BioSig Tech. (BSGM) & Electrophysiology Sector - Roth initiatiion BSGM with a Buy and a $14 target (and this was AFTER CEO made it clear only initiat - BioSig Tech. (BSGM) & Electrophysiology Sector - InvestorVillage
BioSig Tech. (BSGM) & Electrophysiology Sector
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Msg  3 of 271  at  2/20/2019 1:32:42 PM  by

Rob Cos

The following message was updated on 2/20/2019 2:18:36 PM.

Roth initiatiion BSGM with a Buy and a $14 target (and this was AFTER CEO made it clear only initiate if you believe in company there will be no investment banking fees)

 
To see charts and slides see this link
 


Remember this coverage was AFTER CEO told them no investment banking fees – only cover us if you think stock will make your clients money. Extremely unusual.

COMPANY NOTE | EQUITY RESEARCH | December 06, 2018

Healthcare: Medical Technology

BioSig Technologies, Inc. | BSGM - $3.97 - NASDAQ | Buy

Initiation of Coverage

Stock Data

52-Week Low - High $3.21 - $7.88

Shares Out. (mil) 16.66

Mkt. Cap.(mil) $66.2

3-Mo. Avg. Vol. 58,130

12-Mo.Price Target $14.00

Cash (mil) $7.3

Tot. Debt (mil) $0.0

EPS €

BSGM: Novel Bioelectronic Platform Tech

We initiate coverage of BSGM with a Buy rating and a $14.00/share price

target. BSGM is a Los Angeles-based medical device company developing

the PURE EP system, a proprietary biomedical signal processing platform

initially aimed at improving the efficiency, efficacy and safety of cardiac ablation

procedures. The impetus for our Buy rating on BSGM shares is our belief that

the company will successfully launch the PURE EP system into the large and

rapidly-growing electrophysiology market.

Our investment thesis for BSGM is hinged on five key reasons:

Reason #1 - Electrophysiology's rapid growth has been driven

by technological advancements, yet signal processing remains

antiquated. Currently, cardiac ablation procedures are performed on ~1M

arrhythmia patients annually worldwide, representing a ~$5B industry

(Source: HRI). While advancements in 3D cardiac mapping and ablation

catheter tips have improved outcomes (driving ~11% procedure volume

growth), current signal recorders employ filters that distort cardiac signal

data, which we believe makes ablation target identification challenging.

Reason #2 - PURE EP appears to be a superior signal processor. PURE

EP acquires, processes and displays electrocardiograms during EP studies

and catheter ablation procedures. Novel elements of PURE EP include:

1) a hardware configuration that minimizes noise, improves resolution and

preserves raw cardiac signal data, and 2) software used to process the

signals with digital filters in real-time review windows. We believe that these

features could improve EPs speed and accuracy in locating cardiac ablation

targets, which could improve outcomes and reduce costs.

Reason #3 - BSGMs leadership, advisors and strategic partners appear

to validate the technology and could minimize execution risk. We

believe that the company's board, commercial leadership team, clinical

advisors (~20 leading EP KOLs) and strategic partnerships (Mayo Clinic

and TCAI) are reflective of a more established company. In our view, this

is not a coincidence, and could suggest potential value of the technology

platform. Additionally, we believe that strong KOL support and leadership

could minimize execution risk.

Reason #4 - We forecast substantial revenue growth for BSGM. PURE

EP received 510k clearance in August '18 and a limited launch is underway.

We forecast peak PURE EP system and recurring revenue of ~$320M and

~$250M in 2030 (representing a 40% CAGR from '20-'30). Additionally, we

forecast high GM (>80%) and relatively slow OPEX growth, which offers the

opportunity for substantial earnings growth.

Reason #5 - Attractive valuation. We believe that BSGMs current EV of ~

$62M does not reflect the company's growth outlook, recent EP acquisitions,

and the potential value of its platform beyond EP. Our $14/share PT is based

on a 6x multiple of our 2022 revenue forecast of $56.0M.

VALUATION

We value BSGM at $14.00/share, which is based on a 6x revenue multiple of our forecasted 2022 revenue of $56.0 million discounted two years at 16%. We support this valuation with a combined sensitivity analysis of our 2021 and 2022 EPS forecasts of $0.25 and $0.65 (with multiples ranging from 20-60 and discount rates ranging between 8% and 24%). By applying a 40x multiple and a 16% discount rate to both 2021 and

2022 EPS forecasts and taking the average, we arrive at ~$14.00/share (see Exhibits 10 and 11). Impediments to shares reaching our price target include, but are not limited to, forecasting risk, regulatory risk, commercial execution risk, competitive risk and financial risk.

INVESTMENT SUMMARY

We initiate coverage of BioSig Technologies, Inc. (BSGM) with a Buy rating and a $14.00/share price target. BioSig Technologies is a Los Angeles-based medical device company developing the PURE EP system, a proprietary biomedical signal processing platform initially aimed at improving the efficiency, efficacy and safety of cardiac ablation procedures. The PURE EP system is a signal acquisition and processing system designed to enhance the clarity and visualization of subtle cardiac signals during ablation procedures, which we believe could improve electrophysiologists’ ability to identify arrhythmia foci (ablation targets) in real-time. In our view, the improved signal clarity along with novel workflow displays offered by the PURE EP system could significantly improve electrophysiologists’ ability to make clinical decisions on potential ablation targets. The PURE EP system was developed in collaboration with UCLA, the Mayo Clinic and Mount Sinai Hospital, and recently received FDA 510k clearance in August 2018. From its inception, the system was designed to work in parallel with current recording and cardiac mapping technologies, which we believe could enable a warm reception within the EP lab infrastructure. BioSig recently initiated PURE EP’s controlled domestic launch with KOL electrophysiologists, and the official PURE EP domestic launch is expected to occur in May 2019. Additionally, we expect overseas PURE EP sales to commence in 2020, following the receipt of CE marking, expected in 2H19. The company currently employs ~20 individuals.

The impetus for our Buy rating on BSGM shares is our belief that the company has the potential to successfully launch the PURE EP system into the large and rapidly-growing electrophysiology market. In our view, the apparent advantages offered in signal clarity and display by the PURE EP system could lead to material improvements in the efficiency, efficacy and safety of cardiac ablation procedures for complex atrial fibrillation and ventricular tachycardia. Importantly, our sentiment appears to be shared by several members within the top ranks of the electrophysiology industry, as evidenced by the company’s board composition, recently-assembled core commercial leadership team and Clinical Advisory Board, and the strategic alliances established with the Texas Cardiac Arrhythmia Institute (TCAI, initiating first-in-human studies) and the Mayo Clinic (including a 10-year research collaboration). We believe that the upcoming

clinical evaluation of the PURE EP system will generate sufficient clinical data to support wide adoption within the EP community. Over the next ~six months, multiple leading electrophysiology KOLs will generate clinical data intended to demonstrate the system’s value proposition for early-adopter hospital purchasing approval committees. We believe that the upcoming clinical evaluation could generate positive top-line data

as early as 1Q19, which could represent a catalyst for BSGM shares.

Our investment thesis for BioSig Technologies, Inc. is hinged on five key reasons:

Reason #1 to invest in BSGM – Electrophysiology is a large and rapidly growing field that has benefited from multiple technological advancements, yet advancement in electrical signal processing has lagged other facets of catheter ablation procedures. According to the CDC, ~six million Americans and over 30 million people worldwide suffer from atrial fibrillation and another ~300,000 Americans suffer from sudden cardiac death due to ventricular tachycardia. Atrial fibrillation currently contributes ~750,000 hospitalizations in the U.S. annually, and increases the risk of stroke by a factor of four-to-five. We expect aging population demographics to drive the U.S. atrial fibrillation incidence to ~10 million by 2050. While drug therapies are often effective, patients experience significant off-target effects from anti-arrhythmia and anticoagulant medications. Additionally, pharmacological therapy is often ineffective for atrial fibrillation and ventricular tachycardia. The current cost burden associated with atrial fibrillation in the U.S. includes ~$6 billion in direct costs and ~$26 billion in

indirect costs (CDC).

Cardiac catheter ablation is a growing mode of therapy where the sources of irregular electrical signaling in the heart wall are scarred over. During ablations, electrophysiologists map the electrical signals throughout the heart in order to locate sources of arrhythmia (irregular rhythms). During ablations, clear visualization of the electrical signals is needed to better locate targets to ablate (create a scar) on the heart wall. Due to recent technological advancements in the field of catheter ablation that have improved treatment outcomes, catheter ablation for both complex atrial fibrillation and ventricular tachycardia has experienced rapid growth in recent years. Currently, ~one million catheter ablation procedures are performed worldwide in ~8,000 electrophysiology (EP) labs, which is forecasted to approach ~1.4 million procedures by 2020.

Therefore, the global EP/ablation device market is forecasted to grow ~11% to $6 billion by 2020 (Health Research International). While ~one million procedures represents under 3% penetration of the global atrial fibrillation population, we believe that further advancements in ablation safety, efficacy and efficiency could drive material improvements in total market share.

While the EP lab has witnessed numerous technological advancements with respect to 3D cardiac mapping and advanced ablation catheter tips (see Exhibit 8), we believe that electrical signal processing has stagnated over the past two decades. The EP lab environment includes multiple sources of unwanted radio frequency interference, which poses a challenge for current EP signal recorders to isolate high-frequency, low-amplitude cardiac signals associated with complex atrial fibrillation and ventricular tachycardia. Current recorders employ various filters (low pass, high pass and notch filters) to remove noise and artifacts in the hardware. In this process, current recorders distort the signal, after which the raw cardiac signal is unrecoverable. Fundamental to our investment thesis is our belief that these current recorders limit electrophysiologists’ ability to identify subtle cardiac ablation targets, which could impact procedure time

and could account for the ~50% procedure success rates in complex ablations.

Exhibit 1. The EP lab experiences rapid technological adoption, but these devices are also sources of signal interference

Source: www.biosigtech.com; Venkatachalam, MD. Circulation, Arrhythmia and Electrophysiology. 2011 Dec; 4(6):965-

973

Exhibit 2. Current signal recording systems lag advancements seen in other aspects of ablation

Source: BioSig Technologies, Inc. 2017 10K

We believe that BioSig’s PURE EP system has the opportunity to become standard of care in EP signal

processing for complex atrial fibrillation and ventricular tachycardia. We forecast a peak penetration of 75%

of PURE EP’s target market by 2030, which represents $1.7 billion in cumulative global PURE EP system

sales through 2030 and ~$250 million in recurring software/service revenue by 2030.

Exhibit 3. PURE EP U.S. market opportunity

Source: ROTH Capital Partners estimates

Exhibit 4. PURE EP OUS market opportunity

Source: ROTH Capital Partners estimates

Reason #2 to invest in BSGM – We believe that the PURE EP system represents a significant advancement in electrical signal processing, which could improve outcomes and reduce costs associated with complex ablation procedures

The PURE EP system is an electrocardiogram and intracardiac multichannel recording and analysis system that is designed to acquire, process and display electrocardiograms and electrograms during EP studies and catheter ablation procedures. Key proprietary elements to the PURE EP system include:

! Novel hardware configuration that preserves the fidelity of the raw cardiac signal. The hardware circuitry includes a very low-noise instrumentation amplifier, an anti-aliasing filter, a 24-bit high-resolution analog-to-digital converter and a microprocessor. In this architecture, gain switching is not needed, and the full range of input signals is digitized with optimal resolution. In comparison, hardware configurations in currently used signal recording systems include various gain and filter settings. As a result, these systems record and display a signal that has been modified by specific hardware

configurations, after which the original raw cardiac signal information is generally not recoverable (see Exhibit 6). (Asirvatham, Journal of Innovations in Cardiac Rhythm Management, April 2017)

! Suite of software tools that are used to selectively filter and process raw cardiac signals in real-time using the digital processing module. The real-time window is capable of displaying waveforms of interest as raw signals or as any combination of raw and filtered signals. This enables electrophysiologists to selectively design filter settings and enables better visualization of signals in the presence of noise and artifacts. All signals displayed are time synchronized, and on the review screen, the operator can open multiple review windows to display the results of various signal-processing algorithms, independent of the real-time tracings. (Asirvatham, Journal of Innovations in Cardiac Rhythm Management, April 2017) The library of software tools is designed to fit the needs of the electrophysiologist in different settings, including during diagnostic and/or therapeutic procedures. We believe that the PURE EP software could provide useful information to the physician, which could help guide the ablation catheter by reducing the complexity of maneuvers necessary to identify ablation targets. With current technology, the clinician often has to step out of the control room in order to

review seconds or minutes of signals and then apply filters to the amplified signals to reduce noise and artifacts. Therefore, we believe that the PURE EP’s software features could improve the efficacy of the ablation procedure and shorten the overall procedure time.

Exhibit 5. The PURE EP system’s features and potential benefits

Source: BioSig Technologies, Inc. corporate presentation, Fall 2018

Exhibit 6. PURE EP improves visualization of high-frequency, low-amplitude signals arising from the pulmonary vein, which is the location of atrial fibrillation catheter ablation targets Source: www.biosigtech.com

We believe that there are several potential advantages to this system due to its unique ability to record precise, uninterrupted, real-time evaluations of electrocardiograms and electrograms. In our view, potential advantages to the PURE EP system include:

! Efficiency – improved signal clarity (noise reduction) and novel display workflows could lead to faster ablation target identification with a higher degree of confidence. We believe that this could lead to a material improvement in the overall procedure time for complex atrial fibrillation and ventricular tachycardia catheter ablations (currently three-to-six hours). Benefits derived from faster procedures include patient safety risk reduction, less radiation exposure, improved EP lab throughput and reduced cost (currently ~$30,000/ablation).

! Efficacy – more precise localization of cardiac arrhythmia foci could lead to improved treatment efficacy as well as limit collateral damage to healthy tissue by limiting ablation of tissue not causing the arrhythmia. Currently, catheter ablation procedures for complex atrial fibrillation and ventricular tachycardia have success rates hovering near ~50% (J Am Coll Cardiol 57:160–166; BioSig Technologies 2017 10K). We believe that improved signal processing and display with the PURE EP system could improve the post-procedure recurrence rate materially, which would improve patients’ quality of life and significantly reduce health care costs.

! Compatibility – from its inception, the PURE EP system was designed to fully integrate with the existing EP lab environment. We believe that these characteristics have the potential to enhance the capabilities of currently existing technologies in the lab (3D mapping, advanced catheter tips), which could increase the overall workload ability of the lab.

Reason #3 to invest in BSGM – BioSig’s ability to recruit strong corporate/commercial leadership and leading KOL partners appears to both validate the technology’s potential value and minimize the execution risk of the upcoming PURE EP launch Since the company was founded in 2009, numerous corporate, industry and clinical leaders appear to have gravitated towards the company. Notable examples include:

! Board members – Andrew Filler (Partner and General Counsel for Sherpa Technology Group), Jeffrey O’Donnell, Sr. (over 20 years of board and CEO experience in device companies), David Weild IV (Vice Chairman of Nasdaq, Head of Corporate Finance and Equity Capital Markets at Prudential Securities, Inc.), Donald Foley (former Chairman and CEO of Wilmington Trust Corporation), Roy Tanaka (former President of Biosense Webster)and Seth Fischer (former Company Group Chairman,

Johnson & Johnson)

High-frequency, low-amplitude signals are seen clearly with the PURE EP system

! Commercial leadership – Amy Scott (current Vice President, Strategic partnerships and former Director of Strategic Partnerships for Biosense Webster)

! Clinical advisors – Dr. Andrea Natale (Texas Cardiac Arrhythmia Institute, TCAI), Dr. Samuel Asirvatham (Mayo Clinic), Dr. K.L. Venkatachalam (Mayo Clinic), as well as 20 leading electrophysiology KOLs recently recruited to form BioSig’s Clinical Advisory Board

! Leading centers – UCLA Medical Center, Mount Sinai Hospital, TCAI and the Mayo Clinic (including a 10-year research collaboration signed in 2017)

We believe that the company’s ability to both recruit talented leadership and derive support from these individuals and institutions is unlikely to be a coincidence. In our view, it more likely suggests the potential value associated with the company’s novel signal processing platform. Additionally, we believe that this level of KOL-support and industry-expert involvement could reduce the execution risk of the upcoming PURE EP commercial launch. Going forward, we expect the company to secure a team of seasoned industry sales representatives in 2019.

Reason #4 to invest in BSGM – We expect a successful worldwide PURE EP launch, with a high margin recurring revenue stream offering the opportunity for rapid and sustainable earnings growth For 2019, we forecast PURE EP system revenue of $6.2 million (30 systems). Between 2020 and 2030, we forecast U.S. PURE EP system placements to sustain a 29% CAGR, ramping from 55 systems for $13.7

million in 2020 to 720 systems for $180 million in 2030. These forecasts assume a stable U.S. system ASP of $250,000. We forecast a similar launch trajectory for OUS PURE EP system sales, commencing in 2020 with 16 systems sold for $3.5 million. Between 2021 through 2030, we forecast PURE EP OUS system placements to sustain a 41% CAGR, ramping from 30 systems for $6.6 million in 2021 to 650 systems for $143 million in 2030. These forecasts assume a stable OUS system ASP of $220,000.

In addition to placing PURE EP systems, the company intends to sell software modules (updated periodically) and collect service fees. We currently expect the annual recurring fee per system to grow from $32,000 in 2020 to $37,000 by 2030. Based on these assumptions, we forecast PURE EP software/service revenue of $0.4 million in 2019 and $2.2 million in 2020. Between 2020 and 2030, we forecast PURE EP recurring software/service revenue to sustain a 60% CAGR to $247 million in 2030. Overall, these forecasts project BioSig to sustain 40% revenue CAGR between 2020 and 2030 to $570 million in PURE EP total revenue in 2030.

Exhibit 7. BioSig Technologies’ total revenue, forecasted to sustain a 40% CAGR from 2020 to 2030

Source: ROTH Capital Partners estimates

We believe that PURE EP system gross margins could reach 80% at scale and software/service gross margins could exceed 90%. Additionally, we forecast a relatively low OPEX growth rate compared to our growth forecasts for gross profit. Therefore, we expect net losses to decline in 2019, with the company reaching cash-flow break-even in mid-2020 and earning money on an EPS basis beginning in 4Q20.

For $0

$100

$200

$300

$400

$500

$600

2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E

Revenue ($M)

PURE EP system revenue, U.S. PURE EP system revenue, OUS Software/Service revenue, WW 2019 and 2020, we project net losses of $11.1 million and $3.2 million, equating to EPS (basic) losses of ($0.60) and ($0.15). For 2021-2025, we forecast net income of $6.0 million, $15.9 million, $36.1 million, $67.7 million and $106.1 million, equating to EPS (diluted) of $0.25, $0.65, $1.45, $2.70 and $4.20.

Reason #5 to invest in BSGM – Attractive valuation, especially given the company’s growth outlook and opportunities to leverage the platform technology beyond cardiac ablation BioSig Technologies is currently trading at an EV of $62 million, representing 9.4x / 3.2x / 1.9x our ’19 / ’20 / ’21 revenue forecasts of $6.6 million, $19.4 million and $33.0 million. We believe that the company is

currently undervalued by the market, given the:

! PURE EP’s unique attributes

! Company’s potential earnings outlook

! Valuations awarded to recent acquisitions in the cardiac catheter ablation industry (see Exhibit 8)

! Potential opportunities to license the signal processing platform technology for other medical uses (Bioelectronic Medicine, i.e. neurostimulation) and/or non-medical industrial uses

Exhibit 8. Notable acquisitions in the cardiac ablation industry

Sources: Thompson Reuters Eikon

We value BSGM at $14.00/share, which is based on a 6x revenue multiple of our forecasted 2022 revenue of $56.0 million discounted two years at 16%. We support this valuation with a combined sensitivity analysis of our 2021 and 2022 EPS forecasts of $0.25 and $0.65 (with multiples ranging from 20-60 and discount rates ranging between 8% and 24%). By applying a 40x multiple and a 16% discount rate to both our 2021

and 2022 EPS forecasts and taking the average, we arrive at price target of ~$14.00/share (see Exhibits 10 and 11).

Impediments to shares reaching our price target include, but are not limited to, forecasting risk, regulatory risk, commercial execution risk, competitive risk and financial risk.

Exhibit 9. BSGM Valuation

Source: ROTH Capital Partners estimates

Target Company Founded Technology Clinical Data CE Mark FDA Sales Valuation Aquirer Date

EPD Solutions 2014

3D cardiac

mapping system

X X X

$293M +

$246M

(milestones)

Philips 2018

nContact 2005

Endoscopic

coagulation of

epicardial tissue

X X $149M Atricure 2015

CardioInsight 2006

3D cardiac

mapping system

X X X X $272M Medtronic 2015

Topera Medical 2010

3D cardiac

mapping system

X X X $350M St. Jude Medical 2014

Endosense SA 2003

Contact force

sensing ablation

catheter

X X X $331M St. Jude Medical 2013

Rhythmia Medical 2004

3D cardiac

mapping system

X $410M Boston Scientific 2012

Forecasted 2022 revenue (000s) $55,996

Multiple of revenue 6.0

Implied EV (000s) $335,976

Discount factor, (two years @ 16%) 0.74

Value per share $14.00

BIOSIG TECHNOLOGIES, INC. Company Note - December 6, 2018

Exhibit 10. Sensitivity analysis on our 2021 EPS forecast

Source: ROTH Capital Partners estimates

Exhibit 11. Sensitivity analysis on our 2022 EPS forecast

Source: ROTH Capital Partners estimates

Catalysts for valuation adjustments

Catalysts that could revalue the company’s shares higher or lower are listed below. In addition to quarterly

earnings releases, we anticipate the following announcements:

Exhibit 12. Catalyst calendar

Expected timing (CY/FY) Expected event

1Q19 Topline data from PURE EP first-in-human clinical studies

May 2019 Official domestic PURE EP commercial launch

3Q19 PURE EP CE mark approval

YE-2019 PURE EP Japanese approval

Expected timing (CY/FY) Expected event

Source: ROTH Capital Partners estimates

20 25 30 35 40 45 50 55 60

8% $4.58 $5.73 $6.87 $8.02 $9.16 $10.31 $11.45 $12.60 $13.75

10% $4.50 $5.62 $6.75 $7.87 $9.00 $10.12 $11.25 $12.37 $13.50

12% $4.42 $5.52 $6.63 $7.73 $8.84 $9.94 $11.05 $12.15 $13.25

14% $4.34 $5.43 $6.51 $7.60 $8.68 $9.77 $10.85 $11.94 $13.02

16% $4.27 $5.33 $6.40 $7.47 $8.53 $9.60 $10.66 $11.73 $12.80

18% $4.19 $5.24 $6.29 $7.34 $8.39 $9.44 $10.48 $11.53 $12.58

20% $4.12 $5.15 $6.19 $7.22 $8.25 $9.28 $10.31 $11.34 $12.37

22% $4.06 $5.07 $6.08 $7.10 $8.11 $9.13 $10.14 $11.15 $12.17

24% $3.99 $4.99 $5.99 $6.98 $7.98 $8.98 $9.98 $10.97 $11.97

Multiple of 2021 EPS forecast, $0.25

Discount rate (1 year)

20 25 30 35 40 45 50 55 60

8% $11.07 $13.83 $16.60 $19.37 $22.13 $24.90 $27.67 $30.43 $33.20

10% $10.67 $13.33 $16.00 $18.67 $21.33 $24.00 $26.67 $29.34 $32.00

12% $10.29 $12.86 $15.43 $18.01 $20.58 $23.15 $25.72 $28.30 $30.87

14% $9.93 $12.41 $14.90 $17.38 $19.86 $22.35 $24.83 $27.31 $29.80

16% $9.59 $11.99 $14.39 $16.79 $19.18 $21.58 $23.98 $26.38 $28.78

18% $9.27 $11.59 $13.91 $16.22 $18.54 $20.86 $23.18 $25.49 $27.81

20% $8.96 $11.20 $13.45 $15.69 $17.93 $20.17 $22.41 $24.65 $26.89

22% $8.67 $10.84 $13.01 $15.18 $17.34 $19.51 $21.68 $23.85 $26.02

24% $8.39 $10.49 $12.59 $14.69 $16.79 $18.89 $20.99 $23.09 $25.18

Multiple of 2022 EPS forecast, $0.65

Discount rate (2 years)

Page 9 of 35

BIOSIG TECHNOLOGIES, INC. Company Note - December 6, 2018

RISKS

In addition to the risks inherent in developing, manufacturing, and selling medical devices, key investment

risks for BioSig Technologies, Inc. include:

! Forecasting risk – We forecast substantial revenues for BSGM. Failure of actual revenues to match

our forecasts could have a material adverse impact on company shares.

! Regulatory risk – We expect PURE EP to receive CE mark approval in 3Q19. Failure to obtain OUS

approval within a reasonable time frame could have a material adverse impact on company shares.

! Commercial execution risk – BSGM plans to launch the PURE EP system in 2019, and uncertainty

regarding the success of its commercial strategy remains. Failure of the company to execute its

comercial strategy could have a material adverse impact on company shares.

! Competitive risk – BSGM operates in the highly-competitive cardiac ablation industry. While the

company appears to offer a differentiated platform technology, we cannot rule out the possibility of

competition. Failure of the company to effectively compete in this environment could have a material

adverse impact on company shares.

! Financial risk – Cash currently appears sufficient into mid-2019. Despite having multiple potential

opportunities for non-dilutive funding (distribution deals, technology partnerships and strategic

alliances), BSGM may need to raise capital prior to completing its business model. Failure to attain

capital on reasonable terms could have a material adverse impact on company shares.

VALUATION

We value BSGM at $14.00/share, which is based on a 6x revenue multiple of our forecasted 2022 revenue of $56.0 million discounted two years at 16%. We support this valuation with a combined sensitivity analysis of our 2021 and 2022 EPS forecasts of $0.25 and $0.65 (with multiples ranging from 20-60 and discount rates ranging between 8% and 24%). By applying a 40x multiple and a 16% discount rate to both 2021 and

2022 EPS forecasts and taking the average, we arrive at ~$14.00/share (see Exhibits 10 and 11). Impediments to shares reaching our price target include, but are not limited to, forecasting risk, regulatory risk, commercial execution risk, competitive risk and financial risk.


 


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