Acusphere a Speculative Buy

Acusphere Inc.'s (ACUS - Analyst Report) balance sheet shows $12 million in cash as of June 30. The management has been actively looking at ways to reduce cash burn over the next three quarters while it waits for Food and Drug Administration's (FDA) action on its potential blockbuster product, Imagify.

Recently, Acusphere reduced headcount by 24% and cut salaries for senior management 10%. These moves follow restructuring IP payments and renegotiating manufacturing terms earlier in the second quarter.  However, these moves only delay what we see as inevitable.  Acusphere will need to raise cash before the U.S. Prescription Drug User Fee Act (PDUFA) date on Imagify of February 28, 2009. This will come from either signing a U.S. partnership or big stock offering.

Acusphere has developed Imagify with the intension of building a specialized sales force and promoting the product themselves in the U.S. The market for Imagify is over $2 billion, but a specialized sales force focusing on high-performing cardiologists/echocardiologists should be able to get the job done effectively.  However, an abysmal stock price and a desperate need for cash have backed management somewhat into a corner. Therefore, a partnership that brings about upfront funding seems to be the best option for the management and the shareholders right now.

Although a high-risk event (60/40 in-favor), we think Imagify can be approved in February 2009. Our financial model below forecasts U.S. sales of Imagify in 2012 of $494.8 million. Further, we see Acusphere being in position to deliver $1.46 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. Our Buy call remains extremely speculative and for high risk tolerant investors only.

Read the full analyst report on ACUS