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Bob Flaherty Rides Again! Welcome to our 37th Flaherty Special Situation Newsletter. If you have not already done so, please join our financial family. Go to our website http://www.flahertyfinancialnews.com/ and opt in as a reader to receive your next FREE issues of Flaherty Special Situations and also our sister Flaherty Financial News Newsletter. You can opt out any time.
A Special Situation Bargain with the Templeton Touch!
It's still a tale of two stock markets. The popular blue-chip indexes are soaring while the micro-cap sector is on the bargain counter. Our late contrarian friend and pathfinder Sir John Templeton considered such moments as wonderful opportunities to find bargains. Just identify a significant hidden value gap. Our Stevia First (OTC: STVF) discovery last issue evoked this embarrassing praise from a well- known Wall Streeter, "In my eyes you are still the best editor in the world!"
Wow! Let's find a new bargain.
You have a heart. It's still beating. What's in this issue concerns you. The new technology being introduced can change how you and your loved will be treated in the future. Turn your attention to heartbeat signal recording upstart BioSig Technologies, Inc. (OTCQB: BSGM-3.25). This six-year-old innovator is racing to introduce transformational technology to shake up the innovation- starved treatment of arrhythmia (irregular, fast or slow heartbeats). Success in this huge and rapidly growing market can yield significant investment returns. Its 47-year-old Executive Chairman Kenneth Londoner is an institutional investor turned entrepreneur. Even better, Ken managed money for Sir John Templeton for 3 � years and benefited from his wisdom.
While piling up billions of assets from winning picks, John pinched every penny so the maximum could be invested in the best bargains selected from all over the world. He strived to outperform the stock indexes so he was fussy about selecting money managers. Few made his cut.
Ken Londoner did. By age 25 he was one of the youngest mutual fund portfolio managers in the U.S. and oversaw nearly $1 billion in assets at the J & W Seligman Growth and Capital Funds. In 1997 he left to start the long/short hedge fund, Red Coat Capital Management and excelled. In l999 Morgan Stanley included him among 25 top money managers showcased in MS' conference in the luxurious upscale gated community of Lyford Cay, Bahamas.
Londoner had a private one- on- one meeting that took place in Sir John Templeton's beautiful huge white mansion overlooking the ocean. Billed as a fundamental investor whose extensive due diligence was converted into actionable new stock ideas both on the long and short side, Ken expected to be asked about his investment approach. Instead John grilled him with background personal questions concerning his philosophy of life. Religious beliefs? Yes. Bad habits? No. Ken was married with two children. (Now he and his wife have four and are reaching their silver anniversary.)
Satisfied, John abruptly ended their meeting. Would Ken like to manage some of his funds? Ken suggested a wire but John impatiently wrote out a check. Trying to be polite, Ken just glanced at the $5 million amount and slipped it into his wallet. Back home in New York it turned out to be not for $5 million but $50 million!
As a leading emerging hedge fund performer, Ken's life was like a rollercoaster ride. After the high of early success, he experienced a drop in 2000. Then came the life changing 9/11 Twin Towers terrorist attack with the loss of scores of close friends. In spite of having a strong fund performance in 2001 he became overcome with grief and felt depressed over the Trade Center tragedy. Ken decided to take a new course. Life was too precious to continue just pursuing short term gains running a hedge fund. He wanted not just a high return on assets but a high return on life too.
Dissolving Red Coat in 2002, he focused on learning Manfred Mosk's alternative financing style of building new enterprises. Mosk, a limited partner in Londoner's hedge fund, preferred to bypass relying on hedge funds and venture capitalists to finance emerging growth companies. Sometimes he found their usual three to five year exit goals were too short term to finish off building an enterprise. Instead Mosk groomed a start-up on the illiquid OTC, built it quickly and up listed the stock as soon as possible onto a major stock exchange. Successful entrepreneurs could achieve more of their dream's potential to disrupt existing markets and be all they could be before selling out -if they sold out at all.
Like his late mentor Mosk, Ken is focusing most on building medical companies. The returns for early investors should be rich, but mankind should benefit more too. This goal would get a thumbs up from John Templeton. He always stressed that you cannot find happiness by seeking it directly; it is a byproduct of serving others.
Here is the tremendous opportunity for BioSig if its early goals are achieved. One out of 18 of the entire population and one out of four senior citizens suffer from irregular heartbeats such atrial fibrillation, the most common cardiac arrhythmia (irregular or fast or slow heartbeats). Unfortunately relying on outdated cardiac electrophysiology recording signal technologies contributes to overly lengthy surgeries averaging four to over eight hours. Out dated technology results in unacceptably high arrhythmia treatment reoccurrence and sometimes even death.
Innovation can make a difference. Enter BioSig's processing and recording solution. BioSig's PURE EP™ stands for Precise Uninterrupted Real-time Evaluation of Electrograms. The system cuts treatment times of arrhythmias significantly by eliminating background static and other noisy distortions common in the signal recordings. Recording within the heart intra-cardiac signals will be clearer and give cardiac electrophysiologists a better idea in real time of what they are doing during treatments. It will save costs and more importantly lives. These are goals worth spending a significant part of your career on accomplishing.
An institutional money manager turned entrepreneur and chastened by past experience, Ken Londoner has developed the staying power and wisdom needed to build BioSig to the success it deserves. Here is the first story anywhere on this latest new entry in a double digit annual growth medical device niche searching for heartbeat recording signal innovation to improve medical treatments for millions of patients. Another scoop for Bob.
Please note that new technology in the electrophysiology (EP) market is currently heating up. So is merger and acquisition activity which has been robust for the past five years. Medical giants such as Johnson & Johnson (NYSE:JNJ), Boston Scientific (NYSE:BSX), St. Jude Medical (NYSE:STJ) and Medtronic (NYSE:MDT) have paid handsome cash prices for innovators similar to BioSig Technologies.
On Oct. 29 Abbott (NYSE:ABT) entered the catheter-based electrophysiology market with three transactions which a Fortune article estimated had a combined value of nearly $500 million. The keystone was acquiring a pre-revenue BioSig look- alike, the still private Topera Medical, Inc. The price was $250 million, plus potential future payments tied to performance milestones.
This rich price is clearly a validation that there is opportunity in this innovation starved rapidly growing medical device niche. Considering BioSig's recent total stock market capitalization of only $53 million early investors can anticipate their own rich gains if management continues to execute their operating plan. Longer term returns could be exponential, considering the rich premiums acquirers pay for innovators in this niche.
The goal of a Flaherty Special Situation is a gain of 50% to 100% over two years. Astute patient investors who stick around as the company achieves its potential have the opportunity for larger exponential gains. These usually go to the venture capitalists who are being bypassed by this new enterprise.
In this little lead we touched on the highlights for investing in this special situation: seasoned management with patented innovative technology to disrupt a high growth medical device signal market and an exit down the road of ultimately being acquired by a giant at a generous premium. In the following pages containing greater detail we make the case for BioSig Technologies, Inc. We like it a lot. Read on and see if you agree.
BioSig Technologies' goal is to dramatically improve arrhythmia treatment.
http://biosigtech.com/
BioSig Technologies' (OTCQB: BSGM) PURE EP™ System can greatly improve the $3 billion catheter-based electrophysiology treatment for heart patients. Innovative signal recording of clearer within the heart intra-cardiac signals will enable doctors doing their surgeries to see problem areas that they can't see today with older technology. The advance will shorten today's grueling treatments to correct irregular, fast or slow heartbeats. A seasoned management team with a classy board of directors and scientific advisory group pioneer long awaited technology to improve signals for millions of suffering patients. Success will mean improved results, reduction of unacceptably high recurrence procedures, lower costs and result in high exponential returns for early investors.
By Robert J. Flaherty and Brian D. Flaherty
Buy Recommendation
Los Angeles-based BioSig Technologies, Inc. (OTCQB: BSGM-3.25) is an exciting start-up in the sizzling atrial fibrillation space. Trading on the OTC just commenced on Nov. 6th. A special letter to shareholders of Nov. 10 declares expectations to greatly improve recording signals for the $3 billion electrophysiology (EP) market. EP is simply the study of the electrical pathways and activity of human hearts. Electrophysiologists, EP's specially-trained clinicians, have desperately long awaited replacement of their out- of- date technology.
BioSig's technology platform has been demonstrated at several leading U.S teaching hospitals and research centers. Animal studies have been completed and human clinical trials are in the planning stage. Two patents have been filed and more will be. FDA medical device application 510(k) will be filed. A commercial launch is planned in 2016.
The ambitious goal is to dramatically improve the treatment protocols and outcomes for treating cardiac arrhythmias for abnormal heartbeats-irregular, faster or slower than normal. This type of heart disease afflicts 14.4 million Americans or one in 18. Over one in four senior citizens over 65 has this problem.
Complicated cardiac arrhythmias are what BioSig's proprietary signal recording technology is about. Two major and most deadly types are atrial fibrillation (AF) and ventricular tachycardia (VT). Both are challenging to treat, resulting in lots of hospitalization and costs in the health care system. The most common arrhythmia with 2.7 million cases in 2010, AF is forecast to grow to 5.6 million by 2050. Already AF leads to 600,000 hospitalizations with a direct cost of about $6 billion annually. Indirect costs lift the total to $26 billion. While you can often live with it a long time, AF increases your risk of stroke, the fourth leading cause of death in the U.S.
In contrast, VT is a different story and can be rapidly fatal if not reversed. VT arrhythmias account for 350,000 sudden cardiac arrhythmia deaths annually.
At the clinical level there are two primary classes of treatment for AF. They are drugs and cardiac catheter ablation, which means using a heated catheter to destroy the damaged heart tissue which triggers abnormal heartbeats. Anti-arrhythmic drugs often have limited effectiveness and can cause serious side effects. That leaves cardiac ablation as the main procedure performed to correct abnormal electrical impulses in the heart. It requires a board certified cardiac elecrophysiologist to obtain highly detailed ECG and intra-cardiac signals to pinpoint the location of the malfunctioning heart tissue to properly place and then use a heated catheter to burn and scar just that tissue disrupting and affecting the heart rate.
Many cardiac arrhythmias are well understood and ablation simply requires destroying a small area of heart tissue possessing electrical abnormality. In contrast complex arrhythmias can often be largely empirical because of the difficulty identifying the areas causing the abnormal electrical heart rhythm.
Unfortunately current procedures leave much room for improvement. Unacceptably high treatment recurrence ranges from 31% to 41% for AF. There are very long procedure times of two to over eight hours depending upon the heartbeat complexity. Problems arise partially due to limitations of old technology. The heartbeat signal recording inadequacy issues affect the ablation procedure. Many cases are very challenging. Clinicians have little choice but to use an empirical geographical approach on the heart. That means searching to find proper areas to start burning damaged tissue causing abnormal heartbeats. They must take a shotgun approach. As a result electrophysiologists don't always treat the right areas. Signal interference from equipment in the EP Laboratory operating room can completely mask some tiny but important heartbeat waves in current recording equipment. Other heartbeat waves can be distorted in transmission.
Forget the big words you don't understand. The problem is simple. Your heart works by electricity. When your heart beats there is an electrical impulse that fires from the top of your heart and goes to the bottom. As we grow older, the electricity transmission heartbeats become irregular in one out of every four people over the age of 65. Malfunctioning is a big problem and a huge disease. The treatment problem is a lack of innovation and the EP industry is starved for it.
Well rounded Gregory Cash recently joined BioSig as president and CEO. Greg has a 30-year track record of accomplishment in the cardiac medical device field. Besides heading start-ups and turnarounds, Greg held senior positions with market leaders including Medtronic, Boston Scientific and Covidien (NYSE:COV). He has come on board to lead BioSig's transformation from a R&D technology development to commercialize its revolutionary PURE EP™ recording technology.
Why will doctors want it? The PURE EP™ System is dedicated to preserving the form and structure (which current recording systems can distort) of the patient's cardiac signal recordings. It can visualize crucial information in real time, eliminating the need for manual data validation. It generates confidence indexes to assist clinical decision making for improved ablation outcomes. "We think we can reduce the time of the ablation treatment procedure 10% to 20% and possibly even more than that," says CEO Cash. "Our software replaces a lot of manual sub process in the procedure itself. We offer electrophysiologists real time information that will help them shave time off the procedure."
In addition to preserving the pathology or shape of the signal, BioSig also includes some software features that allow the electrophysiologist to speed up the procedure by confidence indexes rather than reading hour after hour of retrospective analysis of the heart signal. That's why PURE EP™ can be a welcome productivity tool in one of the faster growing and lucrative segments of the hospital. If using PURE EP™ reduces procedure time, extra procedures (perhaps two or three in a week with an average reimbursement of $10,000 or $15,000) can be performed. Hospitals can recover the cost of buying the PURE EP™ System technology pretty quickly. Customers? There are 4,000 cardio electrophysiology labs worldwide; 2,800 in the U.S. EP treatment is very big.
The Management Team: Executive Chairman Ken Londoner, 47, is an institutional money manager turned entrepreneur who had helped create, turnaround and build a number of successful medical technology companies. One is Alliqua (NASDAQ:ALQA), which also started out on the OTC and up listed its stock onto NASDAQ. Ken was instrumental in attracting $89 billion total stock market cap Celgene (NASDAQ:CELG) as a strategic partner and key investor. Ken also worked on InspireMD (NYSE:NSPR), which took same pathway from the OTC and successfully up listed onto the Big Board. He was responsible for recruiting Sol J. Barer, founder and retired Chairman of Celgene to accept the Chairman's role at InspireMD. Barer has led a transformation by bringing in a Fortune 500 management team and board and positioning it for great success. An institutional investor for almost 15 years, he worked for J & W Seligman & Co and co-managed two of its large mutual funds. Then he founded and ran a billion dollar hedge fund for seven years. In 2007 he saw the opportunity for innovation in a rapidly growing medical device niche in desperate need for new technology. He has been developing BioSig for almost six years. It has taken that time to get their system working, functional and to have sound technology. Meanwhile Ken has done an outstanding job recruiting BioSig's new CEO and assembling a truly outstanding board of directors and an all-star scientific advisory group. He is partnering with the leaders in this cardiac treatment niche.
"We believe we have transformational technology," says Ken. "I have committed a significant amount of my career trying to improve the outcomes for patients in our market. Unacceptably high repeat procedures are still about the same rates as they were five years ago. Our goal is to create a product that does well for patients and doctors and also makes the stockholders a really big return."
President and CEO Gregory Cash, 57, joined BioSig about four months ago with a great pedigree in the heart space. Starting at Medtronic in his career he has run numerous cardiac operations. They have groomed him for every part of marketing and general management. His area of expertise is cardio medical devices and he knows this field. He chose BioSig because of its promising product and the opportunity to sell into a market with double digit growth when most other medical devices are only growing 1% or 2%.
Ken Londoner has put together a world class board. BioSig has three directors who are former executives of the biggest player in this catheter-based electrophysiology market. Seth H.Z. Fischer, current CEO of Vivus, Inc. (NASDAQ:VVUS) is also former World Wide Group Chairman of Johnson & Johnson Cardiovascular. Roy Tanaka reported to Seth and ran BioSense Webster, J&J's rapidly growing and dominant electrophysiologist business. Asher Holzer was a key early executive of the heart mapping company Biosense, which was acquired by J & J in the mid l990s.
Patrick Gallagher is managing director of underwriter Laidlaw & Co. in New York. Jonathan Steinhouse is a prominent active investor and executive in the healthcare information space and a former director of Oracle (NASDAQ:ORCL).
BioSig's Medical Advisory Board is a Who's who of electrocardiology leaders. Their presence is a tremendous vote of confidence that BioSig is headed in a direction to benefit mankind.
Competition:
Four giant multi-national companies have locked up the biggest part of the EP market. J& J has the largest market position with its BioSense Webster franchise and St. Jude is the second largest player. The remainder is divided among a couple of other large players like GE, Boston Scientific and Siemens. New entry is expensive and usually risky. The history has been early innovation, consolidation and then aggression among the giants. They fight over sales and marketing capabilities, ability to influence doctors globally, their ability to train and educate practitioners. Companies find little ways to make products better every year to try and refresh the product line. So competition is not really a risk, but there is the possibility that BioSig might get bought out sooner than its founders would like or would be beneficial to mankind. At a rich price shareholders would benefit but the control group also wants to see its transformational technology developed to the fullest extent possible. Sometimes giant acquirers are satisfied with less than founders dream to achieve.
And Then There Was One!
M & A activity has been rich and active. Deals have recently ranged from $225 million to almost $460 million and most targets were pre-revenue. When Ken Londoner started BioSig in 2009 there were eight little companies that were pre revenue and had serious modernization efforts for segments of the EP industry. Over the years each of the others got bought out. On Oct. 29th Abbott (NYSE: ABT) announced two acquisitions and a related separate investment totaling nearly $500 million. Abbott's acquisition of private, venture -backed Topera Medical Inc. was Abbott's entry into the $3 billion catheter-based electrophysiology market growing annually at double digit rates. The rich price was $250 million upfront, plus potential future payments tied to performance milestones.
12-Month Goals:
BioSig has set ambitious milestones for the next 12 months. Right on the horizon is the initiation of human clinical trials. Management is putting that plan together right now and working with some of the leaders in the field. Several prestigious cardiac centers have agreed to collaborate on them. The good news is BioSig should have a relatively easy pathway to file a 510-k application with the FDA before the end of 2015. Approval should come in 2016. In the EP medical device field the size of the trials should be small. The reason is there is a desperate need for improved and functional technology. So trials can be done fairly quickly and in expensively. This is one of the few fields in medicine where you can do clinical work, convert it to marketing and do it for a reasonable amount of money.
Patents:
Is the way still open? "We have a clear path," says Ken Londoner. "What we are working on, nobody else is working on. Nothing filed at the U.S. Patent Office that would be comparable, similar. But we have two provisional patents that we actually are just converting and we are doing international filings on our first two patents. We expect to file many more patents over the next year or two. "
Liquidity?
"We will work to get off the OTC as soon as possible," says Londoner. "This stock is tightly held by management and the board, who control over 50% of the equity. We hope to up list to NASDAQ stock market in 2015. We will make the transition into a commercial organization. We will start hiring people in key roles we need, not just in sales and marketing but in program management, clinical and business development."
The goal of a Flaherty Special Situation is a gain of 50% to 100%.
Astute investors who stick around longer as BioSig achieves its more of its potential have the chance of for an even larger winner.
Risks
After six years BioSig is shifting from R&D only to human clinical trials and commercial development. First and biggest is the execution risk. No one knows how an emerging growth company will perform making this crucial transition. The other risks go with a medical device technology emerging growth company. Selling capital equipment into the hospital sector is always challenging because hospitals really don't want to spend money. BioSig hopes that its technology will save hospitals money and be a revenue -generating technology.
When a really good technology comes out hospitals tend to use it as a marketing feature for the overall hospital. You hear and see this in radio, local TV and billboard advertising. Another risk is you can never take for granted clearing the FDA. Still we believe if BioSig can achieve its 12 month milestones it can be a big winner.
COMPANY CONTACT INFORMATION
BioSig Technologies, Inc.
www.biosigtech.com
12424 Wilshire Blvd. Suite 745
Los Angeles, CA 90025
Phone: (310) 820-8100
Investor Relations:
Jody Cain Senior Vice President
Financial Profiles, Inc.
Phone: (310) 478-2700 ext. 227
Email: [email protected]
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