Catalyst #1
Ruthigen IPO
2013 has been an extremely hot year for biotech IPOs. The average biotech IPO has priced 4% above the S-1 price range and many IPOs are trading at nearly twice their offering price. Most traders are unaware that the small biotech firm, Oculus Innovative Sciences (OCLS) is planning to spin off its wholly owned subsidiary Ruthigen. The S-1A was filed on August 8, 2013 and although the exact timing is still unknown, the Ruthigen IPO maybe coming in short order. Ruthigen is focusing on the development of RUT58-60, a drug candidate intended for the prevention of infection in trauma and surgical procedures. RUT58-60 is a new unique chemical formulation of Oculus's Microcyn that contains twice the
concentration of hypochlorous acid, along with magnesium and no
sodium hypochlorite. RUT58-60 is designed to prevent and treat infections, including MRSA and C diff, RUT58-60's
addressable market includes 46 million surgical and trauma procedures
performed in U.S. hospitals and more than 200 million procedures
globally. Tetraphase (TTPH), which is developing antibiotics to treat multi-drug bacterial infections, maybe the closest comparable recent IPO to Ruthigen. Tetraphase's IPO priced at $7 and currently trades at approximately $8.50/$175m market cap. If we assume that Oculus will retain a 50% ownership and that Ruthigen will be valued at between $50m-100m, it is possible that this spinoff alone could add over $3-$6 to the Oculus share price. An additional benefit to Oculus as a result from the Ruthigen IPO is $8 million of clinically triggered milestone payments.
Catalyst #2
501(k) Clearance
Oculus submitted its 510(k) application for their uniquely formulated Microcyn Technology-based hydrogel for scar management sometime between May 14th and June 14th, 2013 and is anticipating FDA clearance as early as mid September.
From the March 14th press release: "The company is encouraged by the initial clinical trial results from the
management of scars trial and expects to complete data analysis and
submit the 510k application to the FDA for review within the next 60 to 90 days. In accordance with FDA regulations, the company expects to release the data immediately after completion of FDA's
review. The FDA's standard review time from submission to clearance is
ninety days, although industry averages suggest this process can take up
to six months. According to a LifeSci Advisors 2012 report, there are currently no FDA-approved
pharmaceuticals indicated to reduce scar severity and several available
procedure-based and over-the-counter treatments are either invasive,
costly or have been reported with limited clinical efficacy or high
recurrence rates," said Jim Schutz,
CEO of Oculus. "We believe the rapid patient enrollment is indicative
of the need for effective and safe management of scars. We remain
optimistic about achieving our intended results and upon FDA clearance, anticipate that our U.S. dermatology partner, AmDerma/Quinnova, will launch later in 2013." AmDerma/Quinnova has agreed to pay Oculus a milestone payment at the time of the FDA pre-market notification clearance that will reimburse Oculus for the cost of this trial."
Catalyst #3
Guidance
On the August 9th earnings conference call, Oculus provided the following guidance for their next quarter "we expect total revenue to be higher than 3.6 million, cash operating
expenses to be in the $3.8 million range and EBITDA to be in the range
of 1.2 million negative. The Ruthigen expenses for this quarter are expected to be about 1.3
million, which includes salaries, consultant services and preclinical
studies IND application for the primary drug candidate for
the prevention of infection in abdominal surgery." So its quite possible that for this next quarter ended September 30, after backing out the Ruthigen IPO expenses, Oculus will be EBITDA positive.
Conclusion:
"This is a year of transition for Oculus, setting the stage to create
long-term value and stronger revenue growth with several exciting
near-term opportunities," said Jim Schutz, Oculus CEO. "First, our drug
subsidiary, Ruthigen, continues to progress towards a planned IPO, which
we believe will add significant short-term value in the form of cash
and potential for increased stock price. Second, Vetericyn's animal
healthcare sales are picking back up after a slow spring with a strong
start to the summer. Third, we see continued strong unit growth in Latin
America that has averaged 50% plus over the last three quarters as
compared to the prior years' quarters. Fourth, we anticipate an FDA
clearance for our new scar hydrogel and subsequent launch before the end
of this fiscal year. And finally, international sales, especially in
Europe, should show solid growth before our fiscal year end as a result
of additional product approvals and added partners. We believe the stage
is set for a return to positive year-over-year revenue growth later
this year and next."
At its recent price of $2.75, (off of its 52 wk high of $7) Oculus trades at a market cap of just $18.2m, with $5.4m of that in cash. Any one of the above 3 catalysts could put this tiny biotech with only a 5.5m float (1-7 reverse split 4/1/2013) stock in motion, but the combination of all 3 possibly coming together in the near term could provide for an explosive 200% upside move.
Disclosure: I am long OCLS. I wrote this article myself, this is NOT investment advice, it expresses
my own opinions. I am not receiving compensation for it. I have no
business relationship with Oculus Innovative Sciences. SEE FULL DISCLOSURE BELOW