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Does biotech Impedimed Limited have blockbuster potential?

Healthcare device company, Impedimed Limited (ASX: IPD), announced this morning that US physicians will receive a higher reimbursement for its L-Dex procedure from 1 January 2017. The payment rate is set to rise by 13.1% to US$127.42.

Technology

L-Dex is Impedimed’s first product and enables the early identification of lymphoedema, a condition that affects 20% to 30% of breast cancer survivors. Lymphoedema causes fluid to build up in the extremities and if left untreated can become a lifelong condition that deteriorates over time.

L-Dex works through Bioimpedance Spectroscopy (BIS), a patented platform technology that measures fluid and tissue composition quickly, accurately and non-invasively. Impedimed is hoping to use BIS to develop a new method for monitoring heart failure in the future.

Commercialisation

For now, the company is focused on commercialising L-Dex which gained full US regulatory approval in 2013 and is also approved for use in Australia.

Since 2015, Impedimed has been running a clinical trial to demonstrate the efficacy of L-Dex involving six prestigious US cancer centres. By the end of March this year, the company had signed up a further 17 cancer centres for lymphoedema surveillance programmes and is targeting 50 by the end of the year.

Despite this progress, the March quarterly report showed cash receipts of just $4.2 million for the first 9 months of the year and net operating outflows of $15.6 million. The company recently raised over $70 million of fresh capital and has a market capitalisation of over $400 million.

A layman’s view

Biotechnology stocks are often considered risky bets because of the considerable time, money and uncertainty inherent in gaining regulatory approval. However, as the case of Impedimed demonstrates, even once approval is achieved it can be a long time before financial returns follow, if they do at all.

Three years after Impedimed first gained approval in the US, the company is a long way from profitability. Whilst today’s news of a 13.1% increase in pricing sounds good, it is insignificant when annual sales are just a few million dollars per year.

It may be that Impedimed’s technology is so good that over time its products become the gold standard for monitoring lymphoedema and heart failure. However, I think that even a scientific expert would struggle to make this judgement let alone a layman like myself, and so I won’t buy shares in Impedimed anytime soon.

A better alternative?

Universal Biosensors, Inc. (ASX: UBI) is another biotechnology company which is at the commercialisation stage. It has two blood testing products on market and partnerships with industry heavyweights Siemens Ltd and Johnson & Johnson.

The company delivered revenues of $16.8 million last year, is rapidly approaching profitability and has a market capitalisation of just $50 million.

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Motley Fool contributor Matt Brazier has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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