Shares of Novadaq Technologies (NASDAQ: NVDQ) rose as much as 15.4% Wednesday after announcing that insurance provider Cigna will now cover Dermacell and Dermacell AWM. The products are used for chronic wound management after breast reconstruction surgery and to treat diabetic foot ulcers, respectively, and exclusively distributed by Novadaq Technologies. Shares gave up most of their gains later in the day.
Cigna's decision means 15 million individuals in 14 states will now have access to Dermacell products. The innovative bio-implant is used as a chronic wound treatment that results in a faster healing process with less scarring by removing the barriers usually encountered when a patient's cells attempt to repair large wounds. The product boasts several other advantages over prior treatments, including the ability to be be stored at room temperature and superior medical-grade sterility.
Novadaq Technologies and its investors are hopeful that other large insurance providers will join Cigna in covering the novel medical device. That would certainly help expand the product's market potential and provide the opportunity for the company to continue growing, perhaps sooner than later. Management still believes the company's overall operations can reach $2.7 billion in annual sales, which is well ahead of the $100 million in revenue (at the midpoint of guidance) forecasted for 2017, suggesting there's plenty of room left for growth. That's especially true if the clinically tested Dermacell portfolio of products becomes a standard treatment for chronic wound management.
Wednesday's announcement is no doubt good news for the company. Management had already set expectations for double-digit annual growth as it climbs closer to its long-term market opportunity, although Wall Street was disappointed by the original guidance issuance. Of course, investors will want to keep in mind that Novadaq Technologies runs a money-losing operation at the moment, and the expansion of Dermacell's market opportunity won't change that in the near future.