This week has seen a 40% rise in the share price of Lombard Medical Technology, following an update on October 15th that had well respected healthcare analyst Julie Simmonds pushing out a Buy note, maintaining her price target of 332p.
Admittedly, she works for the house broker Canaccord Genuity, but anyone who has followed her recommendations over the course of a few years will take note of her views on a company.
In a 14-year career she's been Head of Lifesciences Research at Evolution Beeson Gregory, an Equity Analyst at Nomura, Senior Research Analyst at Piper Jaffray and is now Healthcare Analyst at Canaccord Genuity. With a a Phd in Microbiology she can also assess the science as well as crunch numbers.
For those who missed the announcement: the Aim-listed company has received written feedback from the FDA asking a couple of questions, which the company says are "relatively straightforward". Lombard Medical intends to answer them within two weeks.
In addition, the FDA has scheduled a Good Manufacturing Process audit of the company's UK facility in late October. The company states that such audits are "typically part of the final stage of the FDA's review process."
So what does Simmonds have to say about the latest development for Lombard? She believes it "marks the closing stages of the FDA process."
She continues: "We are encouraged that a date has been set for the manufacturing audit as we believe this signals that the remainder of the submission is in order. With this due to be completed in late October, 2012 approval is certainly still possible, though likely late Q4/ early Q1-13. The timing of the final FDA decision is particularly critical to Lombard as it triggers a second tranche of funding (£13.6m) from existing investors if it occurs prior to the year end. After this date the funding falls away, but discussions with investors lead us to believe that they would remain supportive."
Make no mistake, it has been a tortuous process that has taken years. Without the support of long term investors, such as Invesco Perpetual, which holds 39.28% of Lombard, this story would not be likely to have a happy ending.
"Our investment case is based on Lombard receiving FDA approval for Aorfix at the end of the fourth quarter. We expect a positive FDA outcome to result in a rerating; the current price only assumes a 20-40% chance of a positive result," she adds.
Clearly, it still isn't in the bag until the FDA sings but it is close. Very close.
Writing on October 15th when the price was 101p, she commented: "Our investment case is based on Lombard receiving FDA approval for Aorfix at the end of the fourth quarter. We expect a positive FDA outcome to result in a rerating; the current price only assumes a 20-40% chance of a positive result."
That re-rating higher appears to be happening. Nevertheless, the recent spike in Lombard's share price has occurred on very low volumes given the tightly held nature of the company's stock.
Moreover, US approval when it comes (and it must surely be 'when', not 'if', in my humble opinion) would open up a huge market for Lombard Medical's aorfix stent.
This is Julie Simmonds view: "The opportunity for Lombard is substantial. Aorfix is designed to treat patients with high angle abdominal aortic aneurysms, no other device is approved in the US for this indication. An approval with labelling for this patient group would make Aorfix the only FDA approved product for these complex patients, circa 30% of the $1.1bn AAA repair market, 54% of which is in the US. We believe this would result in a rapid adoption the US (the device already has an 8%+ market share in the UK), and ultimately bring Lombard to the attention of the medical device majors."
Ultimately this is the end game, to be taken out by one of the majors. US approval when it comes should bring this one step closer.