Ceasing coverage: Nanosonics, GI Dynamics and Universal Biosensors

We are ceasing coverage on the three medical device companies. There are better opportunities elsewhere.

We are ceasing coverage today on three biotech stocks, as a result of the departure of an analyst.

The stocks are: GI Dynamics, Universal Bionsensors and Nanosonics. All of these are non-profitable companies on which we don’t have a clear enough understanding of their pathway to profits.

GI Dynamics was valued by us at $1.05 but has subsequently fallen to 45c. In his latest research on the subject, Brendon Lau wrote: “I can think of two possible reasons behind the sell-off. The first is investor fatigue as investors have become tired of waiting for the company to achieve certain milestones. Gaining approval to sell the product in Brazil is just one example.

Management told investors they expected to get the green light at the end of last year, but eight months into 2014 and there still isn’t any word on when the Latin American country will approve the use of the device.

Further, some investors might also have been put off by how long it takes for governments to put EndoBarrier on the list of reimbursable procedures. This is a big issue when it comes to driving market adoption in some countries, because their citizens expect medical procedures to be paid for by the government. There just isn’t a culture to pay out-of-pocket expenses for health services, regardless of how wealthy one is.”

In the circumstances, we think the risks are too great and the time it is likely to take to make money is simply too long.

Universal Biosensors has also been a poor performer, which we last recommended as “high risk hold”. On reflection, no stock should be a high risk hold.

Our last item on this company said: “Universal Biosensors is stuck in no man’s land after the stock suffered its worst two-day whipping on record, with the market essentially pricing the stock as though the medical device maker is going out of business.

“Shareholders should get comfortable as Universal Biosensors isn’t likely to be going anywhere for a while. “

No thanks.

Nanosonics was also last recorded as a “high risk hold”, although in this case it was because the price rose 20% to our target price of $1.15 before settling back to $1.

Nanosonics undoubtedly has a future, but in light of the analyst’s departure we feel unable to properly cover it.

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