MIDLAND WALWYN RESEARCH
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XILLIX TECHNOLOGIES CORP. (XLX@$2.30 - 1-Buy)
ANDRE UDDIN, Ph.D. - (416) 369-8718 - andre.uddin@midwal.ca
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Target : $4.00 12/97 12/98E 12/99E
52 Wk. High : $3.55 -----------------------------
52 Wk. Low : $2.00 EPS $-0.22 $-0.10 $0.03
Shares O/S : 28.40 million
Float : 28.40 million
Book Value : $.40 CFS $ N/A $ N/A $ N/A
Price/Book : 5.8X P/CFS 0.0x 0.0x 0.0x
Blue Top Date :
Opinion Change Date : 6/03/97
Company Description:
Xillix is a Canadian company specializing in the development of medical imaging devices for localizing and detecting early and late stage cancers.
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Headline: Xillix update & year end results: LIFE-Lung-I sales in-line, an increase of 253%
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All figures are in C$ unless stated otherwise.
Comments from 3/27/98 ... ($2.30)
RECOMMENDATION:
We re-iterate our 1-Buy recommendation on Xillix's stock with a
1-year target price of $4.00. The company's strategic partner,
Olympus is currently marketing Xillix's LIFE-Lung-I device for the
early detection of lung cancer. LIFE-Lung-I is FDA approved in the
U.S. and in regions such as Asia and Europe, with sales beginning
to ramp up. With Olympus as a strategic partner and controlling
approximately 70-80% of the world endoscope market we are confident
that Xillix will benefit from this alliance, particularly once the
LIFE-Lung-II (device for lung cancer detection) and LIFE-GI (device
for gastrointestinal cancer detection) products are approved.
RECENT EVENTS:
YEAR END RESULTS - LIFE-LUNG-I SALES IN-LINE WITH EXPECTATIONS,
1998 SALES FORECAST TO INCREASE BY 100%
DEVICE SALES AND CONTRACT REVENUE
Yesterday, Xillix announced its financial results, showing a
decrease in its year end operations losses from $6.9 mln. in '96 to
$5.7 mln. in '97. The company reported a loss of $0.22 in 1997
versus a loss of $0.19 in 1996 (last year the company reported a
gain from the sale of Oncometrics). LIFE-Lung-I sales for 1997
increased to $3.6 mln. in 1997 from $1.0 mln in 1996, right in line
with our expectations of $3.7 mln. We (and Xillix's partner,
Olympus) forecast in 1998 that LIFE-Lung-I sales will increase by
100% to $7.5 mln, we have revised our 1998 sales upwards from $6.3
mln. We forecast LIFE-Lung-I sales will increase by 50% for 1999 to
$10.8 mln. Olympus should pay Xillix two milestone payments of
U.S.$2 mln in 1998, as well, the company should receive other
contract/interest revenue of Cdn. $1 mln. We have not included any
upfront payments of the two alliances anticipated to be forged in
1998, yet - but we have forecast Xillix will have contract revenue
of Cdn.$4.5 mln. in 1999.
FUTURE SALES GROWTH
In 2000, both LIFE-Lung-II and LIFE-GI devices should be on the
market. Olympus would market LIFE-GI to approximately 20,000
clinical centers and LIFE-Lung-II to 5,000 clinical centers - those
are not small markets. We have always stated that Olympus would not
aggressively sell its LIFE-Lung-I device, yet Olympus has increased
its 1998 sales forecasts by 100%.
EXPENSES
The LIFE-Lung-I COGS of $3.5 mln. was high for 1997, primarily due
to upgrades of LIFE-Lung-I units that were installed in clinical
centers prior to receiving an FDA approval. We discussed this
matter with management, as such we do not forecast further such
upgrades in 1998. The margins for LIFE-Lung-I should improve and be
21% and 25% in 1998 and 1999, respectively. We forecast that the
LIFE-Lung-II and LIFE-GI devices will have higher margins of 50%.
R&D expenditures should increase from $3.4 mln in 1997 to $4.2 mln.
CASH
Xillix's cash position remains at $5.0 mln., the two alliances
which are anticipated to be forged in '98 will inject cash into the
company.
TWO STRATEGIC ALLIANCES ON THE WAY...
We have been discussing the potential of the company to bring on a
partner now for quite some time now, our answer is investors should
be patient as we have reason to believe that management has had
offers on the table and wants to strike the best deals for
shareholders. We believe management has been busy hammering out the
terms of the first alliance. The first deal should involve a three
way partnership between Xillix, a private pharmaceutical company
and a diagnostic company, we strongly believe this deal will be
forged in Q2 1998 and should move the stock from its current
trading range. The second deal should involve a partner for the
co-development and marketing of LIFE-GYN, a new device for
detecting cervical, ovarian and/or bladder cancer at an earlier
stage. We anticipate this partnership will be forged in Q3/Q4 of
1998. By the end of 1998, Xillix should have four strategic
partners in place which should wash out any bears on the stock and
provide four stamps of approval on the company's technology. |
