Tuesday, December 06, 2016

New Story for Milestone Scientific

With the small-cap sector on fire, management teams of emerging growth companies are making the rounds in money centers around the U.S., hoping for a warm reception.  Leadership of the medical device developer Milestone Scientific (MLSS:  Nasdaq) has joined the crowd, telling a story of turnaround and reinvigorated market penetration.
Milestone has perfected a sensor-based injection system for pain medication.  The injection system uses pressure sensors in the tip to send data back to a computer that determines tissue type at the tip.  With computer-assisted feedback the physician can better pinpoint the correct location for the injection.  The company’s Dynamic Sensing technology has been patent protected and branded Compu Flo.

Nowhere is the Compu Flo system more welcome than among dentists who know all too well the fear a syringe full of novocaine can strike in a patient.  Dentists essentially ‘poke and hope’ the sensation deadening solution reaches the right place in the check and jaw.  Many dentists over medicate to avoid potentially causing the patient any unnecessary discomfort.  That means longer recovery time and an increased risk of damaging nerves during the injection.  A more precise injection system like that of Compu Flo eliminates these risks.
The dentist’s chair is not the only medical application for Milestone’s computer-controlled local anesthesia system.  Medical applications include epidural, intra-articular and neurosurgical injections.  The system provides both visual and audible feedback to operators.  Additionally, the system documents injection events, providing vital records for both patients and health care providers.
Milestone Scientific had struggled to gain a foothold in its first commercial application  -  the world dentistry market.  However, a new strategy appears to have set a better course.  In May 2015, the company appointed new leadership to its dental division, Gian Trombetta, whose Milan-based private equity firm invested $10 million into Milestone.   The added capital and Trombetta’s Italian charm have had a lubricating effect on sales over the last two years.  The company is now better positioned with top distributors around the world who have credibility with dentists.  Ten markets, including the U.S. and Canada at the top of the list, are now well established and the company identified a second set of ten countries with a dentist population that would triple addressable market size.
The company reported $11.5 million in sales in the twelve months ending September 2016  -  28% higher than the same quarter last year.  Revenue is earned on the initial sales of the Compu Flo system and then recurring sales of the disposable unit for each injection. Milestone is still operating at a net loss and operations are not yet delivering positive cash flow.  In the twelve months ending September 2016, the company used $4.1 million in cash resources to keep operations going.  There was $2.2 million in cash in the bank at the end of September 2015, enough to carry the company forward for at least another six months at the recent cash usage rate.
Recent progress in the medical and veterinary applications for Milestone’s technology could also boost the company’s top-line and reduce pressures on cash resources.  Clinical trials have been completed for an epidural application and the company expects a decision by the U.S. Federal Drug Administration in 2017 on the company’s application for sale in the U.S.  The company is already moving forward with its global strategy for epidural applications.
A partnership with Mila International has been expanded in anticipation of entering the U.S. veterinary market.  Owners of racing and sport horts are particularly keen on improved veterinary care for their equine athletes.  A pilot study completed by the Cornell University College of Veterinary Medicine suggests that the Compu Flo technology could be used effectively for horses.
Until all markets fall into place, Milestone is clearly dependent upon its balance sheet.  With limited cash resources and new markets sometime in the future, the company needs to make the most of its scarce resources.  At the end of September 2016, inventory totaled $4.3 million, representing 36% of annualized sales.  Put in terms of days, the company has enough inventory on its shelves to last nearly a year at the recent pace in sales.  This seems a bit inefficient and could be drawn down over the next few months.  Likewise accounts receivable represents 77.8 days of sales.  While just over two months might not be considered a lengthy period of time to wait for payment, an effective collection strategy could bring this metric down and improve the flow of cash into the company.
Milestone Scientific management has work to do.  Nonetheless, there has been progress and the Compu Flo system appears well on the way to proving commercial viability.  The stock is well worth putting on a watch list. 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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