BSEM: Elevating Skin Grafts to a Higher Level

By Brad Sorensen, CFA

OTC:BSEM

READ THE FULL BSEM RESEARCH REPORT

BioStem Technologies (OTC:BSEM) is a leading innovator focused on harnessing the natural properties of perinatal tissue in the development, manufacture, and commercialization of allografts for regenerative therapies. We see evidence the demand for the BioStem technology is growing and believe that growth, combined with the efficiency changes made by management, will propel BSEM stock higher.

Skin grafts are an often-overlooked procedure, until you or someone you know needs one, and then it becomes a vital operation. According to UT Southwestern Medical Center, over 100,000 skin grafts are performed in the US each year, and, according to the Center, that number would likely be higher if tissue was more available to be grafted. Skin grafts can be needed for a variety of issues according to Icahn School of Medicine at Mt. Sinai, including:

• Infection causing skin loss

• Burns

• Cosmetic or reconstructive surgeries

• Other surgeries that need skin grafts to heal

• Venous ulcers, pressure ulcers, or diabetic ulcers

Addressing the last bullet, diabetic ulcers, according to University of Michigan Health Service, approximately 15% of patients with diabetes will develop foot ulcers and unfortunately are the leading cause of lower extremity amputations in the United States—with 14%-24% of those patients who develop a foot ulcer having such a procedure.

Skin grafts are vital in situations such as this, and many others, and while the grafting procedure is not new, BioStem has developed a technology that we believe will vastly improve the process and provide better outcomes for patients.

BioStem addresses the important skin graph issue by focusing on elements of perinatal tissue and the body’s innate biology to repair or reverse damage caused by a broad range of degenerative diseases. The company’s proprietary approach, called Local MicroEnvironment ActivationTM, or LMA, uses combinations of small molecules, cytokines, and other growth factors to activate the microenvironment within the body to create communication for repair in the tissue. Allografts (tissue graft from a donor of the same species) are processed through the company’s proprietary process known as BioRetain®. This process focuses on preserving the tissue’s endogenous biological properties while maintaining the structure and matrix found in fresh perinatal tissue, which is recovered from healthy pregnancies that go full term.

The company’s growth trajectory is already pointing upward and we expect it to accelerate given increased word of mouth as well as the advancements the company is planning to implement in terms of marketing and operations. Revenues for the quarter ended June 30, 2022 were just over $2.1 million, which was up over 100% versus the same quarter a year earlier which saw revenues of just over $900,000. Additionally, net income, a metric we love to see for a company in this space and at this stage in the green, showed a profit, with the company reporting $200,000 in net income versus a loss of $370,000 a year earlier—all very positive trends. Additional financial highlights include a robust $1.37 million in cash on hand as of June 30, 2022 and the further deleveraging of the balance sheet by converting $3.3 million in liabilities to common stock during the first six months of the year.

In conversations with management, we also became excited about the strategy outlined to increase sales and improve operations. The company is transitioning from indirect to direct sales, which we believe will provide for a more focused, motivated and consistent message, while the company is also investing in promoting its message by updating its branding and relaunching its website. Company management has also made the decision to invest in its sales and ordering platform and noted that they were “very optimistic about the business-to-business platform,” believing it to be a “game changer.” Operational process that were outsourced are now being brought in house and documentation is moving to electronic.

As a result of these improvement combined with the technology that we believe is a game changer in the skin graft market, leads us to conclude that that BSEM is worth a look for investors with a higher risk tolerance.

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