Benchmark: Automated cardiac ECG analysis provides enhanced computerized sensitivity
and accuracy at lower cost than manual and semiautomated methods.
Published data indicates that NewCardio’s proprietary software is superior to
current manual and semiautomated methods for detecting cardiac anomalies such
as QT prolongation. We estimate that QTinno costs 20%-35% less than semiautomated
processing and has the potential to reduce sample size due to QTinno’s
lower data variability.
NewCardio is commercializing QTinno for QT evaluation, initially in phase-I
clinical trials, with larger opportunities in later phase studies. NewCardio has
signed seven master service agreements (MSAs) with CROs and other clinical trial
service providers that include Quintiles, ICON, Pharma Lynx and CliniLabs. The
Company has performed validation studies with eight biopharmaceutical
companies, including two of the top twenty. In 2009, a top-three pharmaceutical
company selected QTinno as its preferred provider of automatic cardiac safety
solutions, and in 3Q10 another global pharmaceutical company initiated QTinno’s
first commercial study.
CardioBip and Cardio3KG target markets potentially greater than $1 billion
each that are incremental to our current model. We anticipate within six months
NewCardio could secure funding through strategic partnerships or other means to
accelerate development and commercialization of CardioBip and Cardio3KG. We
estimate that $10 million - $14 million is required for CardioBip’s atrial fibrillation
(A-Fib) and ischemic monitoring applications and that launch from the time of
funding could be 15 months - 18 months for the A-Fib application and two years
for the ischemic monitoring application. We project Cardio3KG could require $8
million - $10 million and take 18 months - 24 months to launch after funding.
QTinno provides an initial basis for valuation while CardioBip and Cardio3KG
provide potential upside. Our one-year price target for NewCardio shares is
$1.00 based on the discounted value of our $0.10 EPS forecast in 2014. We use a
20x PE multiple on our $0.10 EPS forecast in 2014, which we discount three years
to 2011, at 25%. Our Buy rating balances the upside opportunity of strategic
partnership opportunities with NewCardio’s risk and early stage of development.
