Biotech Values

[DonShimoda]

Full Disclosure: I'm long ALQA. Hopefully, the following can serve as a jumping off point for your dd.

Alliqua (ALQA) Snapshot

Key Strengths
Strong revenue growth (+250% in 2015e) from internal, partnered and acquired products (expecting guidance to be raised at 3Q15 conf call)
Increasing margins (approaching 70% on internal products) reflects the continued shift away from historic contract mfr business
Improved balance sheet (recently raised ~$30M at $4.55)
Partner Validation (Celgene has a 15% equity position and both their CMO and Head of CELG Cellular therapeutics sit on the BoD)

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Key Risks
50% of Wound care market is controlled by a handful of large players (3M, J&J, Covidien, CR Bard, Smith & Nephew, and ConvaTec)
Integration of the recently acquired Celleration business
Continued MAC reimbursement approval
Rapid growth may pressure cash flow - however the company expects no near-term dilution outside of a possible acquisition

Basically it boils down to execution and ALQA has a strong partner in Celgene and an experienced management team with a track record of building a $1.4B wound care business while running Bristol Meyers' Convatec Unit (which was subsequently spun-out to a Private Equity firm)

Wound care is an $8B global market. ALQA now has products that address 6 of the 10 key categories in the segment. As ALQA continues building a clinical argument for its products within the core DFU/VLU (diabetic foot ulcers, chronic venous ulcers) segment, Revenue is expected to grow by over 80% in 2016. Expansion of the company’s Biovance amniotic tissue platform along with two additional CELG products in 2016 represents significant upside.

Going into 2016, I'm looking for revenue multiples to expand to levels more reflective of ALQA's peer group e.g. OSIR, MDXG
Reduced execution risk as company integrates recent Celleration acquisition
Additional regional Medicare MAC) coverage for Biovance and MIST Therapy
Sales force build out (50+ sales team in place by early 2016) to leverage additional product pipeline

With ALQA currently trading near its 52wk low, the mid $3's represents an attractive entry point and, based on 2016e revenues of $33M @ 5X EV, offers a potential 75% 12mo return from current levels.