Yesterday we initiated coverage on Optisan Imaging (ASX: OIL), a Melbourne-based company which has historically been an important player in the field of surgical microscopes and which is now being resurrected after around nine years in the wilderness. We think it is a phoenix rising from the ashes.
Optiscan is a Phase III company currently capitalised at only ~A$36m. Later this year Optiscan's partner, Carl Zeiss Meditec AG, the German manufacturer of optical systems, is expected to gain FDA approval for a new rigid endomicroscope that was developed by Optiscan and on which the two companies have been collaborating since around 2007. As we explain in our report, we believe the forthcoming Zeiss product has the potential to become a new gold standard for brain tumour surgery by making current practice obsolete. We suggest the market has yet to fully discover the late-stage nature of the Optiscan story.
Optiscan is a world-leader in the field of live micro-imaging, where powerful microscopes are used to image internal organs at the cellular level in real time for surgery and during diagnostic procedures such as endoscopy. In the 1990s the company introduced one of the first fibre optic confocal microscopy devices, while its Pentax ISC-1000, FDA approved in late 2004, was the world’s first flexible endomicroscope. The commercialisation of this landmark instrument stalled in 2007 and 2008 due to a combination of factors - Pentax was taken over by Hoya not long before the Global Financial Crisis, which led to cancellation of all Pentax-originated research and development, leading in turn to the discontinuation of the Pentax ISC-1000. A decade later, Optiscan finally appears to be recovering from the Pentax setback.
Last year a new leadership team took office at Optiscan, focused on gaining commercial outcomes from the historic A$100m that has been invested in the company since the 1990s. Their recovery plan has focused to date on helping Zeiss deliver the new endomicroscope product. We see that product as well as the new Optiscan pipeline helping to re-rate Optiscan stock. We value Optiscan at 11 cents per share base case and 25 cents per share optimistic case. Our 17-cent target price sits at around the midpoint of our valuation range.
You can download a copy of NDF Research's first report on Optiscan by clicking here. I commend the report to you. Note - the usual disclaimers apply - click here.