Acusphere High Risk, High Reward

Acusphere, Inc.’s (ACUS - Analyst Report) Imagify is an investigational new drug developed to assess perfusion using ultrasound for the detection of coronary artery disease. Imagify is a billion-dollar product if approved. However, an abysmal stock price and a desperate need for cash have backed management somewhat into a corner. Acusphere remains a highly speculative play. We view the name as a biotech call option.

Acusphere will need to raise cash before the U.S. PDUFA date of February 28, 2009. This will come from either signing a U.S. partnership or dilutive stock offering. The FDA has scheduled an advisory panel meeting to discuss and review Imagify on December 10. We view this as very good news for Acusphere as it not only improves the odds of approval, but also moves forward a significant catalyst for the shares and could allow management to secure much need financing before the need to dilute shareholders with a big offering or split the stock.

If we apply a 20x multiple to our 2012 EPS estimate of $1.46, 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. At $0.39 per share, the upside is enormous. The downside is bankruptcy. Our Buy call remains extremely speculative and for high risk tolerant investors only.

Read the full analyst report on ACUS