Brian Marckx, CFA
We cover Verisante Technology Inc. (VRS.V / VRSEF) with an Outperform rating. See below for free access to our 23-page report on the company in which we detail the size of the skin cancer markets (in the U.S., Europe, Canada and Australia) and how the shortage of dermatologists presents an enormous opportunity for Aura, their skin cancer detection device.
There was an interesting article in the April 27, 2011 edition of Men's Health magazine which highlighted not only the skin cancer epidemic in the U.S. but also the seriousness of the shortage of dermatologists. For those that do not understand how (life-threateningly) serious the problem is, the article, which documents how two skin cancer victims had to endure month-long waits (as the cancers progressed) to see a dermatologist, is an excellent wake-up call (link here: http://www.menshealth.com/health/skin-cancer-appointments).
The problem is two-fold. The first is that the incidence of skin cancer (including melanoma) continues grow very rapidly. In the article Brett Coldiron, M.D., characterizes the growth in U.S. skin cancer cases as "an epidemic." Skin cancer accounts for about one-half of all cancers in the U.S. and roughly 1 in 5 Americans will be diagnosed with skin cancer in their lifetime. Melanoma, while accounting for only about 3% of skin cancer, causes 75% of skin cancer deaths.
The second problem, which likely is largely unrealized by the general public, is that there are not nearly enough dermatologists to handle the skin cancer epidemic. It's estimated there are only about 10k dermatologists in the U.S. (and many of these – as much as one-third, only focus on cosmetic procedures and do not screen for skin cancer) with only a slow trickle coming out of medical school each year. This has caused a backlog of patients waiting to see a dermatologist – and the wait can be many, many (as in 6 to 18) months. The problem is especially pronounced in rural areas.
One way dermatologists have been trying to reduce patient wait time and increase throughput is by having a physician assistant see patients. The current "gold-standard" for skin cancer screening ("ABCD" method) is subjective and highly prone to error, especially for less experienced physicians – this poses an especially significant potential problem when non-MD's are the ones doing the screening. Dr. Coldiron notes, "They are not as well trained. They could miss something." The article cites a study that found 23% of dermatologists contacted used an "extender" (i.e. – assistant) to look for skin cancer.
Verisante Technology, a company that we initiated coverage on earlier this year, is specifically addressing the issues of rampant growth in the incidence of skin cancer and too few professionals to handle the epidemic. Their Aura skin cancer detection device has shown in preliminary data to be more accurate than "ABCD", even when "ABCD" is performed by a dermatologist. The device, which provides yes-no diagnosis (i.e. – non-subjective), has the ability to revolutionize skin cancer diagnosis and, even in the hands of "extenders", would allow for more reliable screening than the current gold-standard.
With no end in sight to the dearth of dermatologists and continued escalation in the number of skin cancer cases (see graph below), more and more general physicians (i.e. – non-dermatologists) will need to be able to accurately diagnose skin cancer – and Aura could be the way to do it. With high-throughput scanning (under 1 second per lesion), Aura also affords accurate full-body scans in just minutes, an impossibility with "ABCD".
Dramatically Escalating Incidence of Melanoma (SOURCE:SEER)
Incidence of Melanoma in U.S.
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Verisante expects to launch Aura in Canada and Australia later this year – both of which have similar (or even more severe) shortages of dermatologists (see charts below). Both countries also have vast swaths of rural areas, where the problem is especially pronounced. We think Aura could make its U.S. entrance sometime in 2013. Although there are other technologies that have either been recently introduced or are in late-stage development that would directly compete with Aura, the market still remains almost completely up for grabs. And based on the huge market size and what we expect to be certain competitive advantages (speed, versatility for all types of skin cancer, greater accuracy, smaller probe), we believe Aura will be very well received and expect sales to ramp very quickly following launch.
For a free copy of the full research report, please email scr@zacks.com with VRS.V as the subject.
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