Call of the Week: A Bone to Pick

Robert Maltbie  |

This week at Singular Research we initiated coverage on Bacterin International Holdings (BONE), a biotech company that we think has a lot of potential for growth. The company, which has a market cap of just over $100 million, develops innovative bone replacement material that is used in surgical procedures. The market that the company operates in is worth about $2 billion in the U.S., and $3.5 billion worldwide.

Bacterin's primary product, OsteoSponge®, has been used in over 100,000 surgeries, so their technology is proven. What makes it different, however, is the fact that the products are made from biologic materials and not synthetics. It's also important to note that Medtronic (MDT), the current market leader in the bone replacement market, is dealing with federal investigations and lawsuits because of allegedly promoting off-label use of its product, which has created serious health issues in patients. So that that could create a tremendous opportunity for Bacterin.

The company currently only serves about 10 percent of hospitals in the U.S. and should grow that as opportunities arise. We expect Bacterin to continue to grow market share as it ramp up its marketing efforts and production capacity. For full year 2011, we expect to see revenues to grow by 100 percent. For 2012, we expect revenues to grow 75 percent and the company should record its first profitable quarter later in the year, and see triple-digit earnings growth in fiscal year 2013.

So as such, Singular's analyst Greg Garner has a target price of $5.75 for Bacterin, which represents considerable upside potential with shares currently trading around $2.80.

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