SANUWAVE Health Inc. (OTC: SNWV) earned a BUY rating from Lake Street Capital Markets analyst Brooks O’Neil. The report is insightful and offers a bullish case for why he believes SANUWAVE shares can increase by more than 54% from current levels during the next twelve months.
The favorable coverage appears born from his expectation that SANUWAVE will quickly integrate the legacy and acquired assets from Celularity through the remainder of 2020. He is further impressed by the company’s roughly 100-person combined sales organization that has an opportunity to leverage its complementary product line-up to drive strong sales growth and margin expansion.
O’Neil is likely to hit a home run on his SANUWAVE projections. After all, he is good at what he does. But, with that said, other investors appear far more bullish on the immediate and long-term valuation for the company, believing that Lake Street might be aiming too conservatively.
Here’s why:
Accretive Value From The Start
In August, SANUWAVE completed what has been referred to as a transformative acquisition after purchasing Celularity’s UltraMIST® Ultrasound Healing Therapy. They also secured partnership rights for two of Celularity’s wound-care biologics, Interfyl and BIOVANCE. The transactions create a platform of scale with an end-to-end product offering to address an estimated $10 billion advanced wound-care market.
Even better for SANUWAVE is that its market position, post-acquisition, is remarkably strong. That’s because no other company currently offers a complete product portfolio to address patients’ clinical needs from the initial stages of treatment to wound closure. Moreover, this transformative purchase brings scale, strengthens both the product line and the sales organization, and opens the door for rapid revenue growth. The most near-term market-moving event will likely occur soon, with the company expected to become cash-flow positive once initial integration expenses are accrued.
Lake Street valuation models call for a price target of $0.34 per share. Some on the retail side argue for closer to $1.00. If things progress as planned, both can be right. After all, $1.00 comes after $0.34.
Video Link: https://www.youtube.com/embed/a7NzXi6gFqw
Transformative Event For SANUWAVE
Starting from the beginning, SANUWAVE’s acquisition of Celularity’s UltraMIST® Ultrasound Healing Therapy was a transformational event for the company. Few, if any, argue that fact, especially with the obvious accretive benefits.
The asset acquisition immediately brings an expected $15 million in new revenues and roughly $4 million of EBITDA to its yearly run-rate. The company will also benefit from additional revenue opportunities from premium licensing terms for two important biologics, Biovance and Interfyl. Combined, the total acquisition and licensing package create a comprehensive wound-care treatment platform that may offer first-in-class solutions in a billion-dollar market.
Beyond the products gained through the acquisition, though, two other value-creating assets deserve more attention. First, these Celularity assets come with a trained sales force of roughly 100 people with expertise in the market. Second, and perhaps the most underappreciated gem in the deal, these assets come represented by a trained reimbursement team that understands how to get these products covered by insurers and available to patients and providers.
Their importance should not be understated or underappreciated. At its core, the SANUWAVE reimbursement team provides critical leverage and experience to expand service and treatment coverage to its patients and providers despite facing increasing pressure from public and private payers and the federal government. Specifically, this is a skilled team that can navigate issues in the Patient Protection and Affordable Care Act that perpetuate a perception that companies must lower the costs of therapies to decrease patients’ cost burden. The SANUWAVE team knows that that is not always the case- especially when services are justified and offer a superior alternative to the standard of care treatment. It’s their job to explain those benefits, and they do it well.
In fact, the team’s success shows. They have already demonstrated a consistent ability to overcome reimbursement and market access challenges by effectively presenting the SANUWAVE value in advancing the healthcare landscape to treat chronic wound conditions. That strategy, backed by treatment results, allows the team to overcome the industry’s reimbursement complexities and position the platform to get recognized for the value it brings to patients.
Their value contributes mightily, and at the end of the day, they do one thing exceptionally well- make money for SANUWAVE.
And there’s more to the story to justify the bullish sentiment.
Accretive Value From The Start
The expectations for SANUWAVE start high- and keep climbing for the right reasons. First, combining UltraMIST® and SANUWAVE’s flagship device, dermaPACE®, extensively broaden its addressable wound-care treatment indications. Secondly, after including projected (historical until the next filing) revenues from UltraMIST®, the company moves from a roughly $1 million revenue-generating company in 2019 to an expected $16M company, or higher, over the next fiscal year.
That growth may be quite reasonable to achieve. After all, SANUWAVE will take advantage of substantial cross-selling opportunities that will target more than 1000 existing customer accounts…with only 15 that overlap. That asset opens the door to vast new sales opportunities through a team that can enjoy their own windfall through commission-based sales incentives.
Moreover, SANUWAVE is already positioned to capitalize on expanding its FDA-approved wound care portfolio that can treat multiple indications in the US and overseas. In the US, treatment indications for its FDA-approved devices include treating diabetic foot ulcers, pressure ulcers, venous leg ulcers, and deep-tissue pressure injuries.
However, by combining UltraMIST® with dermaPACE®, a comprehensive, powerful, and global wound-care solution is created. And because SANUWAVE has the resources to expedite its commercialization, the combined platform is expected to generate a breakout period for the company in the coming quarters.
SANUWAVE IS Measurably Stronger
Keep this fact in mind, too. SANUWAVE is already a market competitor. UltraMIST® just made them stronger. Its proprietary dermaPACE® System is currently used to repair and regenerate skin, musculoskeletal tissue, and vascular structures. It uses a proprietary form of high-energy, focused shockwave technology that promotes healing by activating biologic and angiogenic responses.
But, as noted, UltraMIST® makes dermaPACE® better by significantly expanding SANUWAVE’s addressable market. How? By providing treatment options that can be used at different phases of the healing process and utilize UltraMIST®’s low-frequency, non-contact ultrasound energy mist that cleanses a wound and promotes healing.
Like dermaPACE®, UltraMIST® is also FDA-approved to treat various wound indications, including diabetic foot ulcers, pressure ulcers, and venous leg ulcers. The popular advantage that differentiates the device from the competition is that its action mechanism never initiates contact with the wound. Thus, the treatment is, for all intents and purposes, pain-free. That action compares exceptionally well to alternatives such as scraping or scaling a wound with a cleaning solution.
Value Is Already Here And Getting Better
The best part of SANUWAVE’s recent history is that everything they have purchased or licensed is immediately accretive. Unlike biotech stocks that can take years to accrue new revenues, this acquisition will have an immediate impact. New revenues began in August.
Moreover, its trained sales and reimbursement team are actively targeting more than 985 new customer accounts and exchange agencies. That can translate to substantial growth during the next few quarters. The even better news is that they are selling a first-in-class treatment option, which in and of itself, creates consumer and professional demand.
At the very least, a sum of the parts equation shows SANUWAVE’s therapeutic platform can deliver best-in-class treatment results quickly and virtually pain-free. At its most, that ability will get recognized and ultimately position the platform as one of the most respected and robust therapeutic options in the wound-care industry.
That’s what is called a win-win proposition. And SANUWAVE is primed to deliver.
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