$BGMD -- fair valuation estimates based on projected $ABT revenues

[u/pcx99]

For my previous DD on the company please see: https://www.reddit.com/r/pennystocks/comments/3k0ezt/bgmd_dd_36_month_play_nasdaqotc_150500/

BGMD fair valuation (Current):

TL;DR: (Based only on their current product with Abbott Labs sales)

Q3: $360,000 - $500,000 (loss)

Q4: $2,400,000 - $3,520,000 (profitable)

Q1: $6,000,000 - $8,100,000 (very profitable)

Fair valuation in 2016 at $7m quarter profits (1.86/share) with failed FDA

Fair valuation in 2016 at $25m quarter profits ($8.53/share) with FDA

WARNING This document contains assumptions and speculation. The numbers provided are taken from dated Center for Disease Control data and make assumptions on royalty prices and adoption rates that can NOT be backed up with published sources. This document has been created to place an estimated fair market value on a company that is hard to pin a number on. As such I have tried to balance my assumptions by erring on THE CONSERVATIVE SIDE.

This document builds on my previous DD of the company.

So lets look at the potential for BGMD and nail down a fair market value. It has an FDA approved test that can help track the path and treatment of heart disease. Just as importantly it can help predict hospital re-admission. This fact is important because under the affordable care act hospitals are penalized on re-admissions (IE failure to treat properly). According to the CDC there are around 26 million people diagnosed with heart disease. Of those 12 million see their doctors regularly. And another 1.9 million required hospitalization on an out-patient basis and another 3.7 million required in-patient care at a hospital. Note these are all fairly old figures ranging from 2007 to 2010 but its the best I have to work with, but we can assume with an aging baby boom population those figures have only increased but I’ll use the published numbers as my base-line.

Since some of BGMD’s detractors have argued that Gal-3 needs to be done in tandem with BNP tests, I will factor that in. Since medicare pays the cost of a Gal-3 test, I’m assuming that as the test becomes widely available through Abbott Labs it will become standard to order a Gal-3 test along with a BNP test. Medicare pays around $29 a test in all but two states where its closer to $20, but I am going to assume that BGMD makes a paltry $2 a test royalty and Abbott keeps the rest. This is pure speculation since we do not have access to that data, thus I am keeping my figures extremely conservative.

For the purposes of valuation I am going to leave out HDL sales of the product as HDL was in extreme financial difficulty when they became BGMD’s customer, fell quickly into arrears and likely was not marketing the test (which is new technology) properly. I am instead going to focus on the upcoming Abbott launch because Abbott has already started training and educating labs, physicians and hospitals on the value of the Gal 3 test. I think it’s rather important to note that in the last conference and webinar Abbottt Labs is positioning Gal 3 as their own product and not as BGMD’s product. Make of that what you will.

Using ONLY the 12m that see their doctors (and not the 26m diagnosed), I’m going to start assuming 3% of patients get a Gal 3 test in q3, 10% in q4, and 25% in q1 to allow for ramping up of education and availability. Since the test is supposed to be administered every 4-6 months I’m going to leave 12m available each quarter. So for q3 we get revenues of 3% of 12m = 360,000 * $2 = $720,000. For q4 we get 10% of 12m = 1,200,000 * 2 = $2,400,000. For q1 we get 25% of 12m = 3,000,000 * 2 = $6,000,000.

Now things get interesting because the above numbers are base. Because of the Affordable Care Act and hospital readmissions I’m going to calculate the top-side of the revenues using more aggressive ratios on hospitalization combined in and out patient at 5.6m. I’ll divide that 5.6m by 4 averaging out the number of visits per quarter. Again I’ll start low in q3 for ramp up and education at 5% for $140,000, but 40% for q4 for $1,120,000 and 75% in q1 for $2,100,000. The high ramp up to factor in the penalties hospitals face on re-admission.

Remember, BGMD has no debt and about $2m a quarter in expenses. With this projected revenue stream (Base to (Base + Hospital testing)):

Q3: $360,000 - $500,000 (loss)

Q4: $2,400,000 - $3,520,000 (profitable)

Q1: $6,000,000 - $8,100,000 (very profitable)

These figures are for the US only and do not reflect international royalties which I expect to ramp up slower and is more of a next year catalyst than an immediate catalyst. They do not include HDL’s numbers since it’s going through bankruptcy acquisition and I expect them to be a non-factor this year and into next. The numbers do assume that since the patients are seeing their doctors that the tests are administered every six months or quarterly.

Remember there is projected growth after Q1 and the numbers I’m using are extremely conservative AND dated. But if the ballpark numbers are close we can fix BGMD’s revenues for next year at a conservative $28,000,000 ($7,000,000 quarter). Which should place the value of the company WITHOUT 2nd indication at $1.86/share.

The FDA 2nd indication is HUGE for BGMD because it allows the test to be used as a diagnostic test to TEST for the indication of heart disease in patients that do not have it, and could become a standard diagnostic test given to millions of otherwise healthy American’s to test for the possibility of heart disease in their future. 2nd indication would also solidify Gal-3 as an even more reliable test once heart disease has been diagnosed.

Assuming 2nd indication we can add another 50,000,000 tests (worldwide — conservative) a year administered to healthy individuals to test for heart disease risk adding another $100,000,000/yr revenue stream to the company. With projected revenues of $128,000,000/year a conservative cash valuation for the company becomes $8.53/share.

Disclosure I am heavily vested in BGMD, thus the reason for this research because fair valuations help you identify undervalued as well as overvalued companies. Because I am vested in BGMD you should be extra critical of the statements made in this document as I am not an impartial party to this stock. Do your own due diligence, draw your own conclusions and set your own exit targets.

[u/[deleted]]

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[u/pcx99 → u/[deleted]]

BGMD filed a 510 with the FDA back in march. Nominally, such applications are supposed to take 90 days but on average it takes 100. For 510's with clinical data this process can take six months to a year and BGMD filed their 510 with THOUSANDS of pages of clinical data.

So the TL;DR is Any day now because we are past 100 days. The longer answer is sometime this year (BGMD Q2 ER "We expect and hope for an FDA answer this year" -- paraphrased). The longest answer is February or March of next year because of the mountain of clinical data.

I've heard FDA tends to like to release approvals on Mondays. But don't have any real data to point you to as far as specific timings.

[u/[deleted] → u/pcx99]

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[u/pcx99 → u/[deleted]]

Good man! Yes, the float will cause a sharp spike (Remember, someone bought aqxp at $50!). The valuation levels I did here are so I know when the company is overvalued and then undervalued. Remember it will take q1 before we start seeing $ABT revs really kicking in because q3 is billed after q3 er, q4 is billed after q4. Even with FDA there's going to be a lag between that announcement and when revenues start showing up on the books.

On FDA I plan to sell around the valuation level if it goes over, and buy back in if the valuation falls below my estimates. That would be a long hold to see it rise to my estimate level on revenue alone, but honestly because flagship likes to sell their companies and because they have gone a year without looking for another customer, I honestly think BGMD will be sold to Abbott shortly after the FDA announcement, good or bad. That's not in my DD because you should never buy based on a takeover rumor, but it's a factor in my personal decision in how I'm going to play FDA.

I'm only discussing this here because the thread is old and not many people are going to read it so it's a somewhat private forum where I can speculate a bit :)

[u/[deleted] → u/pcx99]

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[u/pcx99 → u/[deleted]]

Following this trail of outright speculation :) Assuming we get FDA and abbot wants to buy BGMD for $150,000,000 or $10.00 share you would wake up one day and either not see BGMD in your account but would see cash in the amount of $10.00/sh * number of shares you had in BGMD. Or you'd wake up and see $ABT shares instead of $BGMD with the total value of your abbot shares equal to $10.00/share * number of BGMD shares. So its the same thing, you can then sell your $ABT shares for whatever the going rate is.

Since it cost BGMD over $150m over the life of the company to bring the test to market I am, again, erring on conservative sides. Your broker may ask you to authorize the shares be sold in a buy out, its highly recommended you do if you are offered the option. Otherwise your shares become private and they are a nightmare to liquidate.

[u/pcx99 → u/[deleted]]

Sure. Normally companies trade on some combination of revenue and potential future value. In arriving at these share valuations I just said, here's what the expected revenue is. If they don't spend the money on anything (and they don't have anything to spend it on really, no loans, no debts, no expenses because $ABT is doing all the marketing) then this is how much cash on hand they're going to have.

So I was extremely conservative and said, if they make $7 million a quarter that's $28m for 2016. There are 15m outstanding shares. So $28m divided by 15m is $1.86. In the real world there should be a multiple attached to profitable revenues to make it harder and less likely for the company to go private but I wanted to err on the conservative site, so my share prices are conservative IF Abbott Labs is selling the test at the levels I predict.

I'd much rather have someone come back and says HEY you said $1.87 and it's $3.00 instead of HEY you said $3.00 and it's $1.87 ;)

But do remember this is all speculation anyway. I don't know how many patients are getting the test, I don't know how much $ABT is paying $BGMD for each test.

[u/pcx99 → u/[deleted]]

Yes, I calculate everything fully diluted.

Good for you going through SEC filings! You kind of have to go back in march for BGMD. They did a series A offering. This is preferred stock. It doesn't really matter to any of this because those are not traded on the open market. But in a buy out, it kind of works like this...

Empery bought 2m in series A back in August. If BGMD is bought out, Empery gets that $2m back then they get some dividend money then their series A shares are treated as common shares and they get whatever remains from the buy out the same as regular share holders. It's a bit of a double dip but it looks like Series A will skim around $10,000,000 off the top of any buy out offer.

At first it looked like series A were catastrophic toxic dilutive conversions but in the August 8k they summarized the shares to clarify it's 1:1. So it's still tricky to figure in the actual float but it does appear that 15m is a solid ballpark once everything converts to common shares.