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One Company Cornering A $2.3 Billion Market!

Right now, it’s easier to land a man on the moon than to cure cancer.

In many respects getting to the moon was easy.  There are lots of things leading medical experts still don’t understand about the human body.  It’s one reason the medical research industry is such a robust market.

The other reason… the numbers.

According to the American Cancer Association, 569,490 people in the United States died because of Cancer in 2010.

They estimate there are around 1.53 million new cases of cancer every year.

Cancer has touched everyone’s life in one way or another.  Maybe you’ve had a close family member die of cancer… or a friend diagnosed with the horrible disease.

You may have sidestepped the big “C” however you probably know someone doing battle right now.

Remember, the 1.53 million unlucky souls diagnosed last year are people.  They need our love and support.  And most importantly, they need treatment.  Bottom line, cancer is put into remission by pricey hardware, expensive surgical treatments, and powerful drugs.

Companies bringing powerful treatment to the frontlines of this disease are poised to reap not only huge financial rewards, but emotional rewards too!

Just take a look at BSD Medical (BSDM).

BSD MEDICAL’S BUSINESS

BSD Medical makes its money off some pretty advanced cancer fighting medical equipment.

They specialize in Hyperthermia therapy devices.  Hyperthermia therapy entails superheating cancer cells with radiofrequency and microwave energy to damage or destroy them.  Weakened tumor cells might suffer apoptosis, which is a certain type of cell death.  If the cancer cells don’t die they at least become more susceptible to traditional treatments.

Right now BSDM produces superficial, deep, and internal hyperthermia therapy devices.

The various devices all target cancer cells in different ways.  For example, superficial hyperthermia is noninvasive and used for tumors within centimeters of the skin’s surface.  This is effective for treating cancers like melanoma and breast cancer.

Other products like the internal/intestinal device are used inside the body.  An antenna is threaded into various parts of the body to deliver hyperthermic microwave energy.  This technology can be used on prostate cancer, breast cancer, and head and neck cancer.

The company is working on even more powerful versions of these devices.

WHY BSDM? WHY NOW?

BSDM received FDA clearance to market the MicroThermX in August 2010.  They also received clearance from EU regulators to market the new product line in Europe.  This is a huge milestone as management estimates the potential world market for ablation devices to be around $2.3 billion.

With FDA clearance comes an ability to sell their equipment.

In early May 2011 the company announced a distribution agreement with CoMedical who specializes in selling noninvasive or minimally invasive medical equipment. BSDM’s hyperthermia ablation device is right up their alley.

The latest news indicates the company has since signed up two additional distributors.  The company is continuing to work on additional distribution networks for the US, Europe, and other international markets.

BSD MEDICAL’S FINANCIALS

Just a few weeks back the company announced second quarter results.  Now, keep in mind for whatever reason the company doesn’t use a traditional year-end… their second quarter ended in February 28, 2011.

And their third quarter numbers should be released in a few weeks.

The key to understanding their financials is that the business is still in development.  Remember the ink is still drying on the new distribution deals.  BSDM won’t magically see a huge influx of revenue overnight.

Keep an eye on their revenue over the next couple of quarters.

The key at this point is the balance sheet…the sales revenue will come in time.  For now, we want to focus on cash and debt levels.  And I like what I see.

The company reported just under $20 million in cash and no debt.

The company lost just over $1.5 million last quarter and at that rate, they’ll be in business for over 3 years before running out of money.  But I don’t think that will be a problem.  Once the company starts seeing sales from their distribution network, the losses should dwindle.

BSDM VALUATION

Right now you can’t really slap traditional valuation measurements on the company.  Without significant revenue or earnings, the normal valuation ratios don’t apply.

In this case we have to look at the value of the company and the value of the market they are approaching.  Remember, the company is selling a newly FDA approved device into a $2.3 billion market.

In the next few years you could estimate the company grabs a small slice of this industry… maybe 5%…

Five percent of a $2.3 billion market would generate over $115 million in annual sales.  Not bad…

Now consider this…

When looking at the entire medical device industry, the average Price to Sales ratio (or P/S) is just over 4.7x… and the Median is just over 2.0x.  A little back of the envelope math gives us a valuation range of $540 million to $230 million.

Granted right now these are just estimates… but at a $540 million valuation BSDM’s stock would be trading for around $18.51 a share!  At the lower $230 million value the stock would only be trading around $7.87.

Look the stock’s trading for less than $3.00 right now… $2.85 actually.

Even if I’m off by a few million, the stock still has lots of room to move higher.  I could see it easily doubling form here if management is able to get sales rolling.

ANALYSIS OF BSDM’S STOCK

BSDM is trading at a deep discount right now.  The company’s value has been heading lower along with the general downtrend in the market.  I think the selloff is overdone.

Remember, as the sales start to roll in, we’ll see big improvements in the financials… and the stock is sure to jump on the news.

 

 

 

 

 

 

Chart courtesy of StockCharts.com

 

ACTION TO TAKE

If you like what you’ve read, do your own research… then Buy BSDM up to $3.00 a share.

 

 

 

 

Prices as of June 13, 2011
The “Recommended Price” is as of the date and time of the recommendation (adjusted for splits and dividends), you may pay more or less. “Buy-up-to” means don’t pay more than this price for the stock. If you can get it cheaper, then great! “Hold” means hold if you own it, but don’t buy it if you don’t. “Sell” means sell. Remember to consult your investing professional before making any trade or investment. And remember all investments have some risk.