Decision Diagnostics Corp (DECN)

[Leirum]

What a bargain on the table.

If a stock all of a sudden breaks out and moves 200% within some days, of course people are looking at this and asking themselves: How is it that I missed this move, especially when the FDA approved their product in November 2012. Since then news about the fight between J&J and DECN moved back and forth and so did the stock. However, DECN had no premium attached and therefore for everybody at that time following the case it was like buying a perpetual call option on a Risk-Reward-Ratio Case of 50 to 50 for a positive outcome.

But the market gave a second chance: The USPTO ruling? When a 4 judge panel within the USPTO appal structure notified DECN in August that they would likely prevail against J&J the red lights should have been flashing. The commercial DECN released

was a clear signal that they are starting to rolling out Genstrip.

Now as the stock lifted itself out of the old range, those who missed the first move are scratching their head and those who were with the stock but got bored and sold out after the first wave on the upside are doing the same.

If we take the status quo then DECN is capitalized with approx.. $ 17 Mio.

Against this we have a market worth around $ 23 billion annually and expected to grow to 30 billion by 2017 and approx.. 3.4 Mio diabetics in the U.S. who use or have used J&J’s Ultra meters. With Decision Diagnostics GenStrip™ the affordable alternative strip for use with OneTouch®Ultra® meters, diabetics could be saving roughly 50 % on their 3- 8 daily blood glucose testing measures. Having said this, it is then obvious, DECN if they are allowed to stay independent will grab a very high percentage out of this market. They could within 3 years control 2 % or roughly 600 Mio $ Revenues from a 30 billion $ market. My estimate is, that DECN will net in roughly 10 % which would mean $ 60 Mio net profit. Companies with this kind of profile are traded with P/E’s of 15 which would catapult this “little Gem” into the 900 Mio league plus. If you think I smoked the wrong pot, I recommend to study various articles from Forbes and medical magazines who took this subject up.

But then, not all is that easy on Wallstreet.. Those familiar with the M&A business strategy of J&J and others know, that the chances for DECN to be bought out is very very high as it is as well dictated by common sense. The market is just too big to allow those kind of pricing competition to survive and this means, buy them out. In the M&A world it is all about market potential in the years to come to fix a premium to justify a price. If J&J or others fix the potential within 3 years around the 1 % or 2 % penetration, they will have to move, so as not to be dictated by the market.

The capitalization of DECN with roughly $ 17 Mio is very small and therefore for a lot of small-cap or medium cap funds a hindrance to building a stake however if they see the $’s signs at the end of the line, they will not wait until the cap. Is $ 50 Mio or $ 100 Mio and once those decide to allocate only 0.5 or 1 % of their assets it will get overcrowded here.

What then will or could happen we have enough examples on Wallstreet. However for history it is still best to take the Taser case as a study. Around 2002-2003 Taser was nothing more than a low capitalized stock however when their Taser model and the market potential became recognized by some (and as catalyst there were 2 orders out of California and Israel ) the stock from below 0.20 took off and within one year was trading $ 30 plus. The market priced at that time a market potential of almost 5 years in. Just to remember, those prices I give here are 3 times split adjusted. (The old model would show from approx. $ 0.50 to $ 120 ) Taser today is a $ 720 Mio company.

What I would like to say with this comparison: The market moves ahead of the possible expected revenue potential and in the case of DECN we are talking about a market presently turning around $ 23 billion and strong growing, which is certainly bigger, more secure and stable than the market Taser moved in.
So the question is, what kind of catalyst is needed to catapult DECN – which already is on the radar of almost every traders desk and fund manager thanks to Forbes – closer to a 100 Mio and plus Cap than the present 17 Mio Cap.

There is a nice little bond of $12.5 Mio out there and if the court gives this amount free for the Damage the J&J game did to DECN, then this could be the Catalyst for getting on board as long as you can, but imagine DECN would get a treble compensation. Do not forget, DECN has 2 important cases open against J&J. which could justify a treble compensation.

http://finance.yahoo.com/news/decision-diagnostics-subsidiary-makes-move-131500209.html

http://finance.yahoo.com/news/decision-diagnostics-corp-subsidiary-pharmatech-163118473.html

Conclusion: The present stock price is an absolut bargain . If it becomes clear to everybody that DECN will gain a strong foothold in the high-margin market controlled by J&J and 3 other pharmaceutical giants the stock will never look back.

Why: It is either or and on both sides huge money will be made. DECN’s product may attract besides J&J other Big pharma companies to either licencse it or acquire all of DECN.