Small-Cap Acusphere a Buy

Management at Acusphere (ACUS) provided a brief update on the timeline for the NDA filing and potential partnership on the fourth quarter conference call. Manufacturing aspect validation has been achieved, allowing for the planned NDA filing to take place by late April 2008.

In the meantime, Acusphere remains in active discussion with potential U.S. partners for Imagify. We are hoping a deal can get done in the second quarter to provide much needed non-dilutive financing. Our $5 price target is based on our belief that Imagify is real, and that Acusphere will eventually secure a partnership for the drug in the U.S.

Although we don't expect to see this level anytime soon, even $5 would be significantly undervalued if Imagify, a potential billion-dollar product, does get approved in early 2009.  We are looking forward to the NDA filing in late April 2008.

It is a high-risk event (60/40 in-favor of approval), but we think Imagify can be approved in early 2009. Our financial model below forecasts U.S. sales of Imagify in 2012 of $529.5 million. Based on an estimated U.S. royalty rate of 25%, royalties from Nycomed from Imagify sales in Europe, and finished product supply reimbursement from both partners, we see Acusphere being in position to deliver $1.53 in EPS in 2012.

If we apply a 20x multiple to our 2012 estimate, and then discount back to present day at the aggressive rate of 40% to account for the 60/40 odds of approval, we arrive at a fair-value of $5. The current market capitalization is only $20 million. Acusphere should exit the first quarter 2008 with $14 15 million in cash, a $20+ million manufacturing facility, and a potential blockbuster product nearing an NDA filing.

We expect Acusphere to secure an upfront payment for Imagify in the U.S in the next few months greater than the current market capitalization. We believe this will get the stock moving back up over $1 regardless of the reverse split.

Read the full analyst report on ACUS.

Read the full analyst report on ACUS