Panning for Golden Stocks Outside the Gold Industry

WHITEFISH, MT / ACCESSWIRE / May 28, 2015 / Gold miners are their own special breed, utilizing skills most laymen do not understand to analyze the ground, drilling to confirm targets and digging-in to unearth the precious yellow metal. Throughout the world, though, there are still plenty of artisanal miners finding gold and others plucking a nugget from a pan that they stuck in a stream. Whatever the method, it often takes poring through plenty of material and some savvy vision to find the payoff, a tactic that can be applied to many applications in life, including the stock market. 

There are some huge opportunities in very fragmented industries and that’s a good place to look. The pet business is one; that’s in part why Patterson Companies, Inc. (NYSE: PDCO) is divesting some assets and spending $1.1 billion to further bolster its veterinary business. The global dermatology industry, which can cover everything from lasers to skin creams, is another. NovaBay Pharmaceuticals (NYSE MKT: NBY), with its portfolio of products including, but not limited to, those for eye care, wound care and aesthetic dermatology, has seen some volatile price movement as it looks to be breaking a nearly two-year downtrend after a significant quarter-over-quarter improvement in both top and bottom lines during the first quarter.

Oculus Innovative Sciences (NASDAQ: OCLS), the developer and marketer of a franchise of Microcyn®-based dermatology products, has its hands in both industries and the convergence of the two just may uncover a gold vein. First, since its initial public offering in 2007, Oculus has had a trifecta of problems, including management that over-promised and under-delivered; being a serial issuer of stock; and a revenue stream from their animal health operations that evaporated to zero in a hurry. Effectively, this amounted to a price per share that fell from a high of $80 to a low of 65 cents a few weeks ago.

However, a new, seasoned management team is at the controls; the company has sufficient cash to move forward and likely get to breakeven with the cash from the sales of Ruthigen shares; the company launched a new dermatology division; and a new animal health business is under their control with an expanded distribution network that should quickly ramp sales back into the black.

To take a more granular look at the turnaround, consider Jim Schutz took over as CEO in February 2013 when Oculus founder and former CEO Hoji Alimi (along with board members) went to leadership positions at Ruthigen (NASDAQ: RTGN), the novel biotechnology business spun-off from Oculus. Although Schutz held numerous positions at Oculus, including being a director since 2004, it is Schutz that is helping right the ship as top executive. As general counsel of Jomed, Schutz orchestrated the company’s sale to Abbot Labs (NYSE: ABT) in 2003. He was also general counsel for Volcano Therapeutics, which is now part of Koninklijke Philips (NYSE: PHG).

Oculus’ cash position is solid, especially when compared to its market cap. Adding cash on hand at the end of 2014, a January financing, recent sales, commitments to sell the complete stake in Ruthigen as a result of that company’s pending acquisition totals about $11 million in cash and expected cash for Oculus. As of this writing the company’s market cap is just south of $13 million. Further, the company has no debt. 

To say that the animal health operations went to zero completely by accident would be inaccurate. Oculus’ prior distribution agreement was not favorable and gave the company little to no control. By terminating the relationship, Oculus now has more control and has greater headroom for expansion. In February, Oculus launched its new animal healthcare division, simultaneously partnering with leading sales firm SLA Brands and commercializing six new MicrocynAH advanced all-animal healthcare products in the U.S. and Canada to treat wounds, skin and eyes. Commercialization in the European markets is expected this summer. In April, the company released two new MicrocynAH Farm and Ranch animal healthcare products, giving it a formidable product lineup in the animal care space. From the launch in February to the latest news in April, 10 North American distributors added MicrocynAH animal healthcare products to their product portfolio.

The new dermatology division, IntraDerm Pharmaceutics, which is led by a road-tested team, is active in both the U.S. and Europe now. The company’s first U.S. products including Alevicyn Antipruritic Gel, used in the management of symptoms in variation dermatoses, and Alevicyn Dermal Spray, which is intended for use in wound management. Celacyn, a new prescription scar management gel, has also now launched. European offerings include products for atopic dermatitis, mild-to-moderate acne, scar management and an antiseptic solution. Oculus has established distribution channels across the world for its full portfolio of human-use products. One that investors will be watching closely for growing sales is south of the United States border where the company has partnered with Sanfer Pharmaceuticals for distribution. Unlike its previous distributor who was limited to Mexico, Sanfer has a complete Latin American reach. 

Investors will get a good sampling of how things are changing for Oculus on June 11, when it is expected Oculus will release its latest earnings report. Analysts at Dawson James Securities and Stonegate have a consensus estimate of sales of $3.09 million for the quarter. During the quarter ended December 31, 2015, Oculus cranked out $3.22 million in total revenue. The bar is actually set low with the estimate as a quarter-over-quarter match will top estimates, which could catalyze the stock as evidence the turnaround is working. In the year prior quarter, Oculus reported revenue of $2.91 million.

Oculus seems optimistic about growth, as measured by the last earnings call in February. CFO Bob Miller commented,

“What does our future growth in revenue look like?

1. The animal health revenue has bottomed out and now we expect to see this grow as we launch our MicrocynAH products with new partners. The launch will start in March 2015, as I mentioned earlier.

2. The international revenue will continue to grow, we believe, in the 10% to 15%+ range in constant currency. Our most recent revenue growth of 16% over the last 9 months tends to substantiate this expectation. Furthermore, this segment currently represents over 70% of our product revenue, thus a major driver in our short-term future growth.

3. The direct sales forces for the dermatology and acute care markets will continue to grow the revenue rapidly as the current and new products go up the sales ramp curve from a relatively small base.

As a result we are targeting double digit, product revenue growth for FY 2016. Thus we feel that Oculus is a perfect investment candidate for the value investor, who is also looking for strong revenue growth.

In other words, a $12.5 million market cap is smaller than our potential cash value and with $13 million of revenue, with expected double-digit growth.”

Those words coupled with the fundamentals could be considered a gold outcrop off the beaten path in under-followed OCLS with shares still hovering near an all-time low. This may not take much digging to further expose if operations can hold the course that management is expecting.

Click here to receive future email updates on Oculus Innovative Sciences developments: http://www.tdmfinancial.com/emailassets/ocls/ocls_landing.php. 

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SOURCE: Emerging Growth LLC

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