Biosphere Medical BSMD
July 23, 2003 - 4:51pm EST by
2003 2004
Price: 5.50 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 73 P/FCF
Net Debt (in $M): 0 EBIT 0 0

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Biosphere Medical is an un-followed small cap company ($75 million market cap). BSMD has no analysts covering the stock, trades only 39,000 shares on average a day, despite having a float of 8.3 million shares (only 0.5% of its float trade a day). In other words, this stock has no hype, no momentum, no one pushing it.

BSMD makes miniature, bio-engineered polymers-based spherical beads. These beads are threaded through a person’s blood vessels to target areas where they cut off the blood supply to tumors, uterine fibroids, prostates, etc.

I believe that with any kind of news or attention on BSMD’s potential, the stock could double or triple.

BSMD’s principal focus is the treatment of uterine fibroids using a procedure called uterine fibroid embolization (UFE), a non-surgical procedure in which miniature gel-like spheres are introduced into blood vessels to cut off the blood supply to fibroids.

Fibroids are benign tumors of the uterus, and a common cause of heavy prolonged bleeding, pelvic pain and pressure in some women. Fibroids often respond inadequately to medical therapies, with myomectomy (surgical removal of the fibroids) or hysterectomy serving as the recommended remedy. An estimated 200,000 to 300,000 women a year undergo a hysterectomy because of fibroids, some of which can grow to the size of a small melon.

For those who do not realize what a hysterectomy is, the equivalent for a man would be castration. With a hysterectomy they take out everything. Here is a further explanation from the Hysterectomy Association:
Hysterectomy is defined as the "surgical removal of the uterus" (womb) 5. It is one of the most common of all surgical procedures and can also involve the removal of the fallopian tubes, ovaries and cervix to cure or alleviate a number of gynaecological complaints. Following this operation you will no longer have periods, you will not be fertile and you will not be able to have any more children.

Any alternative to this has to be welcomed. BSMD’s UFE procedure represents a treatment that is non-surgical, in which the blood flow to fibroids are cut off causing them to die or at least reduce in size. And the uterus is preserved. Consider the following that BSMD found:
BioSphere Medical's clinical data has shown that hysterectomy patients stayed in the hospital over twice as long as UFE patients, and had to remain home from work three times as long as UFE patients (31 days as opposed to 12 days). Also shown is that patients were almost twice as likely to have a complication with hysterectomy as opposed to the UFE patients.

And this from the Hysterectomy Association again:
Researchers and Doctors at UCLA have found that 8 out of 11 women were treated successfully and that they had a noticeable reduction in their symptoms, 3 of the women reported that their symptoms went completely. They report that "Uterine artery emobolization represents a promising new method of treating fibroid related menorrhagia and pelvic pain" 1. Studies are currently underway to determine whether this technique does preserve a woman fertility in the way that others may not. However there is evidence that most women do experience severe pain and cramping following the surgery which is carried out under local anaesthetic, although most women are back to normal within a few days. 2

At the end of November 2002, the FDA approved its microspheres for treating uterine fibroids. BSMD is the only company with approval for treating fibroids with UFE.

So why aren’t BSMD’s microspheres flying off the shelves?

Gynecologists do not perform UFE, interventional radiologists do, and therein lies the problem. Gynecologists are the primary caregiver and advice dispenser for women. A combination of ignorance on UFE, fear of losing clients and fear of losing money from not performing the treatment are all holding UFE back from becoming more widespread.

Another problem is that interventional radiologists have typically been hospital basement practicing doctors with little or no experience patient care, treatment and follow-up.

In other words, for UFE to become successful, they have to affect a sea change in the treatment of women who are experiencing problems from fibroids. First, gynecologists must become comfortable with UFE and gain comfort referring clients away to other doctors. Second, interventional radiologists need to start building practices that specialize UFE and move out from hospitals and start dealing with patients directly. To some extent this is happening, but at a slow pace.

On the gynecologist side, it is hard to see in the long run that most gynecologists will not do what is best for their patients. Also, BSMD is trying to teach gynecologists not only the benefits of UFE, but also show how gynecologists can make money through the process as well.

As to interventional radiologists, it will not take long for other interventional radiologists to see that the ones performing UFE are making $1 million plus a year, while they are toiling for hospitals for $125-$150K a year.

Liver Cancer

Embolotherapy has been used for awhile to treat liver cancer, but there is new work utilizing radioactive particles that thread through catheters much like BSMD’s microspheres. By putting radioactive microspheres into blood vessels feeding the cancerous tissues, BSMD, could not only cut off the blood flow to the tumor, but kill the tumor with the radioactive material. By using embolotherapy in this fashion, less radioactive material and exposure could be used with greater effectiveness.

Boston Scientific and other competitors

Boston Scientific (NYSE-BSX) is coming in with a competitive product and should get approval by the end of this year or early 2004. This should only help BSMD, as it should help get the word out and push more doctors in the right direction. I doubt that BSX would be entering this market and spending all of the money required for FDA approval to enter a $13 million market, which is BSMD’s annual revenue run rate right now.

There is a new study that says that gynecologists can use focused ultrasound to heat and reduce fibroids. Further research is required, but it doesn’t seem to be a realistic option.

BSMD’s revenue outlook and initiatives

BSMD after getting approval at the end of last year has been going to gynecological conferences, developing leads and in general educating doctors and patients. The company started a website called .

BSMD also has 10 contact sales people visiting doctors and are developing new converts.

I’m not enthusiastic that an eighty-eight person company is going to develop such a sea change in practices of doctors and treatments. What will help is BSX’s entry and more interventional radiologists starting their own practices.

I think in the long run, BSMD needs either a much larger partner to help sell microspheres or needs to be acquired by a larger medical device company. I think the potential of UFE and treatment of liver cancer makes this a distinct possibility.


BSMD claims that $4.5 million a quarter and they will be break-even, right now they are doing $2.5-$3 million a quarter (rest in non-UFE business).

They have adequate liquidity with almost a $12 million in cash and no debt, and they are on a burn rate of $1.5 million a quarter. They also have an unused $5 million credit line.

Assuming the market is for 200,000 procedures that could use UFE, BSMD’s take is $2,000. That would assume a revenue potential of $400 million. Assume BSMD gets only 20% of that total. And you have a peak revenue potential of $80 million.

Here are some more specific targets: assume that they generate $50 million in sales two to three years out. A 12% net margin on that revenue figure yields $6 million profit yields $0.43 a share in earnings (assuming 14 million shares out). A multiple of 25 times that $0.43 a share gives you $10.75 a share, an almost 100% gain.


BSMD is a small cap company with very little hype or valuation premium with the potential to replace hysterectomies for women and potentially help people with liver cancer. This for only $75 million market caps with no debt, $12.6 million in annual sales and almost $1 a share in cash. Any exposure or hype and this stock will run.


Any signs of an up-tick in sales beyond the current revenue run rate of $3-$3.5 million is a major catalyst. Management thinks that an up-tick will start in q3-q4 time period. Another catalyst would be any joint venture or partnership with an established medical device company. Finally, I look for news by early 2004 on treatment of liver cancer from BSMD’s microspheres. This alone could cause an explosive move.
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