercialization of a proven therapeutic process, it’s also advancing what could be a treatment for cancer through the regulatory approval process.
This approach gives Theralase a risk profile that’s comparatively low. That’s because the recurring revenue the company generates provides internal funding to offset some of the development costs associated with any new possible treatment for cancer.
What’s unique about Theralase is the use in its treatment regimen of low intensity laser light.
Called “cold laser” because it operates in wavelengths that won’t burn unprotected skin, this treatment has proved remarkably effective in reducing both pain and inflammation, while speeding up the healing of damaged tissues.
Launched in 2000, the process was OK’d by the U.S. Food and Drug Administration in 2005.
Theralase, which owns the worldwide rights to the technology, has secured patents in both North America and Europe.
Not only are there about 1,200 systems in the field, but there’s a growing database of evidence testifying to the treatment’s effectiveness. Suffice to say it works.
Although each cold laser treatment unit costs more than $10,000, sales have been growing — so much so that this year, Theralase is expecting revenue of roughly $1.5 million.
Nonetheless, the company is planning to launch a new business model.
To optimize treatments, Theralase has come up with a more targeted biofeedback approach that allows practitioners to deliver patient-specific settings.
This considers variables of input parameters related to the patient’s condition and physical attributes, along with the exact wavelength of laser needed to deliver the maximum benefit.
Treatment is short
A typical treatment can be completed in eight-to-10 minutes. And for patients, clinics can schedule several visits a month.
By leasing the laser units and earning a monthly fee from each one, Theralase will able to generate recurring revenue.
Moreover, by spreading out the cost over monthly payments, while rolling both support and service into a single package, the company’s new business plan will also make it easier for clinics to access this new technology.
Theralase, which plans to launch the new business model this fall, believes it can build much higher revenue growth, while generating more sustainable income.
Of course, the rollout of the Affordable Care Act in the U.S., a.k.a., Obamacare, will result in some important changes in the way health care is provided in America.
It will increase the total pool of insured patients with access to treatment, although it may also encourage insurance outfits to shift clients into more affordable treatments.
Under this scenario, proven new technologies like cold laser therapy will likely become more attractive, compared with surgical procedures that are both expensive and complicated.
So, the company’s new business model appears to be well- timed to catch a bigger overall market in the U.S., thus generating even further leverage for growth.
Product in the works
Theralase is also working on another important product: a targeted approach to treat bladder cancer — the fifth-leading cause of death in the U.S.
Under the treatment, a specific light-activated molecule is introduced into the bladder that binds cancer cells.
By using a fibre optic laser light aimed directly at the diseased area, the molecules can be activated to kill cancer cells, while protecting healthy tissue at the same time.
Because this would be an effective, but much less invasive treatment, the therapy is appealing. It would also have fewer side effects, as well as a shorter recovery time.
Moreover, if successful, the treatment could be adapted to deal with other forms of cancer.
In the meantime, Theralase has already advanced the treatment to pre-clinical testing.
Indeed, the FDA may grant the technology breakthrough status, thereby speeding up development.
Breakthrough status is hardly far-fetched, given the technology’s effectiveness. Then, too, there’s no similar treatment available.
Moreover, if testing continues to garner positive results, Theralase could potentially commercialize the treatment within three to four years.
To sum up, several things make Theralase a good speculative play. For one thing, the company has successfully launched a technology with great growth potential in a market that’s also growing.
Moreover, in terms of rapid relief, relatively low costs, and no side effects, the product boasts strong competitive advantages.
In addition, the company can claim the services of several world-renowned experts in the technology — experts who are working to move the technology forward.
And to ensure the company can control the roll out, the technology is not only licensed, but also patent-protected.
As well, having completed a share offering last year, Theralase boasts a strong balance sheet.
It has about $1.5 million in cash, no debt and should be able to add another $4 million to its war chest, should all its in-the-money warrants be exercised.
For an advanced player in its field, the company has a relatively low market value, with about 65 million shares outstanding and a market cap of roughly $25 million.
But if Theralase succeeds in building a stronger revenue stream, its shares have plenty of room for upside, making it a penny stock well worth considering.
And if its cancer therapy gets on the fast track and is ultimately approved, the rise in its share price could provide a big gain to those investors who stay aboard for the next few years.
Mike Kachanovsky, who’s based in Lindsay, Ont., is a freelance writer specializing in junior mining stocks. He can be reached at firstname.lastname@example.org.