The Berkeley Investment Group, founded in 1997 is the largest undergraduate investment club at UC Berkeley. Our goal is to educate the broader campus about investing through the “Intro to Wall Street” DeCal, our internship program, and our weekly general meetings. We also host consulting projects and recruiting events with local investment management firms. Every Tuesday, we provide an informational presentation or a stock pitch for the $65,000 student-run fund. Last week, four officers pitched NxStage Medical (NASDAQ: NXTM) to add to the portfolio.
NxStage is a medical device company in the field of hemodialysis whose stock has fallen drastically over the previous year. However, the company has many unique future prospects in the industry that intrigued these officers. The company is the only provider of home hemodialysis in the United States, a therapy that allows a patient with End Stage Renal Disease (ESRD) to avoid traveling to a center three times a week to receive 4-hour dialysis treatments. Instead, an eligible patient is trained to use a small, portable machine called the System One, and then performs the treatment at home on their own! Not only is the therapy far more convenient than in-center dialysis, but it has also been proven to be clinically superior to in-center dialysis by multiple studies.
Since Nxstage debuted the System One five years ago, it has placed at least 6,000 patients on the product, and has grown revenues in that field at over 15% a year. In spite of its convenience and proven benefits, however, it still controls less than 2% of the hemodialysis market, as over 400,000 patients currently use in-center dialysis. An uptake barrier exists, because dialysis centers who provide NxStage’s product have no incentive to market home hemodialysis due to the current Medicare reimbursement structure. Because of this, NxStage’s growth has disappointed Wall Street for several quarters, and the price has fallen from very bullish highs.
By looking through multiple sources, including company transcripts and analyst reports, the officers concluded that the reimbursement structure is very likely to change in the near future due to company pressure, political pressure, and other developments. Because many hemodialysis patients still don’t know about the option of home dialysis, it is only a matter of time until the business begins to grow. Given the current price and street growth expectations, the officers realized that the street is significantly undervaluing Nxstage’s growth potential. They conducted a valuation that targeted the company at $15.11 per share by the end of 2013, 40% above its current price of $10.70.
If you have any questions, feel free to drop by one of our meetings held every Tuesday in 220 Wheeler 7-8pm. Please contact our email below if you could like to receive a copy of the pitch.