Given Imaging Ltd. (Nasdaq: GIVN; TASE: GIVN), once considered one of Israel's life sciences success stories, has been in a rut in recent years. Although it has successfully entered its niche market for tests of the small intestine, it has not been able to leverage this for the jackpot of tests for the large intestine.
In the past couple of months, Given Imaging has had two announcements about its PillCam Colon 2 endoscopic capsule - one bad and one good. In August, it announced that it would not market the product in the US for colon cancer screening tests, which reduced the product's potential market from $4 billion a year to $1.7 billion. The share price dropped 9.9% on the news. In September, it announced positive results of a pivotal study in Japan, and predicted that it would obtain marketing approval within a year. The share price rose 5.4%. For the year to date, however, the share price is down 10.5%, giving a current market cap of $482 million.
In view of the US failure and Japanese potential, is Given Imaging a takeover target? Oppenheimer & Co. analyst Sergey Vastchenok thinks so. "The upside of the PillCam Colon 2 is barely reflected in its company value," he told "Globes". "In my opinion, the reaction to the August announcement was overblown. The decision to go for the secondary testing path was much more logical, because it will be easier to obtain marketing approval for the capsule. Even if we take 5-10% of the smaller market, the numbers are very large. Any investor should look at the size of the dream."
Vastchenok gives Given Imaging an "Outperform" recommendation.
Harel Finance analyst Steven Tepper is more cautious, although both he and Vastchenok give Given Imaging the same target price of $18. Tepper recently raised his recommendation for the share from "Hold" to "Buy" and raised his target price from $16, citing the company's success in Japan and the drop in the share price, which he believes creates a buy opportunity.
"The share is traded slightly below my target price, which reflects the probability of progress in the US," he told "Globes". "On the other hand, the US is still a question mark. It's a big and important market, and it's not clear what's going to happen there. Uncertainty hangs over the company. If Given Imaging obtains FDA approval for testing patients who cannot undergo a colonoscopy, this will be positive. But there's a chance that the FDA will demand another study that better targets the population for whom the capsule is intended, which will create a significant delay."
As for Japan, Tepper says that Given Imaging's trial was carried out under almost optimal conditions, and showed strong results that gives the company a tail wind.
Vastchenok believes that Japan gives the company great long-term potential, because its health system is one of the most developed in the world and almost equal in value to the US market. As for the company's current market, tests for the small intestine, he says, "There is a problem in Europe, and the euro's weakness is hurting the company's results. The US market is saturated, but there is growth potential in Brazil and Asia, as well as in Europe."
Tepper says that Given Imaging has two growth options: obtaining insurance indemnification in more countries, and to raise awareness about Crohn's Disease in the US. "In general, the market has fulfilled its potential. There are growth options, but the big hope is the PillCam Colon 2 capsule."
Another possible catalyst for the share may be found in Given Imaging's ownership structure. Its biggest shareholders are Elron Electronic Industries Ltd. (TASE: ELRN) (22%), and its parent company Discount Investment Corporation (TASE: DISI) (15.3%), a subsidiary of IDB Holding Corp. Ltd. (TASE:IDBH), controlled by chairman Nochi Dankner. His need for cash could prompt him to sell the holding.
Published by Globes [online], Israel business news - www.globes-online.com - on October 9, 2012
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