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INTRODUCTION TO BSD MEDICAL AS AN INVESTMENT
BSD Medical (BSDM) is a developing, not-yet-profitable, micro-cap, biotech company. It is an outstanding example of this genre, which tends to offer both the best of investment opportunities (large potential gains) and the worst of investment opportunities (high risks). My deeply-researched view is that the company, as of September 2012, actually offers mild risk with likely very high gains; an investor’s dream! Diligent inquiry is timely, as BSD Medical shows strong signs of being on a cusp; poised for rapid growth that could persist for many years. They say: “Our cancer treatment systems have been used to treat thousands of patients throughout the world and have received many awards, including the Frost & Sullivan ‘Technology Innovation of the Year Award’ for cancer therapy devices, which was awarded in 2005 for the development of the BSD-2000 Hyperthermia System.”
Here’s a skeletal “pitch”: BSD Medical is the pioneering and acknowledged world leader in hyperthermia technology. Heating is actually a very old therapy, but now made enormously more important by way of new technology that, among other uses, is very effective in treating cancer (yes, VERY WELL PROVEN). The company has developed three machines now fully FDA approved, and others nearing full approval. Their present products offer a fourth basic cancer-treatment method, hyperthermia, to add to the present practices of surgery, radiotherapy, and chemotherapy. Other medical applications are planned.
Hyperthermia for treating cancer has been under investigation and development for decades. It is now proven safe and effective for a wide range of cancers. However, hyperthermia practice is still in its infancy. Anyone who has yearned to get in on the “ground floor” of a major new tech area should make the reasonable effort required to understand the BSD Medical situation: the company, the technology, the products, and the markets.
Hyperthermia promises to become the most important of the four basic cancer treatment methods! This is because, in addition to its direct use in killing tumors (called “ablation”), adjuvant (assisting) use of hyperthermia has been proven to strongly enhance both radiotherapy and chemotherapy! So, the promise of hyperthermia greatly exceeds that of any particular radiation-therapy device or any particular drug – it is a major, widely applicable break-through.
You might be thinking: What? This claimed powerful “new” technology is decades old? Then, why is BSDM still a micro-cap stock? And, why the claim of the stock being on a growth cusp? There are fairly clear answers; some perhaps not so clear. Substantial information and analysis is required to accurately grasp the outlook and make an informed decision re BSDM. The large potential rewards justify substantial diligence. Or, if it is your style, just blindly jump in or move on.
Essential information and analysis is provided, below, for use in the ensuing discussions, under these headings:
COMPANY DESCRIPTION (from a 10K)
TECH TALK (basically non-math; important concepts needed for understanding the products)
STATUS OF THE VARIOUS PRODUCTS (changing rapidly)
MARKETING (includes the successful overcoming of a recession-caused buying freeze)
SUMMARY OF REASONS FOR AND AGAINST INVESTING IN BSD MEDICAL (circa September 2012)
From the Overview Section of the 2011 10K (and slightly shortened): http://investor.bsdmedical.com/sites/bsdmc.investorhq.businesswire.com/files/report/file/BSD_Medical_Form_10-K_8-31-11_Final.pdf
“We develop, manufacture, market and service systems to treat cancer and benign diseases using heat therapy delivered using focused radiofrequency (RF) and microwave energy. Our business objectives are to commercialize our products for the treatment of cancer and to further expand our products to treat other diseases and medical conditions. (snip).
While our primary developments to date have been cancer treatment systems, we also pioneered the use of microwave thermal therapy for the treatment of symptoms associated with enlarged prostate, and we are responsible for technology that has contributed to a new medical industry addressing the needs of men’s health. In accordance with our strategic plan, we subsequently sold our interest in TherMatrx, Inc., the company established to commercialize our technology to treat enlarged prostate symptoms, to provide substantial funding. (snip)
(snip) Our product line includes systems that have been strategically designed to offer a range of thermal treatment systems for the treatment of cancer, including both ablation and hyperthermia treatment systems. Studies have shown that both ablation and hyperthermia treatments kill cancer, but they have different clinical applications.
Our microwave ablation system is used to ablate (destroy) soft tissue with heat alone. Thermal ablation usually refers to heat treatments delivered at temperatures above 55°C for short periods of time. Thermal ablation is used to destroy local tumors using a short intense focus of heat on a specific area.
Our hyperthermia cancer treatment systems are used to treat cancer with heat (hyperthermia) while boosting the effectiveness of radiation for certain tumors through a number of biological mechanisms. Hyperthermia is usually used to increase the effectiveness of other therapies; e.g., radiation therapy and chemotherapy for the treatment of locally advanced cancers. Hyperthermia usually refers to treatments delivered at temperatures of 40-49°C for one hour.
Commercialization of our systems that are used to treat cancer is our most immediate business objective. Current and future cancer treatment sites for our systems may include cancers of the prostate, breast, head, neck, bladder, cervix, colon/rectum, ovaries, esophagus, liver, kidney, brain, bone, stomach and lung. Our cancer treatment systems have been used to treat thousands of patients throughout the world and have received many awards, including the Frost & Sullivan “Technology Innovation of the Year Award” for cancer therapy devices, which was awarded in 2005 for the development of the BSD-2000 Hyperthermia System.
TECH TALK – no math, just concepts essential to understanding the several products
STATUS OF THE VARIOUS PRODUCTS --
MARKETING -- including overcoming the current recession-caused buying freeze
SUMMARY OF REASONS FOR AND AGAINST INVESTING IN BSD MEDICAL
Reasons for investing in BSD medical (circa September 2012)
1) The technology is proven safe and effective -- and very widely applicable. It is truly game-changing. While known only to relatively few, high temperatures (relative to normal body levels) are very potent tumor killers. Also, the thermal approach is generally safer than either radiotherapy or chemotherapy. Further, heating generally potentiates both radiotherapy and chemotherapy for many tumors. And – something that has very exciting therapy potential -- a heated tumor can melt suitably encapsulated drugs (very tiny capsules that travel in the blood stream). So, the drugs are released only at the heated tumor! – which tumor is much more permeable to the drugs due to its elevated temperature! Large increases (10 times, say) in drug delivery to the inside of tumors have been reported. The rest of the body is largely spared from the powerful drug – allowing yet more powerful drugs to be used. Such encapsulated-drug products are already marketed or being developed by several companies – and the premier method for providing the heat-release is electrohyperthermia, BSD Medical’s forte!
2) IMO, The yearly income potential for their products is in the $billions -- likely many $billions, eventually. Currently, though, their sales are less than a few hundred $million/yr. My expectation is for $500 million income or more for the current FY (ending 31 August 2013); with rapid further growth very likely – the tech is finally rapidly emerging.
3) The typically very long development periods for medical products are either over or nearly so for BSD Medical’s several products. Over the decades required to reach their present status, the company has become the recognized world leader in their “arena”. Their products are accepted and in use world-wide. But, the U.S. FDA has been very slow to act – as is typical – so U.S. sales for some major products have been only for investigational use (a situation that should soon end, as several long-term trials have proved/are proving the long-term effectiveness necessary for full FDA approval).
4) While some of their products are still not yet fully approved by the FDA, three have been fully approved. One of the fully-FDA-approved devices was sold to an established medical device provider (American Medical Systems); the other two fully-approved devices are marketed, but not yet selling in “large” numbers. Another device, the BSD-2000, has been granted an HDE (Humanitarian Device Exemption) by the FDA. An HDE means the device is proven safe and proven effective, short-term; but long-term efficacy remains to be established thoroughly enough for the FDA. (However, the BSD-2000 and two derivative products are fully accepted in some major world markets.) While an HDE is granted for only one specific disease, usage outside this narrow restriction is allowed merely by approval from a local medical board. Large hospitals normally have such boards. This “off-label” usage for HDE sanctioned devices is common, thus important.
5) Their most recent product entry, the MTX-180, is for an *established*, sizable, and rapidly growing medical practice: Interventional Oncology (IO). This is a new situation for BSD Medical – their game has changed! (However, the stock market has not yet recognized this). The MTX-180 has received accolades from at least two of the leading IO doctors. It promises to eventually be used very widely in IO practice, as it has been proven substantially more effective and safer than the present IO device leader. Very important: the MTX-180 uses disposable antennas that cost around $1500 to $1800/ea! And, multiple antennas can be used for a given treatment session. Over time, the antennas will provide – and are already providing -- a much larger source of income than the machine sales.
6) BSD Medical is seeking collaborations with some large companies. And, they have joint development efforts with both GE and Siemens, the major MRI machine makers (Magnetic Resonance Imaging). These efforts relate to the “Big Bertha” of the company’s product line: the BSD-2000/3d/MRI -- a truly amazing MRI-guided hyperthermia machine. Visit BSDMedical.com for some marvelous pictures and illustrations of this equipment. Fabulous history is being made, folks.
Reasons for, perhaps, being cautious about investing in BSD Medical (circa September 2012)
1) Newly introduced medical devices are, at least initially, slowly adopted by the medical community. Most doctors and hospitals are conservative – re their wealth, as well as their medical practice. So usage of new devices is initially by “pioneers”. That said, adoption soon spreads rapidly as more and more doctors and hospitals become aware of successful use; and profits are seen being made! For break-through products, this can, and typically does, lead to “exponential” sales growth!
2) The U.S. (as for other countries, also) is still in a heavy recession. This has caused hospitals to heavily restrain capital expenditures. And, buying of newly introduced equipment – which would not have full use for some indeterminate time – is especially curtailed by this purchasing freeze. This situation has been very difficult for introducing the MTX-180. However, the company has recently implemented an excellent marketing strategy to overcome this freeze. It is a fee-per-use (FPU) plan, so the hospitals can use the MTX-180 without spending capital-equipment funds or committing to a lease over a substantial period. Instead, the FPU fee can be promptly reimbursed. The company has revealed that only three FPUs pay for the manufacturing cost of an MTX-180! From this, I guesstimate an FPU of something like $2 or $3 thousand, which is consistent with their claims of “lucrative” FPUs.
Contemplate this: To implement the FPU plan, they have lightened the unit to only 40 pounds; so it can be easily swapped around from one hospital to another by a sales representative covering a sizable market area. In the first 90 days of this plan being implemented, sales of the disposables increased 400%! By number, this is about 300 new antenna sales, or about $500,000 in income. And, the FPUs would likely bring the total early-on sales for the MTX-180 FPU-plan to something like $1 million. These are not large numbers, but they are a) for high-margin items, b) only for the early-on response, c) for only a fraction of only the U.S., and d) for just one of BSD Medical’s products. Extension of the FPU plan to the whole U.S. (and world-wide?) is underway.
3) Scary stock volatility. (Note: I offer no specific advice for timing purchases or sales – just some background musing). In my opinion the main caution re investing in BSDM at this time is the fact that two hedge funds own a sizable amount of stock (from the last two offerings), and those funds each promptly shorted shares equal to their holdings. Ostensibly, this is merely for hedging their positions, but my view is that the hedging is also for the purpose of manipulating the stock price. I am speculating, of course, but I believe such hanky-panky is very common. Recently, I saw (in a message board post) that the level of these shorts had dropped by about 25% -- meaning, perhaps, that the hedge funds are slowly exiting their short positions. Whatever is the case, the present stock price (mid-September 2012) seems low, particularly since sales are sharply up (but not yet formally announced). So, now might well be a prime time to invest. However, for a while the “ride” might be hair-raising. Waiting could be a good idea or a bad idea. My view is that the timing issue is indeterminate. But, personally, I’m happy to be “aboard” and I’m calmly patient about a *long*-term hold.
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