Of course when I wrote this I made an assumption about the possibility and probability. In school everything is theoretical even if the case studies are supported by examples from the industry but if one does not get the theoretical basis and understanding of markets how then building up a business? Before the NASA send somebody to the moon, everything was theory based on the physical law and as we know, it worked. In short: You work out a model before and not afterwards and for this you study key datas, information and analysis available.
What does this mean for DECN and what size of a market is DECN targeting directly and indirectly?
As per the data enumerated by the International Diabetes Federation, in the year 2013 there are around 382 million people suffering from diabetes worldwide of which 37 million are Americans, 72 million people in South East Asian countries and around 56 million in European countries and others. In addition, rise in technological advances and increased awareness about diabetes is leading to increased diagnosis rates both at hospitals and at individual level.
These factors would in turn enhance the adoption of blood glucose test strips and drive the market growth.
The forecast for the Test strips market for the year 2017 is over 11 billion.
According to GlobalData, the USA monitoring market will reach $12.2 billion by the year 2017. As a point of reference, in 2010, the test strips themselves accounted for close to 90% of the total market value. Therefore, over $11 billion will be up for grabs in 2017 on the sale of test strips alone.
As we know, Lifescan owned by Johnson and Johnson controls 26.5 % of this market or translated back to 2017 $’s 2.9 billion.
Every business man, entering a market with a similar product of quality but lower pricing works out a probability study that shows him the possible potential of market penetration. Nothing unique, it is done every day and in every industry. That is how market works.
If DECN would be satisfied with 5 % through the channels available to them the figure then in play would be $ 145 Mio with a 20 % margin = 29 Mio net profit.
Do you think, J&J would have taken all the pain to go after DECN if they would not have come to the conclusion, that DECN could grab a minimum of 5 %? Why spend millions in litigation and risk your reputation in the markets with the risk of getting hit in court, when they cannot put a value to this case? This is not how it works in the board-room of the big companies. Expenses have to be justified.
What surprises me then, that people cannot see what’s up here in size? When some years ago, small companies started to challenge the big Pharmas with cheaper Generics, hell broke out but the war was lost by the big boys. Arguments were, why should somebody buy a medical product from a little company when the trusted Pharma Brands guaranteed for years, that only theirs is life saving. As we know today the cheaper version worked as well and today they are in control of more than 50 % of the overall market. I would say: Generics became socially acceptable. What do advisers say when promoting a product in the market: The customer decides and the customer thinks with his wallet.
And last but not least: The measuring of money-velocity is never static. Every business, calculates the inventory turnover with the Formula 1. (Meaning turnover of inventory 1 time) From there it starts . Total sales divided by Average Inventory for the period in question. So if the assumption would be, that the inventory is turned over every month, the velocity of goods versus the underlying money supply would be 12 but if you sell, the underlying money supply remains not static but increases by the net profit of the transaction of let’s say 20 %. So based on this formula, the amount of $ 12.5 Mio would increase by 20 % each month due to net-profit cash-flow and therefore allow the company to increase the cost of goods item as well by 20 % (meaning having 20 % more production power) which gives an ever greater momentum. Add this up over a period of 12 months and you know what money velocity can mean in a market where the demand is certainly given.
Based on this, DECN with the bond money of approx. 12 Mio could actually create another momentum. Use the monthly surplus cash-flow to increase the budget for marketing and or R&D and use as well a certain part to repurchase shares from the market.
This is what some will see if and when the bond is paid. The possibilities in the months and years ahead due to enough cash in the bank or what is possible based on the money-velocity theory in a market of that size DECN is targeting.
This is the reason why I said, the bond could be the catalyst for the stock to go back to $ 1.—plus. Besides that, perception could then be, that more money will flow into the treasury of DECN or as Value-Finder wrote: An award from anti trust could make that sum even several times higher.
Let’s keep in mind: DECN has a lot more avenues available to sell their product than some want to see. With Genstrip‘s approval, the product may attract other Big Pharma companies to either license it i or acquire all of Decision Diagnostics.
