"THE BUSINESS PROBLEMS ARE ALL FIXABLE."

New CEO Rose Crane changes MELA Sciences, Inc.'s business model to bring imaging technology to the last large healthcare holdout group.  

By Robert J. Flaherty

Fine tuning Dan Lufkin's crusade to identify deadly melanoma earlier! On Thursday Feb. 7^th I attended a SeeThruEquity Microcap Investor Conference in New York City. I wanted to catch up on prospects for our August 2009 special situation. After we put out a BUY at $7.23 the stock had declined to around $0.73. As a result of a very slow start total stock market cap shrank from $145 million to around $35 million. Trailing 12 months revenues were only $518,000 and the trailing 12 month loss was $27.4 million.

After listening to the new CEO's upbeat presentation I came away believing my old pick today is in better shape than it was back in 2009 and that it will achieve its potential.

Irvington, NY-based MELA Sciences, Inc. (Nasdaq:MELA-$0.78) President and CEO Rose A. Crane started off by introducing herself. She has spent most of her 32-year career in healthcare "turning companies or products around."

For 20 years she worked at Bristol-Myers Squibb, leaving as the U.S. President-the Primary Care Division where she managed an operating unit with annual sales of $7.5 billion. "I went on to Johnson & Johnson to head the McNeil Company worldwide, which all of you would know as Tylenol and Motrin." She managed the Zyrtec RX to OTC Switch, transitioning from being prescription only to over-the-counter products. Moving on, she guided the private healthcare technology Epocrates to a successful $86 million IPO in 2011. After Epocrates was acquired, she helped to build the portfolio of Appletree Partners' pharmaceutical products and medical devices. Last November she returned to management as CEO of MELA Sciences.

Before moving to the conventional presentation Rose created a broad picture. Some great tailwinds should make MELA's future sailing smoother and faster.

The first was the recent $12.5 million private placement dominated by "two fabulous healthcare company investors, Broadfin and Sabby." (Isn't it nice to have fabulous investors? I thought.)

Next Rose noted on MELA's balance sheet inventory are $10 million worth of machines that are completed, produced and sitting, waiting to be sold. MELA is adopting the following shift in strategy which should make this happen.

"We are moving our business model from what has been a rental model to a sale model." The move from rentals should be successful because sales are what dermatologists are used to and want to do. When accomplished, this shift is going to make a huge difference in revenue recognition. When rented 1/24^th of the actual rental was recognized at the day of sale because it was depreciated over 2 years. Now 95% of the revenue will be recognized at the day of sales.

But the changes involve more than how MELA's FDA approved MelaFind imaging device is financed. There are 10,000 skin lesions in its proprietary MelaFind database. The device can be used for more than just adding more data on new lesions to the pile.

Here is another big switch. "Most importantly, I need you to think of MelaFind as imaging and analysis, not just imaging, "Rose stresses. "By use of an algorithm we can come up with a score that helps the dermatologist decide if the lesion should or should not be biopsied."

Of course to succeed MELA must entice the doctors to replace their naked eye exams by using modern imaging technology. It may not be so easy.

"I have probably dealt with almost every therapeutic area," Rose says. "Dermatology is the last bastion holding out from imaging. Think about another therapeutic area where they are not using some kind of imaging."

So MelaFind is new and on the cutting edge for dermatologists. "We're finding the young dermatologists love it. The optical scanner takes the image and the data is sent to the database." So MelaFind is both a hardware and software play and results come back as a result of an algorithm. It gives the doctor a score.

"The interesting thing about MelaFind and there is no other technology that does this, it goes 2.5 millimeters below the skin. Melanoma travels very quickly. It mutates very quickly."

If it is picked up at the top of the skin your survival rate is 99%. If it goes down to 4 millimeters your survival rate is 50%. In between your survival rate changes in increments of 10%. So it is critical that dermatologists get this early. That what MelaFind imaging helps them do.

The global optical imaging market is potentially a huge $2 billion market. But procedures and the machine must be developed so that like the more developed ultrasound there will be many procedures in the future which won't be done without it. And MELA must play a role in making this happen. It will not just happen by itself.

Why focus on melanoma? Because one person dies every hour; 15 people are diagnosed every hour and 75% of the deaths from skin cancer are melanomas. It is a lethal disease."

Skin cancer discriminates against light skinned people. So the biggest markets are in the U.S. and Europe. Light skinned people who migrated to sunny places like Africa, South America or Australia also are at a high risk. In a tragic silly fad young girls flocking to the tanning beds are spreading an epidemic of melanoma in their age group.

Three major groups are involved in terms of detecting and diagnosing melanoma, but MELA only focuses on dermatology right now. That is because MELA's FDA Premarket Approval (PMA) for its device only allows them on to focus on dermatologists.

Moving forward MELA's goal is to broaden into serving the other two physician groups because the three groups work together. The dermatologist does or refers the patient for the biopsy. The pathologist reads and analyzes the results. The surgeon does the surgery especially if it's on the face or somewhere that the patients worry about others seeing.

Rose showed a slide of how MELA will evolve from just dermatology into the other groups that will dramatically expand market potential. In the U.S. and Germany, two prime world markets, there are about 12,000 dermatologists. But there is also about 5,000 pathologists and 7,500 reconstructive surgeons. So broadening MELA's approach will dramatically increase its potential market for using MelaFind imaging devices.

Why aren't they already doing this? MelaFind was launched in a consumer driven manner. The basic idea was if you have skin you are at risk for melanoma. So cosmetic dermatologists should bring in MelaFind and rent it. Adding it would bring new patients into your practice. Patients would pay out of pocket and also build your practice. The goal was not to go after reimbursement because MELA wanted to continue to get out of the pocket fees. That was the MelaFind model when it was launched.

In reality a lot of the skin business is focused on beauty, hair removal and cosmetic changes like nose jobs and facelifts more than skin protection. Acceptance of MelaFind has been much slower than originally conceived. O gee, we have it. Everyone will want it. It ain't necessarily so.

Since last July MELA's business model was flipped around. The new model will focus on the high risk patients. The prime target is medical dermatologists who see about 3,000 to 4,000 high risk patients a year. These patients come in typically a few times a year to every month, depending on how high their risk is.

Now MelaFind is being positioned as a medical science tool that helps these physicians get through the process of managing high-risk patients. The goal is to make it so you don't miss a melanoma but also not biopsy benign lesions. The physicians using MelaFind will improve their batting averages. They will do the same amount of biopsies but miss less melanoma and do less benign biopsies.

If you look at the healthcare system for dermatologists the two top areas where they make money are in freezing off lesions which could eventually turn into cancer and number two is biopsy. Many dermatologists biopsy a lot because they are using their eyes and their experience but there is no analysis or imaging behind them to help.

How can MELA be a catalyst for change? The team is spending time with the key opinion leaders. There are about 10 top pigmented skin lesion institutions in the U.S that lead the charge on melanoma. "We are now in almost 50% of those institutions," says Rose. "That's critical because they are talking to the rest of the dermatologists. It starts from the top and flows down. It's a pretty simple model and it's used all the time in med-tech and pharma. Importantly, MELA now also is pursuing insurance reimbursement."

Reimbursement is the biggest issue. Naturally medical professionals are not going to use all this new technology unless they will get paid. Only slaves work without pay. Sounds pretty basic, but this change can't be accomplished overnight.

Unfortunately because the government is involved, setting up healthcare insurance reimbursement will take up to two years. MELA will have to get a CPT (Current Procedural Terminology) code so doctors can find a place under which to set up the MelaFind charge. Then MELA will need to get the insurers to cover the imaging and analysis procedure. These obstacles are no different than what must be done by any other technology or pharmaceutical product.

When these changes are accomplished doctors will be able to buy not lease MelaFind and get reimbursed for its use. That will be a huge incentive to adopt the technology.

Looking into the future Rose sees dramatic improvements in what MelaFind will do for its users. Right now a dermatologist who uses MelaFind imaging on a questionable skin lesion gets a high/low rating, considering the risk of melanoma being high or low. The algorithm gives the physician a score.

Working with the FDA, so timelines are not exact, MELA is moving to what is called probability. The physician will see the score and the probability of it being melanoma or not. They will no longer see high/low.

MELA's top physician at NYU took all of their FDA  PMA (Premarket Approval) data and did a regression. "So within the next two to three months we'll have, hopefully, a different user interface for the physician. Eventually we are going to move from population management to personal management. The  algorithm will set an individual base line against which to measure lesions for each individual. It will allow the physicians to know more about the patients and do less benign biopsies."

MELA also is going to file a 510k (intent to manufacture) for two very important new products. Basically the first will be for image guidance and the other surgical margin guidance when cutting. "All we are doing is taking the optical scanner that we have now and allowing the pathologist and the surgeons to use it," says Rose.

Two years out when released, after the data is solid, the imaging product will allow the pathologist to figure out where to cut the lesion. Right now lesions are cut in a few places and some cuts miss the cancer. MELA will also be able to help improve the biopsy process. Often they miss the melanoma in the skin they cut. MelaFind will show cells out of control as red and cells in control in blue. It will improve accuracy and efficiency.

The second product will allow the reconstructive surgeon to exact their margin and cause less scaring. Apart from health, vanity is a big deal in skin care.

In closing Rose noted MELA was moving financially from a lease to sale model, moving from a cosmetic to a scientific imaging and analysis point of view and from just a product for the dermatologist to a broader platform to include pathologists and surgeons with three products. Above all MELA is pursuing reimbursement.

All of these efforts will require overcoming problems and many difficult  details. Timelines will be hard to pinpoint but as things are completed they will be released. Don't get lost in the details! MELA imaging will be a revolution. As opposed to just looking with the naked eye, doctors will be able to understand more what they are seeing.

An analyst in the audience asked a very pertinent question. He noted that because MELA focused on melanoma the skin lesion MelaFind images had to be pigmented. However, the most frequent skin cancers squamous and basel are considered white cancer.

Agreeing it was a problem, Rose answered MELA's engineers discovered if white lesions were colored with a marker the optical scanner can pick them up and go below the skin. Still, asking the dermatologist to color skin lesions is asking a lot. "Clearly another goal for MELA is to move into the detection of white cancer too," says Rose.  

Rose also stressed MELA had a really good management team with impressive backgrounds and track records. It also has an active totally new board. MELA's Scientific Advisory Board includes global experts on pigmented skin lesions and skin cancer problems.

Summary: Look at the merits of MELA Sciences. MelaFind is a fabulous truly innovative technology. Today dermatologists are among the least technology oriented health examiners. They look over your body for problems often with a magnifier and sometimes miss things. If MelaFind becomes widely used, thousands of lives will be saved annually. No one else has a proprietary algorithm. There are other optical scanners out there; none go 2.5 millimeters below the skin. Many stay on the surface. And the growing base of opinion leaders is starting to drive the acceptance of MelaFind forward. MELA's physician base is growing. "We have both IP and regulatory protection through 2024 that surrounds both our image and our analysis, Rose added.

One of her throw away lines was the most important for current and prospective investors. "The business problems are all fixable."

For more information on the company or product please visit: www.melasciences.com or contact Diana Garcia Redruello at dgarcia@melasciences.com. Investors should contact Toni Trigiani, Investor Relations, at 212-924-9800 or by email at atrigiani@catalyst-ir.com.

SPACE TELEMEDICINE FOR HUMANS HERE ON EARTH

Jeremy Barbera's start-up Vantage Health, Inc. is pioneering mobile health screening. Soon we will be exhaling into a device attached to our smart phones to learn if we are well. Here is space age technology people on earth really need. The first telemedicine mission is detecting lung cancer earlier.

By Robert J. Flaherty

Jeremy Barbera grew up in the lower east side of Manhattan where his father was an engineer for Bell Labs when it was America's foremost scientific think tank. "As far back as I can remember all I wanted to be was an Astronaut or play baseball for the New York Yankees," he laughs.

Fortunately for mankind his baseball skills left much to be desired. So today this 58-year-old scientist turned space technology entrepreneur's Redwood City, CA-based Vantage Health, Inc. (VNTH-$0.12) is pioneering mobile health screening. You simply exhale into a device attached to our smart phones.

What's in our breath will reveal what is starting to take place within our bodies long before it can be detected in today's other more intrusive, dangerous  and expensive methods.  

Here is space age telemedicine people on earth can appreciate and easily use.  

Once the first mission of mobile heath screening to detect lung cancer is accomplished, Vantage will go after early identification of diabetes, colorectal, breast, prostate and pancreatic cancers. As senior citizens get older and even more forgetful, just breathing into your smart phone will monitor whether you are taking your medications prescribed by your doctor. Many non-medical tests like the presence of narcotics, whether legal or illegal, and homeland security to protect against terrorism could be added.

This is the most important thing Jeremy will ever attempt in his life.

After receiving his Bachelor and Master's degrees in physics from New York University, Jeremy's very first job was Staff Scientist at the National Aeronautics and Space Administration's NASA Goddard Space Flight Center in the early eighties. Jeremy enjoyed working on various exciting projects like one where he could not discuss what he was doing or even mention the agency involved. He loved the research environment and the U.S. space agency liked him.  NASA even  paid his tuition for graduate work at MIT where he received his MBA.

After the 9/11 attack Jeremy developed counterterrorism and homeland security skills. Along with his recreational media and entertainment skills with Broadway and London West End productions, he is currently focused on the fields of nanotechnology, healthcare and renewable energy. More importantly his desire to be a mobile space technology entrepreneur deepened. He became aware of how transferring space telemedicine technology for the use by average people could make a huge difference in their lives.

NASA technology monitors the health and wellbeing of its Astronauts in space. By merging telemedicine, media, digital and nanotechnology knowhow, people on earth can also be helped. VNTH technology is licensed from NASA and detects VOCs (volatile organic compounds) in human breath. It detects factors which reveal incipient disease and general state of health. Vantage is preparing for clinical trials now and naturally wants  to pass  FDA inspection  approval before coming to market.

Vantage is based in Redwood City, CA, a ten minutes' drive from NASA's Ames Research Center in the heart of Silicon Valley. The current company backed into a public vehicle formerly incorporated under the laws of the Republic of Seychelles in the Indian Ocean. Its bright beautiful founder Dr. Lisa Ramakrishnan wanted to provide universal access to quality affordable health care across sub-Sahara Africa with improved medicine, hospitals and clinics. Alas Wall Street preferred to do well rather than good. Few jumped to invest in a risky concept in a troubled area. So the founder took back all the operations and the debt but retained some shares. Today the new Vantage Health has about 150 million shares outstanding. The public float is about 20 million.  Neither Vantage Health or its private parent Nanobeak, Inc. has any debt.

Vantage Health, Inc. is too new to make analysis very meaningful. If Vantage succeeds in attracting help from a big pharma, everything will look dramatically different two years from now.

Here is what Jeremy has to offer. Vantage's private parent Nanobeak, Inc. co- developed seven patents with NASA. Vantage Health received a sub-license on January 7, 2014 after NASA and Nanobeak entered into an exclusive 5-year license to commercialize mobile healthcare products derived from NASA patented chemical sensing technology and has an exclusive license for five years for this mobile healthcare use.

The license is renewable providing progress is made. So Jeremy would like to get an app device through clinical trials with the FDA by the end of this year or early next year. He guestimates that his team will need several million to get the job done.

Also prestigious Scripps Translational Science Institute formed a strategic partnership with Vantage for the advancement of Mobile Health Technology. Vantage is developing personalized and point-of-care screening using apps based upon chemical sensing residing within a small device attached to a smart phone.

STCI's Center for Digital Medicine is committed to the development and research of novel mobile health devices to accelerate their uptake into clinical practice. Together with Vantage  they will collaborate in the planning and execution of clinical trials to prove the app can identify the particular volatile organic compounds exhaled commonly associated with lung cancer.

In a few years Jeremy hopes individuals will be able to monitor their own health using their own their smart phones. But the FDA has made it clear that the first step should be starting with established health care providers. They know the insurance procedures and have the contacts to jump start the process. Using established healthcare providers should simplify the launch considerably.

Imagine a world where deadly diseases like lung cancer could be screened for at the earliest stage in minutes by exhaling into an inexpensive small Bluetooth enabled device that works with any smart phone. Imagine once a cancer treatment protocol is started, the oncologist can monitor patient progress at any time just by having the patient exhale into that same device.

If identifying lung cancer early works, Jeremy has a stream of other uses he wants to attempt. But all that must stay on hold until Vantage proves itself with this first effort.

For more information please visit: www.vantagehealthinc.com. Investors should contact Christine J. Petraglia, Investor Relations, CSIR Group at 212-386-7082 or email: investors@csirgroup.com.