Bacterin International (NYSEMKT:BONE) is one of the top four players in the $410 million U.S. demineralized bone matrix (DBM) market, with over 6 percent market share, said analysts at H.C. Wainwright (HCW) on Tuesday.
DBM products, HCW said, currently make up 24 percent of the $1.7 billion US bone replacement market.
The equities research firm initiated coverage of Bacterin with a buy rating and 12-month price target of $5.00 per share.
Bacterin's new management came on board in August 2013, and has initiated commercial programs resulting in revenue growth from $7.9 million in the third quarter of 2013 to an estimated $9.2 million in last year's fourth quarter, HCW noted.
"Given the growth rate of the DBM market, the potential for Bacterin to gain market share, and possible earlier-than-expected relief from debt, we believe that the shares of Bacterin are attractive," wrote analyst Swayampakula Ramakanth in a note released to clients earlier today.
HCW highlighted several points to make its case, including a sales force transformation that is underway. Last year, the company recruited professionals with prior experience in the bone graft market, which paid off, as Bacterin expects to report between 6 to 7 percent revenue growth to $35.4 million in 2014.
"Encouraged by this success, management plans to expand the current sales force by about 40% from 35 to 50 sales representatives by the end of 2015. We believe this sales force expansion strategy could lead to a 16% growth in revenues in 2015," HCW's Ramakanth said.
The analyst also pointed out the company's "differentiated product portfolio" with surgeon-preferred handling characteristics, as well as an expected debt recapitalization over the next 12 to 18 months.
In 2012, Bacterin entered into a 7-year $24 million debt agreement, which HCW believes is currently an overhang on the stock, with the debt-related payments becoming a strain on the company's finances.
"Successful revenue growth could mitigate the debt impact. We expect management to seek avenues to refinance or recapitalize the debt over the next 12-18 months," HCW said.
Market changes could also play a factor in Bacterin's growth, with major DBM player SeaSpine set to experience a loss of market focus as it is being divested from its parent Integra and is currently undergoing a change in management.
HCW expects that Bacterin's DBM market share could grow from the current 6.1 percent to 9.5 percent in 2025, which it says is a conservative assumption.
Bacterin is planning to launch two new products this year, after introducing two products in 2014.
Shares were trading at $3.60 in New York on Tuesday, up almost 19 percent so far this year. The stock has lost nearly 45 percent in the past 12 months.