The New Hot Sector for Small Cap Investors

Includes: MCLN, SCOM, SRCL
by: M. E. Garza

Several billion dollars a year are spent in the off-site hauling of regulated medical waste, so there is tremendous market opportunity. Companies in the market for on-site treatment of waste are small and fragmented, but that is a largely untapped market when compared to some of the more traditional hauling and disposal services offered by sector leader Stericycle (NASDAQ:SRCL).

Last week, headlines hit the news wires that will impact the stock price of smaller medical waste companies after, Stericycle (SRCL) said it had agreed to a Department of Justice demand to sell off some of its medical waste collection businesses in four states to settle an antitrust lawsuit and finalize its $182.5 million acquisition of MedServe Inc.

The opportunity affords smaller players in the field a shot at a multi-billion dollar market that renews every year. Especially publicly traded companies that can absorb more work and take on the addititional capital needed to compete.

Hospitals, clinics and even home users never stop making infectious waste. So, it is a very under-penetrated market, and no company has emerged with the capability and scalability to be a significant player, and we need to be that significant player.

One company, Biomedical Technology Solutions (OTC:BMTL). provides safe and environmentally sound medical waste disposal equipment for sharps and red bag waste, commonly found in medical, dental, veterinary, nursing, assisted living, and other health care facilities.

Its product, known as the Demolizer® II, allows the medical staff to safely, and inexpensively dispose of medical waste that would normally be subject to expensive medical waste hauling.

It uses a rather unique "personal copier" sized solution called Demolizer®. II- a patented treatment process that uses dry heat to render waste 99.9999 percent sterile, and sharps (injection needles) non-reusable.

The treated waste then is properly labeled and thrown away as common trash.

The solution sounds simple enough, but the science and cost-savings proposal for the patient care market, including medical offices, dental offices, urgent care centers, nursing homes, and assisted living facilities; and veterinary care market, which include veterinary hospitals, emergency veterinary care, livestock medicine, equine medicine, zoos, and sanctuaries is tremendous and perhaps more importantly for small cap investors, a great opportunity to get into the very hot regulated medical waste sector which sees stocks trade at up to 25 times earnings (as compared to more typical 3 to 4 times earnings found in other sectors of the market.

"When I first saw the technology," explains Don Cox CEO of BioMedical Technology Solutions, "I thought 'what a simple, unique solution. Then I started finding out just how much biomedical waste we produce in this country, when you found out how it grows it's staggering. 2006 numbers indicated that we had 1.5 billion pounds of the stuff produced commercially in the United States. That's five pounds for every person in the U.S. That equated to 3.5 billion dollars to haul that waste away commercially. That number has just kept growing since then."

According to some researchers, the world is 5 to 7 times larger than the U.S. market and that is just what they are able to gather from countries who are actually regulating and marking their waste.

Is it any wonder the medical waste sector has become such an interesting sector to Wall Street lately? Especially when you consider the number of baby boomers that are growing older and becoming seniors now. That segment pf the population spends more time in medical facilities seeking treatments and as a result also creating more medical waste. It is clear that regulated medical waste is a growing problem both domestically and internationally.

The technology and the growing size of the industry is what initially attracted Cox, and pushed him to setting up his venture as a publicly traded company. Until he started Biomedical Technology Solutions Cox had built a lot of companies in thirty years and had "never had a job" in my adult life. "I played in a lot of sectors where there was a lot of competition," says Cox. "But when i looked a the Demolizer® and it's potential, I immediately recognized over a million applications in the United States in the small to medium volume (medical waste) generators, which is what our machine is designed for."

Now, more and more of his competitors in the field are attempting to position themselves as players in that medium volume market, which is a market that included all of the above-mentioned private medical offices and nursing homes as well as school health clinics, public health facilities, first aid stations, home health care, pharmacies, military, as well as public health locations such as airports, hospitality, cruise ships, train stations, and sports and entertainment arenas.

To put it simply, business is booming and it's about to get even bigger.

Cox tells BioMedReports that in 2010, his company plans to launch a home unit version of their Demolizer®.

"In 2006, we had 8 million Americans that took over 3 billion shots for treating diabetes and other ailments at home," explains Cox. "The World Health Organization and the Diabetes Foundation says that by the year 2016, that number will grow by 165% to 21 million Americans taking over 8 billion shots at home and if you go beyond U.S. borders that number is 50 to 60 billion shots."

Now that the science and design has been refined, Cox has clearly focused his team at Biomedical Technology Solutions to be a sales centered, revenue generating organization. A visit to the company website drives that point home. After sitting through the same webinar that is used to reach private practice practitioners, it's easy to see why the company is expecting to close several substantial orders from outside the U.S. in very early 2010.

While they could not share details about those large deals publicly yet, they did indicate that those sales appear imminent and would likely bring the company millions of dollars in net profits. The orders are making their way through various negotiation and contract stages, but when announced they could greatly impact shares of the extremely low volume float company in a very positive way.

Also in 2010, "We will be very focused on getting that home unit version of their Demolizer® into large chain neighborhood drug stores," says Cox. "We're in discussions with some very enthusiastic distributors, but can't really go on record about those details yet."

Other companies like Sharps Compliance Corp. (OTC:SMED) which trades at close to $10 per share and Stericycle, Inc. trade at close to $60 per share use a Sharps Disposal by Mail System.

"It's a box mailer with a label on it. That's it," says Cox. "You put your needles in it and you send it via our postal system where errant needles might jab postal workers and don't do anything to reduce the carbon emission impact on the planet.

Already those big medical waste management companies have tens of thousands of trucks and vehicles collecting bio-hazardous materials from medical facilities all over the country using up fossil fuels and causing carbon-emissions. It's an out-dated process that's non-environmentally friendly and frankly, quite expensive."

Emissions are an important factor that Cox considered last year when the company upgraded it's filtration technology to to better manage the emissions and odors generated when heating blood, body fluids, plastics and other organic materials during the sterilization of those biomedical waste loads.

"This is a market that is so massive and monstrous that there will never be any one individual company that will control it," says Cox who also realizes that if his company pushes a mere 25,000 Demolizer® units into the marketplace in a three to five year period, they will own less than three percent of the U.S. market. Yet that goal would easily give his company a half billion dollar market cap. Especially since their efficient operations and in-house manufacturing process provide the company a 65% gross margin operation.

I look for shares of this company to start trading higher almost immediately. Long term, this could turn out to be a great way for small-cap investors to get into the booming regulated medical waste market using a great upside, low-risk opportunity.

Another emerging medical wasted company that continues to get attention is MedClean Technologies (OTC:MCLN), a company who provides on-site treatment solutions and fixed installations that fit within healthcare institutions while saving those hospitals and clinics a great deal of money, paperwork and resources usually allocated towards the handling of medical waste.

Based on interviews, company filings and recently reported financial results, we see that the experienced management team of this company is doing an outstanding job of securing a position that provides a base for further advancement in this lucrative, yet equally competitive regulated medical waste sector where company shares often trade at 14-25x earnings. It became very clear to us that shares of the company are trading at a vastly undervalued price point and that this is a tremendous opportunity for serious investors to consider.

Former Piper Jaffray's Technology analyst Rob Goldman, who brings over 20 years of investment and company research experience as a senior research analyst and as a portfolio and mutual fund manager has initiated coverage on MedClean Technologies Inc. (OTC:MCLN) and his Goldman Small Cap Research gave the stock a "speculative buy" rating with near-term target of $0.14 and an early 2010 price target of $0.40.

As MedClean's Chairman Scott Grisanti pointed out during a recent interview, "The market opportunity in the U.S. medical waste market is a multi-billion dollars a year... Without a doubt, there is tremendous opportunity in this market for on site treatment of regulated medical waste, even if you set aside for a moment the HIPPA compliant destruction of confidential documents.

Which emerging companies are best suited to take over some of that market share, especially now that the Justice Department is attempting to step in and control the sector leaders under threat of Anti-Trust lawsuits?

Author's Disclosure: Long BMTL.OB, MCLN.OB

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