Access Update – #05

I’m glad to see that some of you held out for a better price on Electro-Optical Sciences (Nasdaq: MELA). My eyes were glued to the screen waiting for the price to hit $5.75. As soon as it did, many of you got your orders filled.

I still expect the stock price to come down a bit in the short term, as nothing has significantly changed since our recommendation came out. For those of you still waiting for the opportunity to buy the stock below our limit price of $5.75, I suspect your day will come in the near future.

Speaking of the near future – I’ve been crunching the numbers on our next recommendation. I’m very encouraged by what I’m seeing. If this company gets approval in the United States (they already have it in Europe and Japan), the stock should be a ten bagger over the next few years. We’re still a few weeks away from issuing the recommendation. I’ll keep you posted on the progress

Meanwhile, it’s great to see so much interest in MELA from Access subscribers. The emails and questions have been pouring in. As promised, I will continue to address as many of these as possible.

Q. Does this product affect latent or recurrent melanoma?

J.G.

A. Melafind does not “affect” melanoma. It determines whether a lesion should be biopsied for melanoma. As long as the lesion does not appear in its database as “not melanoma,” Melafind will recommend biopsy.

Q. How long before investors see their equity increase?

Hyatt

A. We expect the stock will rise if the phase III trial is successful. Data on the trial should be out mid-year. Another bump could come with FDA approval around the end of 2008. Of course, other factors could move the stock such as analyst coverage, increased attention paid to melanoma, etc.

We believe this is a long-term play. The stock will likely see ups and downs along the way. But shareholders who hang on for several years should be richly rewarded, as MelaFind becomes a staple in dermatologists’ offices.

Q. Is there a possibility that these stocks could stagnate or drop down to only half of their value, say between now and the end of the year, or is this type of small-cap stock pretty well recession proof, because, for example, if the FDA approves the Melafind devise, sales should be reasonably strong, as doctors will still purchase this device for their melanoma patients regardless of whatever state the economy is in sort of thing?

Peter

A. Peter, great question. Let me answer the first part by saying yes, there is the possibility that the stock drops by half (or more). If the phase III trial is not successful, the stock price will suffer, regardless of how the economy is performing. Additionally, if there is a nasty bear market, investors often run for safety and small-cap speculative names tend to get hit harder than more established companies.

In the case of a weak economy, sales of medical devices shouldn’t be hurt as much as other areas such as consumer electronics. However, dermatologists, the first target of MELA’s sales efforts, could be more vulnerable to recession than other physicians. Of course, if someone is concerned that a mole might be cancerous, they’ll still go to the doctor. But dermatologists derive a decent portion of their income from elective procedures. If patients have financial concerns, they may forgo the Botox treatment or facelift.

That being said, MelaFind will not be prohibitively expensive. With an expected price of around $2,500, physicians will not have a tremendous capital outlay in order to obtain the device. Any dermatologist who is serious about providing patients with the best care should want one. But it would be foolish to assume that dermatologists won’t tighten their belts along with everyone else if the economy tanks.

Lastly, don’t forget you can review the conference call and slides presented by MELA CEO Dr. Joseph Gulfo at www.mtvernonresearch.com . Click on Access Research Group at the top right, enter your username and password and then click on Access Call Archive in the bottom of the box.

Have a great weekend.

Marc Lichtenfeld
Director of Research
Access Research Group