Focus Company: Bovie Medical Corporation (BVX)

By: John Gay - The Quiet Investor - Date: December 17, 2005

Introduction

Bovie Medical was incorporated in 1982 in Delaware, and has its principal executive office in Melville, NY. It is a developer, manufacturer and marketer of medical products and related technologies. A wholly owned subsidiary, Aaron Medical Industries in St. Petersburg, FL, is the marketing operation for Bovie, and many of the products may carry either the Bovie or Aaron name.

Over the past several years the Company has focused on the manufacture and marketing of generators and electrosurgical disposables designed for doctor's offices, surgicenters, and hospitals. Rather than compete with the major medical device companies to develop all purpose surgical systems for use in hospitals, Bovie is concentrating on developing state of the art systems for niche medical specialties that can be used in physicians' offices or in local surgicenters.

Besides manufacturing under its own brand names, Bovie also produces instruments under private label names through various contracts. They also produce for other medical device manufacturers under original equipment manufacture (OEM) agreements.

The Products

The stereotype of the surgeon performing an operation with scalpels and hemostats is slowly fading from today's operating room. Some 80% of current surgical operations worldwide, especially outpatient, are done with electrically powered instruments that cut, cauterize and close off bleeding.

The worldwide prevalence for single-use products is not as great as in the United States. However, as affordability and the same trends as the domestic market take hold throughout the world, an increase of single-use products is anticipated. Expenditures on surgical products in developing countries are projected to grow at a compounded growth rate of 17%. Electrosurgery is being utilized in such procedures as dermatology, gynaecology, plastic, general and laparoscopic surgeries.

Bovie has been in the vanguard of this trend, and has established a name for quality around the world with electrosurgery products, battery operated cauteries and battery operated medical lights.

Recent Product Developments

While Bovie management feels growth can continue by building on the product lines already in the marketplace, they are also developing some new products that might have unusual promise.

J Plasma Technology. About five years ago, at the world's largest medical technology show, which is held annually in Germany, a German company headquartered in Russia, approached Bovie on a new surgical system for precision cutting that seemed to have possible wide application in various surgeries, and provided much quicker healing.

The essence of the system is a gas ionization process using only one electrode. The gas being used is helium. The device produces a stable thin focused beam of ionized gas that can be controlled in a wide range of temperatures and intensities, providing the surgeon with precision, minimal invasiveness and an absence of conductive currents during surgery. Unlike a laser beam, J Plasma can cut tissue without heating or hurting surrounding tissues.
GI Device, in development as a new electrosurgical generator for the gastroenterological market. It has elicited interest from surgeons practicing in that market as well as interest from major medical device manufacturers, with the possibility of some eventual collaborative marketing arrangement. Introduction is planned for early 2006. The device vastly improves the efficiency of the colonoscopic procedure.
Suture Remover, a device which Bovie has licensed from a company that reduces the time for removing stitches in a doctor's office. It pulverizes the stitch and reduces the tension and pain associated with this procedure. It should have valuable use in the veterinary clinic, where animals are already tense and fractious. Bovie pays the licensor a 50/0 royalty on sales.

Conclusion

Bovie has the problems attendant on developing and introducing new products to the marketplace: funding the R&D, getting protective patents, and generating interest, all the while fending off competitors and keeping their current products going out the door. They seem to be able to do all this while still making a small profit. Management is optimistic about profits going forward without benefit of any new products. And they have a million dollars in their war chest, and the ability to borrow if they need to.

Against this are the positives of market acceptance for their old products, a name for quality and burgeoning interest in some of their products currently under development. The J Plasma project seems to hold particular promise for the future, while the GI device and suture remover have more immediate commercial prospects.

Withal, we think readers should nibble on the shares at current prices, and watch developments. The company is not advertising the new products, but it's obvious they believe in them. Any affirmation of their effectiveness should allow the stock to at least triple in the next three years. The emergence of profits in coming quarters should limit downside risk.

General information

Market	AMEX
Symbol	BVX
Price	$2.85
Contact:	Bovie Medical Corp - 734 Walt Whitman Road - Melville, NY 11747
Telephone	631-421-5452
Website	www.boviemedical.com

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