I would like to know what the readers of this board think of some potential revenue models I constructed for CGNH tied to the information provided in Zacks report. These models use Mercks share (15% to 25%) of the $1 billion annual bead market.

For the Paramagnetic Beads -

Scenario 1 - Merck elects to not charge a premium for CGNH's superior silvercoated beads and as a result one half of their current customers switch to CGNH's beads. In such an event Merck would sell $75 million of which CGNH would receive $22.5 million. As CGNH's gross margin is >90%, CGNH would net >$20.5 million and as CGNH continues to operate as a virtual boutique development company with low G&A, >$18 million should fall to the bottom line for an EPS of approximately $0.36. Using Zack's 13.6 multiple of EPS for IVD POC companies, CGNH could have a share price of $4.90

Scenario 2 - Merck elects to charge a 10% permium for CGNH's superior silvercoated beads and as a result one half of their current customers switch to CGNH's beads. In such an event Merck would sell $82.5 million of which CGNH would receive $24.75 million. As CGNH's gross margin is >90%, CGNH would net >$22 million and as CGNH continues to operate as a virtual boutique development company with low G&A, >$20 million should fall to the bottom line for an EPS of approximately $0.40. Using Zack's 13.6 multiple of EPS for IVD POC companies, CGNH could have a share price of $5.44

Scenario 3 - Assuming Merck actually holds 25% market share of the $1 billion annual bead market CGNH's share price for Scenario 1 would change to $8.22 and Scenario 2 would change to $9.52

Scenario 4 - Assuming Merck has a 15% market share and is successful in switching all of their current customers without raising the price these customers pay for the superior CGNH beads, in such an event Merck would sell $150 million of which CGNH would receive $45 million. As CGNH's gross margin is >90%, CGNH would net >$40.5 million and as CGNH continues to operate as a virtual boutique development company with low G&A, >$38 million should fall to the bottom line for an EPS of approximately $0.76. Using Zack's 13.6 multiple of EPS for IVD POC companies, CGNH could have a share price of $10.33

Scenario 5 - Assuming Merck has a 25% market share and is successful in switching all of their current customers without raising the price these customers pay for the superior CGNH beads, in such an event Merck would sell $250 million of which CGNH would receive $75 million. As CGNH's gross margin is >90%, CGNH would net >$67.5 million and as CGNH continues to operate as a virtual boutique development company with low G&A, >$65 million should fall to the bottom line for an EPS of approximately $1.30. Using Zack's 13.6 multiple of EPS for IVD POC companies, CGNH could have a share price of $17.68

For the POC Analyzer -

Given the litigious nature of tort lawyers in the US, assume that CGNH's Tropon 1 test becomes standard of care due to its ability to provide comparable or superior test results within 15 minutes versus 2+ hours in the management of a suspected heart attack patient presenting to the ER. Assume that only one half of the heart attack patients present to medical facilities who are concerned about being sued so they have SOPs mandating the use of the CGNH troponin 1 cartridge and assume that the Cartridge sells for $20 each. The revenue stream is 4 million patients presenting, so four million cartridges used, which translates into $80 million dollars of which CGNH receives 40% or $32 million. Again CGNH has >90% gross margins so >$28 million falls to the bottom line as all of CGNH expenses have been covered by the bead revenue. Add this revenue stream to the bead scenarios and you generate the following results -

Scenario 1 - $18 million plus $28.8 million = $12.72 CGNH share price

Scenario 2 - $20 million plus $28.8 million = $13.27 CGNH share price

Scenario 3 - Scenario 1 = $17.35 and Scenario 2 = $20.20 CGNH share price

Scenario 4 - $38 million plus $28.8 million = $18.16 CGNH share price

Scenario 5 - $65 million plus $28.8 million = $25.51 CGNH share price

Of course, I do not think we will ever see these share prices, IMO these revenue streams coupled with the virtual structure of CGNH are why CGNH's licensee (especially Siemens and J&J) will buy CGNH.

Ante