Mark, I've spent some time at the website and read a short article in Investor's Digest of Canada and I'm convinced. Here's a very good analysis from the website:
Vol. VIII, Issue 3, March 1997
by Bill Nordstrom, Managing Editor
Current Technology Corporation (800) 661-4247 OTC-CRTCF
Recent Price: $0.37
Selecting companies for this column isn't an exact science. There's a lot of "gut feel" involved, in addition to the quantitative exercise of analyzing balance sheets, income statements, market plans, market trends, competitive pressures and the like. Often, the difference comes down to "true grit," and by that, I mean making a judgment about the mental toughness of the people running the business. Some people give up and run for cover when things get tough; others strap on their harness a little tighter and pull even harder. If my money's in play, I want as much mental toughness as I can get. In the case of Current Technology Corp. (CTC), which I have been watching for nearly three years now, management has survived the business equivalent of a knockout punch, and put the company on a new course toward rapid growth in revenues and profits. At this point, there is very little doubt that the company will not only succeed, but make a lot of money for everybody involved with it.
The use of electrical currents to stimulate healing has only recently been given its proper respect in medicine. But the fact is, the human body is all about chemistry and electricity. When broken bones don't heal, daily 30-minute applications of a small electrical current will stimulate bone growth and heal fractures (OrthoLogic Corp.). Jim Colbert, the leading money winner on the Senior PGA, wears a device on his back that provides electrical stimuli to his back, and he says that without it, he would not be able to play. Not just not play well -- not play at all.
Current Technology owns the exclusive worldwide rights to a patented electrotherapeutic device which has been proven to reduce hair loss and actually stimulate hair regrowth in men with common male pattern baldness. The company has spent millions of dollars and nine years developing, testing and proving the technology.
Here's how it works. You, the patient with the balding pate, sit in a specially designed reclining chair, not too dissimilar from a dentist's chair. A hood, much like the hair dryer hoods you see in a woman's salon, is positioned over your head. It does not touch you in any way. Twelve minutes later, you are done. No drugs, no ointments, no implants; in fact, you didn't feel a thing. But a small electrical current produced by batteries has stimulated your hair follicles to grow hair. In extensive clinical trials, 96% of the people treated experienced the cessation of hair loss or experienced hair regrowth after 36 weekly treatments.
Since this is a device and not a drug, and since there is nothing invasive about it, CTC was able to apply for FDA approval without Phase I and II clinical trials, just Phase III data which pertain to safety and efficacy, and which is very compelling. Actually, they bet the company on getting FDA approval to market the ETG device in the U.S. The FDA said, in effect, "looks good so far, but we'd like to see some longer-term studies." Knockout punch. This news coincided with an empty checkbook. Time to circle the wagons, which they did, having that "true grit" I spoke of earlier.
As we all know, the United States does not have a monopoly on bald or balding men, and CTC has been successful in getting marketing approvals in many other countries, including Canada, Australia, Panama, Mexico, and New Zealand. So CTC regrouped, and decided to focus on the international opportunities, abandoning the U.S. and the FDA for the time being. Obviously, when it comes to treating baldness, the market is very, very large in terms of numbers, and also in terms of money. I happen to be fortunate in that I am not losing my hair, but lots of us are, and we are willing to pay whatever it costs to stop it. Vanity is expensive.
The technical name of the treatment is "ElectroTrichoGenesis," or ETG for short. The economic model is that a practitioner buys the ETG treatment device for a fixed price, plus a "technology use fee" for each treatment provided. This is even better than razor blades -- the consumable product is electrons, and they are virtually free. Every few years the batteries have to be replaced, but that's no big deal. The main point is, once one of these devices is installed, it can generate revenue forever -- at least until somebody comes up with a genetic fix for baldness, which, I suspect, is pretty low on the genetic fix priority list.
The company estimates that there is a global market for at least 8,000 ETG devices, excluding the U.S. If the company resubmits its data to the FDA, and receives approval, then all the numbers I'm looking at will at least double. But, for now, I'm not counting on any U.S. business. . .
. . . Each ETG chair is programmed to dispense a fixed number of ETG treatments. When that number is reached, the device will no longer operate. At this point, the practitioner has to call CTC for instructions on how to program the ETG device for another batch of treatments. This reprogramming is done remotely via telephone, and takes only minutes to accomplish. This is a great security device as well: If the owner of chair number 000476 calls to get an increased allotment of treatments, and the company hasn't received its TUF money from the earlier treatments, guess what?
The real question is, will this work? The answer seems to be a very strong yes. So far, CTC has appointed National Distributors in twenty-three countries. These distributors have signed firm contracts to purchase a minimum of 1,541 ETGs worth over $23 million. Letters of Intent have been signed with National Distributors in another nine countries, and these nine are expected to purchase a minimum of 2,232 ETGs worth more than $33 million. That's a total of 3,773 units worth $56 million, not counting ongoing Technology Use Fees. Each ETG unit will produce, by contract, a minimum of $5,000 annually in Technology Use Fees to CTC. Let's see: 3,773 units times $5,000 equals $18,865,000. Now, against that are some costs, but what can the costs be? All the marketing is being done by the operators. There's no more R&D to do. It seems to me that about two-thirds of the TUF money ought to come straight to "net income before tax." And remember, this is only with the 3,773 units already committed for. My guess is that the company's internal target of 5,000 ETG devices sold within the next five years is low. But even so, that's $75 million in up-front sales money, to be followed by at least $25 million annually in Technology Use Fees. If the ETG device gets approved for sale in the U.S., you can double the numbers. Personally, I think it will -- ultimately -- be approved by the FDA, but I don't really care, or count on it.
The way I look at this, Current Technology Corp. should be profitable this year. There is a lot of gross margin in the ETG unit itself, and the TUF money is almost all profit. Treatment centers are already in operation in Mexico, Canada, Australia, New Zealand and Panama. The first clinic in Argentina will open next month. Checks are in the mail.
I figure that CTC stock will sell at a PE multiple of 20 when it is generating cash and net income in a year or two. With 23.8 million shares outstanding (33 million fully diluted), I think earnings in 1998 could be $0.20 per share. At a PE of 20, that would put the stock at $4.00 per share. By the year 2000, the stock could easily be $10. Today, it's $0.37. Pretty hard for a guy like me to resist.
Current Technology is traded on two exchanges, the Nasdaq Electronic Bulletin Board under the symbol CRTCF, and the Vancouver Stock Exchange under the symbol ONE. (The company used to be listed on the Nasdaq Small Cap market, but lost its listing and will have to reapply.) I prefer to buy the stock through the Vancouver Stock Exchange because there is almost always a smaller spread. But no matter where I buy it, it belongs in my portfolio. This is no longer a high-risk situation, but it is high reward. The investment community is probably sour on Current Technology because of the broken promises of earlier years. On the other hand, it's going to be hard to ignore the kinds of numbers that are going to show up very soon, i.e., this quarter, at CTC. This is a case where the "true grit" of management truly made the difference between failure and success. For further information, visit their web site at www.currentech.com. |
