The fruits on D Medical's tree

On Friday shares of D Medical Industries lost 4.5% on Wall Street, lowering the price to $5.26.

Since it dual-listed in New York at the start of August, the company, which trades under the ticker symbol DMED and makes insulin pumps, has lost 25% of its value, despite the various announcements it's released in that time.

Shortly after its registration on Nasdaq, D Medical hit a high of $6.80. Since then it's been dropping.

Tel Aviv investors, however, lost even more, factoring in the short period before D Medical's dual-listing. That's because ahead of its Wall Street registration, its share price had risen high, only to fall all the harder.

In a recent announcement to the Tel Aviv Stock Exchange, the company's CEO, Efraim (Efri ) Argaman, said the firm is starting to make use of the "fruits" of its U.S. offering.

The company had hoped these fruits would begin with $25 million raised from U.S. investors, representing a company value of $100 million. Ultimately the firm had to settle for $10.5 million, a company value of just $60 million. Now, a month later, D Medical starts trading today at a market cap of $40 million.

Argaman says the U.S. offering achieved its two main purposes: bringing in cash and listing the company's stock on one of the most popular trading arenas in the world. "It's true that we couldn't control the inconvenient market conditions created by the high level of uncertainty," he says, adding that the company's top managers had faced a tough dilemma regarding timing and the amount of money raised.

But they decided to go for it and get what they could, and the company didn't take advantage of the over-subscription to increase the amount raised, out of consideration for investors, who would have been diluted.

First and foremost the company's goal is to execute its business plan, Argaman says, and without raising capital it couldn't have properly expanded production and entered new markets.

Better alternatives

	CEO Efraim Argaman
	Photo by: Itzik Ben Malki

Analyst Adi Guberman, chairman of Clal Finance Mutual Funds, thinks otherwise. He says D Medical's listing on Wall Street was not handled optimally. "It's true that the company raised capital, but it erred in its pricing, which should have been cheaper. From the get-go, the moment a company lowers its offering price, that affects existing investors, especially during periods of uncertainty and instability."

Guberman feels D Medical had other options, such as raising more capital in the local market, or holding a rights issue to existing shareholders. It could have issued more warrants or shares. It didn't have to elbow onto Nasdaq at this time.

The Clal Finance mutual fund Nivheret Biomed had almost a million shekels worth of D Medical shares a few months ago, comprising 3% of its assets. It scaled back its holding to a negligible level well before the Nasdaq dual-listing.

The bottom line is there's no advantage in an overseas stock offering for a smallcap stock like D Medical that's worth a mere NIS 150 million. The United States and the company have nothing to offer each other, says Guberman, certainly not in shaky times like these. Demand for shares is low to begin with, and even at just $7 per share, D Medical's offering did not go well, he says.

Argaman begs to differ. "If you want to be a global player, you have to become visible," he says.

It isn't easy to create liquidity in the company's stock, he added: D Medical has been trading within a narrow range since its Nasdaq offering. This is a time when Wall Street analysts are quiescent, Argaman added - they're on summer holiday. But he hopes that soon action on the Street will pick up and the company will win "the exposure it deserves."

On the eve of the Wall Street offering, its share price in Tel Aviv was equivalent to $8.50, and relative to similar offerings, D Medical's was a success, says Argaman. The sharp drop in its share price should be taken in the broader context of the downturn in biomed stocks in general, he argues: D Medical shares have done no different than the benchmark. "Relative to other companies we're in reasonable shape," he says.

Since its launch in March, the Tel Aviv Biomed index has lost 30% of its value. During that time, D Medical stock has lost 45%.

When might the share price recover? "We have enough financial depth now to lay down the infrastructure for growth, but the process will take time," answers Argaman. "It is important to understand the strategic potential lying in the future, such as expanding our production in China, and not to expect fruits from one day to the next. We think the [Wall Street] offering will allow us to execute our business plan by increasing production, lowering production costs and increasing our future sales volume."

He believes the turning point will come as early as the first half of 2011, when the company should finish the regulatory processes for marketing its medical technology in the BRIC countries - Brazil, Russia, India and China. It is also working on a new insulin pump that should be ready by that time, Argaman says, and will be seeking approval from the U.S. Food and Drug Administration for its insulin patch during the first half of next year.