(Part 2 from Yahoo)
The following are the key points from the Avalon report, titled "Divestment Highlights" and our rebuttal.
1. "CCSI's collaborations with various cosmetic companies has repeatedly ended without success."
CCSI did have an aborted deal with Avon that ended with CCSI receiving $9 million in settlement. But, what does cosmetics have to do with bilirubin?
2. "CCSI researched and developed and obtained FDA approval for its Colormate Ill infant bilirubin meter before it analyzed the infant bilirubin testing market or market demand for this type of product."
Accurate. However, since then CCSI's potential partners market studies have determined that blood tests for infant jaundice currently generate between $.5 - $1 billion. This available information was not in Avalon's report.
3. "CCSI has no established medical marketing experience or medical distribution channels, nor has it announced any medical industry
collaborations. CCSI currently does not have manufacturing capabilities. CCSI depends upon an OEM for production of its Colormate III bilirubin-monitoring device."
Wait a few weeks on the collaboration/distribution. What's wrong with an OEM making their device?
4. "CCSI expects that it will take another three to four years to achieve significant market presence after Colormate III's launch. Furthermore, CCSI has stated that it will not begin working on clinical trial protocols for other "chromatic" diseases until after Colormate III's launch."
Huh? CCSI will be launching its Colormate device this May, not three to four years from now and we expect 10% market penetration by the
end of year one, 20% at the end of year two, and 40% by year three. Also, on March 31, 1998 CCSI announced it had completed feasibility
studies with the head of NYC's Mt. Sinai Department of Dermatology for use in determining the level of phototherapy treatment to be used in treating numerous skin disorders.
5. "CCSI has financed its operations through its original IPO, numerous private placements and warrant conversions. No material revenues have ever been generated from the Colormate units, which have been available since early 1990's."
Duh, again. Since the device was not approved until last July 30 and distribution will begin this May, this point is totally specious.
6. "The market capitalization of CCSI is in excess of three times that of SpectRX, which has a commercially viable competitive product about to be launched in Europe. SPRX has several marketing alliances with well-established companies including Abbott Labs and Respironics."
Yes, SpectRX does have marketing alliances. But no one in the US has seen its product yet and there have yet to be any "real" clinical trials, anywhere. There was one trial on a few hundred babies in Philadelphia with the SpectRX device, but none who were under phototherapy for bilirubin. There is no need for clinical trials for such a device in Europe. However, there is no evidence anywhere that the SpectRX device works with anything other than healthy white kids.
BOTTOM LINE: We recommend buying CCSI solely based upon the potential market for the bilirubin test device. After the distribution
agreement is disclosed, the actually viability of CCSI will become self-evident and we expect the stock to easily top the prior peak of $17 per share.
Our recommendation does not include the potential of any future revenues from the other multibillion dollar markets that could be penetrated by this color science technology play. Those other markets include impacting the 50% return rate of caps and crowns, etc at the 5,000 US dental labs due to color issues as well as the other skin diseases currently being tested at the Mt. Sinai Medical Center in NYC. |
