Monday, June 14, 2010

iCAD (Nasdaq: ICAD).

Just one of this company's several cutting-edge technologies offers 150,000 people a year a fighting chance against a deadly disease. That disease is colon cancer, which kills 50,000 Americans every year and is the No. 2 leading cause of cancer-related death.

Fact: One in 19 people will be diagnosed with colon cancer at some point in their lifetimes. Risk rises with age, and everyone over the age of 50 should be screened. The most common test is a colonoscopy, which rates among the least pleasant mainstream medical procedures.

Sometimes we joke about these invasive exams, but they're no laughing matter. Colon cancer kills a very high percentage of the people it affects, and early detection is key. But the critical clinical advantage of early detection is forfeited if people aren't screened, and studies show only about half the people who need to be screened really are.

An emerging technology has been proven to solve this problem, and that is the virtual colonoscopy. It's a noninvasive test that uses a CT scan from outside the body instead of a scope inside the body.

The most important question, of course, is whether this test is accurate. And the answer will surprise you. Not only is the virtual colonoscopy extremely accurate and effective at detecting colon cancer -- 90% -- it turns out that the traditional optical colonoscopy isn't as failsafe as previously thought. There are a number of places inside the colon where potentially deadly polyps can lurk and where the optical scope has difficulty visualizing them. But there's no hiding from a CT scanner. 

That scanner only creates an image, though. It merely collects data. Where this company comes in is not in the design or manufacture of CT scanners or MRI machines but in the highly complex software that exploits and maximizes their effectiveness. Looking for cancer is a game of hide-and-go-seek, with the cancer hiding and the radiologist looking. The software eliminates the seeking and fast tracks the finding. It can manipulate the data collected by the scanner in dozens of diagnostically relevant permutations. And it significantly lessens the potential for human error.

The name of this company is 
iCAD (Nasdaq: ICAD). And it has several catalysts behind it that make its shares a very compelling investment that offers strong potential returns:
  iCAD has submitted an application for FDA approval of its virtual colonoscopy. The regulators have said they need no additional information, which suggests approval is imminent. That approval opens up the virtual colonoscopy market.
  iCAD is a small company that's developing technology, but it's not burning through shareholder's cash. It has plenty of cash on hand to help roll out its virtual colonoscopy platform, and the company also has no debt.
  iCAD has achieved this position of financial strength by establishing itself as a leader in diagnostics. The virtual colonoscopy is not the only dance on its card. It excels in several diagnostic areas, including mammography. How good is this technology? Consider a recent announcement: iCAD was selected to provide its mammography technology to 400 federal healthcare facilities, including the Veterans Administration network of hospitals. In other words, when the Department of Defense needed to procure a weapon against breast cancer, it chose iCAD. It's hard to think of a stronger endorsement.

With a pending approval that will open up a new market, a strong balance sheet and existing industry-leading technology, iCAD is poised to deliver outstanding results not only to patients but to investors.

iCAD trades around $1.75. The shares have a 52-week high of $2.43, but even recapturing that ground undervalues the company on the federal contract alone. The pending approval of its virtual colonoscopy should take the company far beyond that.

Long-term investors interested in capturing the remarkable returns possible from exploiting a leading technology should dig in for the long-term and a double-digit price target.

More active traders should consider an immediate purchase at under $1.75 with a price target of $2.25 and a stop at $1.50. I anticipate this +28.6% gain in the near term to stem from approval of iCAD's virtual colonoscopy product.

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