Chances are you never heard about Accelerate Diagnostics (NASDAQ: AXDX) before. They are a small player in the biotech sector, and more specifically, antibiotics. They’ve been around for over 10 years but haven’t developed or patented anything worthwhile until now.
In February of this year, they won FDA approval for a new testing procedure and the stock popped. Not only do they have the approval to begin selling their new testing equipment, but they are the only one in the space to offer it.
So what is this new testing equipment and should you take a play on this small cap stock?
Accelerate Diagnostics And Their Business
To understand their new patented technology, we first have to step back and understand the problem.
Each year, millions of people pass away from bacteria that enters their bloodstream while in the hospital. Many times these patients are given strong antibiotic drugs to try to clear the infection. But overuse of these antibiotics has made many of these new bacteria strains resistant to stronger antibiotics.
In order for a hospital to know what bacteria it is and how to effectively treat it, they need to run a test. After they collect the sample, they send off the sample to a lab and wait for 2 days for the results. With the aggressive nature of some of the bacteria, waiting two days it too long and many patients pass away.
The new testing procedure that Accelerate Diagnotics won FDA approval for shortens the testing time from 2 day to a couple of hours.
Here are the benefits of shortening the time so dramatically:
- Save lives: many patients won’t lose their lives while waiting for the test results so doctors can properly treat them.
- Save money: by shortening the stay in the hospital, the patient saves money. The hospital saves money too.
- Better healthcare: by knowing what the bacteria is and how to effectively treat it, the overuse of strong antibiotics will drop. Doctors will be able to use more common antibiotics to treat many of the bacteria, slowing the growth of these antibiotic resistant diseases.
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Accelerate Diagnostics Numbers
While the above all sounds good, how does this translate to earnings? In the most recent quarter, the company reported an earnings per share loss of $0.27 which beat estimates by $0.07. Revenue came in at just over $500,000 which was an increase of 231% over the prior year’s quarter. However, they missed the estimate for revenue by $700,000.
Looking back at the last 3 quarters, you will find the same story. Beating analyst’s expectations on earnings per share but missing on their revenue target.
Should You Buy Accelerate Diagnostics
The sky is the limit for this stock. It is currently trading at just under $30 a share and is at its 52-week high. But don’t let this scare you. The stock has a long way to go.
Revenues should increase as they push their new testing procedure throughout the world. And as I mentioned earlier, there is currently no other company that is doing this, so Accelerate Diagnostics has a monopoly right now.
Another potential reason to buy? A buyout. Currently close to 50% of the shares of stock are held by insiders. This alone makes the company a strong takeover candidate. Add this to the fact that Danaher is in the same space and you can connect the dots.
It would be much easier for Danaher to buy out Accelerate Diagnostics rather than try to develop their own testing procedure and win FDA approval.
Overall, I like this stock a lot. But being a small company, there will be volatility on a day to day basis. If you can handle this movement, the stock is a good long term buy.
This author has no positions in any stock mentioned and does not plan to open any positions in any stocks mentioned for at least 72 hours after publication of this article.