PBIO: Pressure BioSciences – Initiating Coverage

By Elizabeth Senko, CFA



OUTLOOK: Pressure BioSciences (OTC:PBIO) is at a tipping point. Demand grew modestly through its early years but is expected to accelerate starting in 2020. After a decade of marketing its original PCT sample preparation platform to academic opinion leaders and early research customers, the Company recently launched two new proprietary technology platforms opening major new market opportunities. In our view, the overall story is solid, and the combination of new platform products, new commercial applications, and customers positions PBIO squarely to move its business to the next level.

COMPANY DESCRIPTION: Pressure BioSciences develops and sells instrumentation using its patented pressure-cycling technology (PCT) platform to support analytical chemistry testing applications. After a decade of marketing its original PCT sample preparation platform to academic opinion leaders and early research customers, in late 2018, the Company added two important new technology platforms to its portfolio. The new BaroShear platform uses high pressure and intense shearing forces to create shelf-stable, homogeneous nano-scale emulsions (i.e. oil effectively dissolved in water). PBIO has accepted orders for initial UST-based BaroShear K45 instruments and expects deliveries beginning in the second quarter of 2020. The new BaroFold platform manipulates large protein biotherapeutic molecules into their proper active (high-value) configurations in order to help make them effective protein drug candidates. BaroFold is currently a contract service, although we expect it will eventually be offered as an instrumentation sale as well.

FINANCIALS: While still a technology platform development company with a limited sales effort, PBIO has posted seven consecutive years of c.15% average annual top-line growth by working with key opinion leaders to identify applications and build research supporting the value PBIO’s patented sample preparation technologies. With a rapidly expanding product line addressing much broader markets demanding more skillful and higher-throughput commercial solutions, we believe it is reasonable to expect both the number and the size of orders to grow quickly, while the sales cycle shortens.

We forecast revenues of $12.1 million by 2022 with 66% coming from instrument sales and the balance from consumables and contract services. However, the magnitude and trajectory of revenue growth may differ considerably from our assumptions, especially in the next 12-24 months. PBIO should reach operating profitability by 2022 as sales growth moves overhead costs from 140% of sales (in 2018) down to c. 32%. Overhead expenses are expected to level out in the 15-20% range over the long-term.

VALUATION: We are initiating coverage on Pressure BioSciences with a valuation of $4.44 per share, based on a sum-of-the-parts NPV less corporate overhead. Our NPV uses an 11% discount rate across the business. We’ve modeled for $6 million of debt funding through 2024. The average prospective P/E valuations for our peer group are in the mid-twenties for 2019-2020. P/S ratios range widely from a low of 3.4x for Bruker Corporation (BRKR-$44.42) to 6.1x for Waters Corporation (WAT-$222.53). PBIO currently trades around 2x 2019 revenue estimates. It’s important to note that PBIO’s publicly-traded peers are multinational companies with broad product lines, significant marketing resources and good financial and trading liquidity, all of which likely contribute to PBIO’s lower relative valuation.

SENSITIVITIES: Pressure BioSciences is at a tipping point, in our view. Demand grew modestly in recent years but is expected to accelerate starting in 2020, although still below what is needed to be profitable even with its relatively modest fixed costs. While results will likely remain volatile for a few years, we expect this to stabilize as the business grows. The factors that we believe may affect forecasts, results, and valuation over the next several years include: financing needs and closes with debt reduction and/or market up-listing, development and scaling challenges, competition, business investment priorities, and dilution.

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