Zacks Small Cap Research – BSEM: Medicare Issues Shouldn’t Impact BioStem – Technologist

By Brad Sorensen, CFA

OTC:BSEM

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We don’t often write about short-term movements in stocks we cover but the move in BioStem Technologies, Inc. (OTC:BSEM) has coincided with what seems to have been perceived as a fundamental change in the company and we want to make sure investors know the full story.

Without getting into the complicated history of Medicare, CMS (Center for Medicare and Medicaid Services), earlier this year, released the LCD (Local Coverage Determination) list of covered skin care products and that list became effective earlier this week. Amniowrap2 and Vendaje, two of BioStem’s primary products, were on the not-covered list, apparently sending fear into investors that thought future revenue might be at risk. There are multiple reasons why we believe that is not the appropriate course of action and why we are neither reducing our price target or lowering our revenue estimates in coming quarters.

First, the “effective” LCD’s don’t actually become effective until February 2025. That means that 4Q2024 and most of 1Q2025 won’t be impacted by this decision. History is also important to understand. This process started several years ago and once the LCD list was made effective, it was quickly rescinded due to a myriad of complaints and errors. This time, from our analysis, doesn’t look much better. The list is supposed to use testing results and real-world evidence to determine the most effective treatments to include on the list. We aren’t going to mention the names of the products, but we have discovered that there are products listed on the approved list that have negative testing results. And we don’t want to cast doubt on the process, but CMS is not supposed to use price in determining what products can be covered by Medicare, but coincidentally the approved products happen to be the cheapest. Finally, on this issue, there is a new Administration coming into Washington that seems likely to change the way things are done. Putting these issues together lead us to believe there’s a high likelihood that the LCD list will again be pulled.

Second, BioStem has already started to address getting on the list in the event that the just released LCD approved list sticks. In fact, there are comments in the LCD that note that “If peer reviewed published literature is available, it can be submitted through the LCD reconsideration process for consideration for coverage.” This is what BioStem is planning to do. We’ve mentioned before that the company continues to test their products to provide clinical data of the effective of the company’s products. We have looked at competing products and continue to believe, and the rapid increase in revenue indicates doctors agree, that BioStem’s products are superior to competing treatments.

The last item we want to mention is that BioStem isn’t the only company who believes that the LCD was “arbitrary and capricious” and has joined with other companies and will turn to the legal system to overturn the effectiveness of the LCD released earlier this week. Given what we’ve seen and written about above, we believe, if we get to the point of needing it, this LCD will be stopped through the legal system from actually being put into action. 

Summary

We reiterate our belief in the direction of BSEM and urge investors to avoid succumbing to kneejerk responses and message board rumors. The vision and focus of BSEM is impressive and gives us confidence that BSEM will continue to have its products covered by Medicare and continue to grow its revenues.

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