Summary of Electro-Optical Sciences' Corporate Presentation

Mar.24.09 | About: STRATA Skin (SSKN)

Since I last wrote about Electro-Optical Sciences (MELA) positive results for MelaFind as a new diagnostic screening device for melanoma, the Company presented at the Cowen and Company Healthcare conference. Below is a summary of the presentation, including the razor/razor blade business model and targeted commercialization plans on a regional basis for MelaFind.

The pivotal Phase 3 trial for MelaFind achieved statistically significant results for the pre-specified clinical outcomes agreed upon with the FDA and it is the largest prospective study ever conducted for melanoma screening. MELA expects to file for FDA approval of MelaFind as a new medical device once the final statistical report is prepared and integrated into a PMA filing. The PMA filing will be given a priority, expedited 180-day review and a FDA Advisory Panel meeting is expected to occur around the mid-point of the review cycle.

MelaFind offers dermatologists the ability to examine lesions below the surface at a very high resolution down to the cellular level (a three-cell resolution) to uncover cases of disorganized growth which are characteristic of melanoma and are not always evident upon visual inspection at the surface level. MelaFind is a point-of-care screening device which assists dermatologists in the clinical decision of whether to perform a biopsy for suspicious lesions.

MELA expects to commercialize MelaFind on a regional basis starting with the Northeast based upon the number of dermatologists and the incidence of melanoma. MelaFind requires a low upfront investment, which is expected to be around $5,000 as a placement cost while MELA retains title to the device while offering additional software licensing and upgrade fees. A card will be sold for each procedure, with expected pricing of $100 (split 50/50 with MELA and the dermatologist).

Based on average dermatologist practice volumes of 30-50 patients per day, MELA expects about one MelaFind exam per hour to occur. This equates to 40 cards per week or $100,000 (2,000 cards used) per year in income to the company and the dermatologist for each MelaFind placement. The Company expects to market the device through patient/dermatologist education and direct-to-consumer advertising. Patients have expressed positive opinions about MelaFind in marketing studies and it is hoped that the device will increase awareness of melanoma detection and drive new patients to see a dermatologist.

The financing history for MELA includes a November 2005 IPO at $5/share ($21.3M), November 2006 PIPE at $5.70/share ($13.2M), August 2007 PIPE at $5.75/share ($11.5M), August 2008 Registered Direct Offering at $5.68 per share ($11.9M). In total, MELA has raised $57.9M in equity financing at a weighted average price of $5.45 per share, which is well above the current share price around 4 bucks.

The Company ended 2008 with a cash balance of about $15.4M and has 20.6M fully diluted shares of common stock outstanding. Cash burn rate has been reduced significantly with the conclusion of the pivotal Phase 3 trial for MelaFind. Additional money will be required at some point to fund commercialization plans, but the CEO stated it would not occur at this time, as evidenced by a current stock price which is about 25% below the historical, weighted-average of $5.45 per share in the four equity financings outlined above.

Disclosure: no positions