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Boston Scientific buys competitive advantage
by Dr. John L. Faessel

ON THE MARKET
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10Q says 3% to 5% goes to Biophan from stent sales – Boston’s Q2 stent sales were $700 million.

Biophan Technologies, Inc. (BIPH) $2.80 OTCBB
Market-cap $207 million

Boston Scientific Corp (BSX) $28.39 NYSE

Market-cap $23.6 billion

Yesterday Biophan announced the receipt of $5.75 million in investments and technology licensing payments from medical device manufacturer Boston Scientific. The license agreement grants Boston Scientific licenses covering patents related to Biophan’s MRI safety and image compatibility technologies.

Here is the key part of the deal: According to the Biophan 10-Q filed on 7-27-2005 re the Boston Scientific License. *See my handle on how this relates to some huge numbers for Biophan below.

“The agreement provides Boston Scientific with the right to use Biophan's MRI safety and image compatibility technology and other technologies in a broad range of exclusive and non-exclusive product areas at royalty rates of 3% to 5%. The exclusive product area includes vascular implants and the non-exclusive product area covers a broad array of products including guidewires, catheters, pacemakers, defibrillators, neurostimulators and others. Boston Scientific has the right to sub-license the exclusive product areas to third parties, with Biophan and Boston Scientific to share all proceeds from these parties.”

*So, Boston Scientific who does about $1.5 to $2 billion in stent (vascular implant) business agrees to pay Biophan royalties of 3% to 5%.

Here are some theoretical numbers that make the bullish case for Biophan.

Of course, the ‘when’ part of the implementation by Boston Scientific is unknowable at this point. But suffice it to say that the potential numbers are very large.

· $1.5 billion, times 3% equals revenue of $45,000,000.

· At $1.5 billion, times 5% equals revenue of $75,000,000.

· At $2 billion, times 3% equals revenue of $60,000,000.

· At $2 billion, times 5% equals revenue of $100,000,000.

Last quarter [Q2] Boston Scientific (BSX) did worldwide coronary stent sales that totaled $700 million, an increase of 7% from Q2 2004. (BSX) expects their drug-eluting stent sales to exceed $2.8 billion in 2005.

· $2.8 billion, times 3% equals revenue of $84,000,000.

· $2.8 billion, times 5% equals revenue of $140,000,000.

And they will sub-license rights to third parties – says the 10Q.

Furthermore - this does not include the potential sales of MRI safety technology for the ‘other’ implantable devices that are out there that need the protective coatings, like Vena Cava filters.

The solution technologies that Boston Scientific purchased from Biophan are coatings that shield the objects from the strong electromagnetic radio waves that are created during the MRI scan. Without such shielding the electromagnetic fields could induce high current to heat the metal implants and damage tissues surrounding them, which have proved fatal.

There is an extreme risk in the use of implanted metal devices as far as safety in MRI is concerned. Each patient is questioned about implanted objects before any MRI procedure is undertaken.

An absolute in business is that competitive advantage yields increased market share; and the brilliant and astute Boston Scientific management just purchased a significant head start on their competition. In licensing Biophans MRI safety solutions Boston Scientific, one of the world’s premier companies and most innovative medical device manufacturers, acquired cutting edge assets in the form of technologies that give them a new competitive advantage and sets them apart from all of the competition. Importantly, these newly acquired solutions have applications across several of Boston Scientific product lines.

Could you just imagine the scenario where, if ‘you’ needed a stent, you would select one that ‘would not’ allow you to undergo MRI?

Biophan is a world leader in the development of next-generation biomedical technology. They develop and market cutting-edge technologies designed to make biomedical devices safe and compatible within the magnetic resonance imaging (MRI) environment. Biophan holds virtually all the issued patents that cover MRI safety.

Boston Scientific is a worldwide developer, manufacturer and marketer of medical devices whose products are used in a broad range of interventional medical specialties. Their gross revenues for 2004 were $3.47 billion, up from $2.91 billion in 2003. Boston Scientific affirmed its guidance for 2005, saying, “it's on track to earn $2 a share on revenue of $6.5 billion”.

It is conservatively estimated that over $12 billion in medical devices are shipped each year that could utilize Biophan’s proprietary technology. In 2003 there were approximately 10,000 magnetic resonance imaging ‘MRI’ units worldwide, and approximately 75 million MRI scans per year are performed. The dramatic increases in both MRI usage and cardiac device-based therapy have resulted in an estimated 50% - 75% probability of a patient being indicated for an MRI over the lifetime of their device. According to the Cleveland Clinic a world-wide population of 4.3 million people has pacemakers. Theta reports reported that 2002 cardiovascular devices were a $12.8 billion global industry that will grow on average of 12% per year through 2006, when it will be worth $22.6 billion.

The closure of the Boston Scientific deal with Biophan that was announced yesterday included the purchase of $5 million of Biophan’s common stock, - priced at a 10% premium over the average of the closing price for the 30 calendar-day period prior to the closing. Biophan also received an upfront payment of $750,000. And importantly (per the 10-Q) the $750,000 will not be an offset to future earned royalties. The technology license also includes annual maintenance fees, in addition to royalties and milestone payments on sales of products that employ Biophan-licensed technologies.

To see yesterday’s (BIPH) press release regarding the deal - visit: http://www.biophan.com/pr/2005/08/080305_Boston.html

Biophan (BIPH) is one of my Best Small-Cap Ideas for 2005. For the complete list, e-mail request to [e-mail]


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