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Alquemie Partners, LLC

Alquemie
Partners, LLC
Report on BioElectronics, Corp. – Sizing the
Market Opportunity and Assessing Possible
Quality
Independent
Outcomes for the Company
Research

6-Month Share  BioElectronics Corp., which trades under the ticker symbol BIEL is the
Target Price: maker of disposable, inexpensive, drug-free, anti-inflammatory medical
devices and patches. Our six-month target price for these shares is $0.30
$0.30 to $0.50
to $0.50, assuming FDA actions take place as we expect.
Our Analyst
Certification:  The Company was recently awarded a U.S. patent that protects its
I, Carrie Snyder,
intellectual property and revolutionary product design for a portable PEMF
independent analyst, device that is worn against the skin.
hereby certify (1) that
the views expressed  Consumers now have the choice of an effective drug-free therapy-aid in
in this research
Company report BioElectronics Corporation’s PEMF patches for managing pain, promoting
accurately reflect my healing and speeding surgical recovery. The recent FDA panel
personal views about
any or all of the recommendations regarding the potential dangers of acetaminophen, and
subject securities or their corresponding recommendation to remove Extra Strength Tylenol®
issues reflected in this
Company from store shelves, has damaged Tylenol’s brand equity and is beginning
report, and (2) no to focus a meaningful amount of attention on BioElectronics.
part of my
compensation was, is,
 We believe the market opportunity for the Company's products is
or will be directly or
indirectly related to significant, especially as related to the treatment of back pain, menstrual
specific pain and general musculoskeletal complaints.
recommendations or
views expressed in
this Company report.  The review of multiple FDA clearances is highly probable. Data from a
recently announced heel and foot pain study shows a high degree of
Please see important efficacy and was produced by a very prominent surgeon. We expect this
disclosures and to lead to rapid FDA clearance. We also believe the AllayTM product will
Analyst Bio at the end
of this report receive FDA clearance.

 In our view, it would not be unreasonable to see the total market


Email Address:
capitalization of the Company rise to between $300 million and $500
csnyder@alquemie million, if events take place as outlined above.
partners.com

August 3, 2009

1
BioElectronics Corp. – Sizing the Market Opportunity

BIOELECTRONICS, The Company's PEMF technologies target


E
COPORATION multiple applications for both human and animal
use including surgical recovery, healing of
X chronic wounds, menstrual pain relief,
BioElectronics Corp., which trades under the
musculoskeletal complaints such as back pain,
E ticker symbol BIEL, is the maker of
chronic repetitive stress injuries, heel pain, carpal
disposable, inexpensive, drug-free, anti-
C inflammatory medical devices and patches. tunnel syndrome, and dental and oral surgery
The Company's products contain an recovery, among other applications. The
U embedded microchip and battery that deliver Company has developed four main brands to
pulsed electromagnetic field therapy (PEMF) target these markets: ActiPatchTM, AllayTM,
T directly to the targeted body region. PEMF is RecoveryRxTM and HealFastTM.

I
a clinically proven and widely accepted anti- We believe the market opportunity for the
inflammatory and pain relief therapy that Company's products is significant and have
V traditionally has only been obtainable from examined several scenarios for market size within
very large machines located in clinical various key segments, as outlined in this report.
E settings or hospitals. BioElectronics was
recently awarded a U.S. patent that protects Given that this report analyzes only a few of the
the Company’s intellectual property and main market opportunities the Company currently
revolutionary product design for a portable faces, we would consider this forecast to be
S PEMF device worn against the skin. moderately conservative.

U Over the past few decades, the medical Overall, however, we believe the largest market
industry has made only limited strides in opportunity for the Company is the treatment of
M developing effective drugs and back pain, followed by the market for treating
dysmenorrhea (menstrual pain) which is also
M
methodologies for the management of pain.
Several years ago, the U.S. government’s significantly sized albeit somewhat smaller.
A Food and Drug Administration (FDA) Another substantial market opportunity is that for
removed many non-steroidal anti- treating other musculoskeletal complaints as well
R inflammatory drugs (NSAIDs) from the as the market for pet and animal therapy
marketplace and an FDA panel recently made treatments.
Y a similar recommendation relative to Extra
We would also note that BioElectronics is
Strength Tylenol®, citing that acetaminophen
somewhat of a “restart” Company in that it
is the leading cause of liver failure in the
experienced product quality problems several
United States. Throughout most of the
years ago, which have now been solved. New
western world, many consumers have been
international distribution has also been
conditioned to “reach for a pill” when
established, clinical studies are quickly coming to
seeking to alleviate pain.
a close, and the Company recently filed an FDA
Through the use of BioElectronics remarketing application and has commented that
Corporation’s PEMF patches, however several more will be forthcoming.
consumers now have an effective non-drug
We believe its very possible the Company could
choice for managing pain, promoting healing
gain multiple FDA clearances, especially given
and speeding surgical recovery.
the recently completed heel/foot pain study which
could likely lead to indications for heel/foot pain,

August 2009 2
BioElectronics Corp. – Sizing the Market Opportunity

plantar fasciitis and, quite possibly, a wide scale While it is difficult to ascertain the precise value
indication for general musculoskeletal complaints. This of multiple FDA indications in two of the key
would enable the Company to market its entire markets that we believe could be worth perhaps as
ActiPatchTM product line over the counter (OTC) in the much as hundreds of millions of dollars per year
lucrative grocery and drug store chain markets. We also to the Company, we believe it would not be
believe clearance for the AllayTM Period Relief Patch is unreasonable to see the total market capitalization
highly likely, as the related data has shown strong of BioElectronics rise to between $300 million
advocacy and 100% user safety. and $500 million, if certain key events take place
as outlined above.
We also believe it is very important that the Company's
balance sheet has recently been improved through the We also believe the Company could be a highly
elimination of nearly all convertible debentures. One attractive future partner or acquisition candidate
year ago, convertible debenture balances exceeded for one of the major consumer products or
$900,000. Today, balances are likely less than $50,000 pharmaceutical corporations.
and could even go to zero over the next few weeks.
Within our targeted potential market capitalization
While paying off this convertible debt was expensive
range, BioElectronics’ shares could be valued
from a shareholder dilution standpoint, we believe the
between $0.30 and $0.50, again assuming these
vast majority of this delusion is now behind the
multiple FDA indications are granted.
Company.

Also, a recent guarantee by the U.S. Export-Import Bank


should enable the Company to meaningfully enhance its
working capital position and allow for further expansion
of its international distribution capabilities.
BioElectronics is also working to expand both its board
and management team, as the Company recently added a
new chairman and several marketing managers to further
develop its brands.

We do not currently hold any concerns regarding the


Company’s liquidity, as BioElectronics’ cost of capital
has fallen significantly since its convertible debt has
been eliminated and replaced by bank financing, made
possible by the Export-Import Bank guarantee, now a
viable option.

While the price of the Company's shares has risen


substantially over the past few months, as clinical trials
have come to a conclusion and an FDA filing has been
made, we believe further upward appreciation is highly
likely as additional trials are completed, more FDA
filings are submitted and as FDA clearances are granted.
With approximately one billion shares outstanding,
BioElectronics’ market capitalization is approximately
$55 million.

August 2009 3
BioElectronics Corp. – Sizing the Market Opportunity

BioElectronics Corporation – Sizing the


Market Opportunity and Assessing
Future Stock Valuation
The Company

BioElectronics Corp., headquartered in Frederick, Maryland, is the


maker of inexpensive, drug-free, anti-inflammatory medical devices
and patches. The Company's wafer thin patches contain an embedded
microchip and battery that deliver pulsed electromagnetic field therapy
(PEMF), a clinically proven and widely accepted anti-inflammatory
and pain relief therapy that traditionally has only been possible to
obtain from very large machines located in clinical settings or hospitals.
The Company was recently awarded a U.S. patent that protects its
intellectual property and revolutionary product design for a portable
PEMF device worn against the skin. Furthermore, BioElectronics has
applied for an additional patent, which is currently pending, to further
protect its intellectual property.

The Company's PEMF technologies target multiple applications for


both human and animal use including surgical recovery, healing of
chronic wounds, menstrual pain relief, musculoskeletal complaints such
as back pain, chronic repetitive stress injuries, heel pain, carpal tunnel
syndrome, and dental and oral surgery recovery, among other
applications. The Company has developed four main brands to target
these markets: ActiPatchTM, AllayTM, RecoveryRxTM and HealFastTM.

Company History and Current Product Development


Status

The management team of BioElectronics acquired its core technology


in the 1990s, after the Company’s predecessor firm invested $5 million
in electronic engineering prototypes, production runs and additional
confirming clinical studies. In late 2002, the Company was granted its
first clearance by the FDA. Over the past few years, the management
team has redesigned the offering to reduce product size and
manufacturing costs, while developing new applications for the
technology. In fact, new manufacturing partners have been secured,
enabling the Company to further reduce manufacturing costs and
realize strong margins on product sales.

August 2009 4
BioElectronics Corp. – Sizing the Market Opportunity

Over the past few years, considerable corporate resources have been
expended on domestic and international certifications and clearances.
BioElectronics now has ISO and European Common Market
certification as well as Health Canada approval for the relief of pain in
musculoskeletal complaints.

During 2009, significant progress has been made on clinical studies,


which has recently enabled the Company to file for pre-marketing
clearance from the FDA. On June 15, 2009, BioElectronics applied for
clearance to market its AllayTM Menstrual Pain Therapy product and
the Company has indicated it will also be filing at least two additional
FDA applications over the coming weeks, likely for general surgical
recovery treatment and general musculoskeletal complaints.

Significant corporate resources are also being directed at completing


several ongoing clinical studies, with multiple others currently being
organized. The heel and foot pain study, for example, was recently
completed and initial data from Dr. David Genecov was reported on the
Company’s conference call last week. At present, ongoing studies
include cesarean section surgical recovery, breast augmentation
surgical recovery, uveitis (the second leading cause of blindness in the
United States) and hernia surgical recovery, among others.
Furthermore, the BioElectronics management team indicated there are
numerous requests from physicians and healthcare organizations for
additional clinical studies.

BioElectronics is somewhat of a “restart” company. The Company


experienced product quality problems several years ago, which have
now been resolved. Our research indicates that the newer versions of
the Company’s product are sound and durable, with battery life
duration that easily exceeds the rated capability of 720 hours.

Over the past year, the management team has taken some important
steps that have enabled the Company to remain viable. Specifically,
products lines have been organized into several categories in order to
target specific applications in the areas of surgical recovery, treatment
of musculoskeletal complaints, menstrual pain, and animal related pain
and surgical recovery. BioElectronics has also significantly reduced
staff and expenses while moving core manufacturing offshore, with
final assembly, testing and packaging remaining at the Company’s
Frederick, Maryland headquarters.

These actions have allowed the Company to significantly reduce its


losses to where it is now operating at a virtual break even point.
Moving its manufacturing operations offshore and partially redesigning

August 2009 5
BioElectronics Corp. – Sizing the Market Opportunity

the technology packaging, which resulted in reduced costs, has allowed


the Company generate solid gross margin results, similar to those of
other pharmaceutical and medical device companies.

BioElectronics has also taken significant action regarding product


distribution, signing-up new and much higher quality distributors to
service several important markets including Canada, Western Europe,
Korea and the Middle East. Active negotiations are currently underway
for distribution in other markets such as Japan, China and Latin
America, among others.

The Company has also made meaningful progress in improving its


balance sheet. In December 2005, BioElectronics issued $750,000 in
convertible notes with additional notes issued in 2006 for $100,000.
The terms of these borrowing could be characterized as very
unfavorable to both the corporate entity and its shareholders, with
significant company resources having gone toward repayment.
BioElectronics recently announced that virtually all of these notes have
now been eliminated and we expect the balance could be at zero over
the next few weeks.

The elimination of these notes is a major event for the Company and its
shareholders, enabling BioElectronics to significantly reduce its cost of
capital and thereby attract new investors. Another major development
was the recent guarantee by the U.S. Export-Import Bank, which will
allow the Company to greatly improve its working capital position and
augment its ability to service its growing international distribution
network.

We believe investors have responded very positively to these


developments, taking up shares at a rapid rate, which has resulted in a
meaningfully higher valuation for the Company and higher daily
trading share volumes that place BioElectronics among the “top
traders” on the pink sheets.

What We Are Expecting in the Future


The Company has stated its primary corporate objective is the
completion of clinical trials and the subsequent filing of FDA
applications in order to receive clearance for marketing its products
over the counter in the United States. Additionally, we are expecting
the Company to announce a financial audit and movement off of the
pink sheets and onto the over-the-counter market. It appears
BioElectronics is also strengthening its management team and the
Company has indicated it hired several brand managers to help build its

August 2009 6
BioElectronics Corp. – Sizing the Market Opportunity

marketing programs.

We believe BioElectronics will continue to see resistance among


surgeons relative to the use of its RecoveryRxTM product line. The
management team seems to understand this position, however, and is
appropriately focusing its corporate resources on other areas.
Nevertheless, we believe the Company will soon file an application
with the FDA to market its products to the U.S. surgical recovery and
pain relief market.

We believe BioElectronics will likely be successful with its FDA


filings over the coming months. Of particular interest to us is the
recently completed study on heel and foot pain. While the Company
initially indicated it would use this data to file for an indication related
directly to heal and foot pain, it now appears BioElectronics will use
the data to file for a more significant indication of general
musculoskeletal complaints, which would likely allow the Company to
sell its products in the lucrative U.S. grocery and drug store channels.
We believe the FDA will likely find the data from this clinical study to
be very strong and, with this expectation, we believe clearance will be
granted.

We also like the probability of the Company receiving an indication for


menstrual pain, as the recently completed study resulted in 100% user
safety and a very high efficacy rate. We believe BioElectronics’
AllayTM product could also be a big winner for the Company, second
only perhaps to a PEMF product specifically targeting the back pain
market.

In our view, an FDA clearance for either the AllayTM product or for
general musculoskeletal complaints opens a world of possibilities for
distribution, strategic alliances or even an acquisition of the Company.
We believe it is possible, for example, that a scenario could develop
where one of the major consumer goods manufacturers seeks to acquire
either the AllayTM or ActiPatchTM products for mass consumer
distribution, with a full acquisition of BioElectronics and its
technologies also a distinct possibility, again assuming all FDA
clearances are granted.

We are also expecting the Company to move off of the pink sheets and
onto the OTC market by the end of the year. We expect this could
happen either via a direct application for trading on the OTC market
following completion of a financial audit, or via an acquisition by a
publicly traded OTC company.

August 2009 7
BioElectronics Corp. – Sizing the Market Opportunity

Our Market Capitalization and Stock Value Predictions


Based on the approximately one billion shares outstanding, the current
market capitalization of BioElectronics is approximately $55 million
dollars. We believe this market valuation, and even a higher market
valuation, is supportable based on the substantial market opportunities
currently facing the Company.

We see many internal and external factors currently favoring a


strengthening of BioElectronics. Specifically, the Company has
meaningfully strengthened its balance sheet by paying off of its
convertible debt and, in addition, its working capital position will be
improved as a result of the U.S. Export-Import Bank guarantee. Its
product quality is up significantly and its international distribution
network is growing rapidly. FDA panel recommendations relative to
acetaminophen usage and the adverse impact on the brand perception of
Tylenol are also serving to spotlight the Company’s drug-free product
advantages.

Clinical studies are quickly coming to a close, and we believe FDA


clearance for one or more of the Company’s products is almost
inevitable. Additionally, we are excited about BioElectronic’s near
breakeven status and what appears to be very strong gross margins, all
of which leads us to believe the Company can be highly profitable even
at modest revenue growth levels. Likewise, accelerated revenue
growth could generate extraordinary profitability. We also do not hold
concerns about the Company’s continued viability. It appears multiple
financing sources are currently available to BioElectronics as a result of
a significant reduction in the Company’s cost of capital, as its
convertible debt has been paid off, its working capital position has
improved meaningfully and shareholder dilution is quickly
decelerating.

Based on our belief that multiple FDA clearances are likely


forthcoming, we believe a market valuation of several hundred million
dollars is not unreasonable over the shorter term, as FDA clearances are
provided.

We also thus believe it is reasonable to anticipate the market


capitalization of BioElectronics will continue to move higher under
these conditions. If we were to assume a market capitalization of $400
million, for example, following FDA clearance and a probable
distribution agreement with a major consumer goods manufacturer or
distributor, we could expect the shares to be valued at approximately

August 2009 8
BioElectronics Corp. – Sizing the Market Opportunity

$0.40.

History of PEMF Technology


The use of magnetic fields in therapy has a long history, with
physicians from ancient Greece, China, Japan and Europe who
successfully applied natural magnetic materials in their daily practice.
In fact, 500 years ago, a Swiss physician and alchemist named
Paracelsus questioned whether diseases could be manipulated by
magnets and he experimented to test his theory using lodestones, or
naturally magnetized pieces of the mineral magnetite, as the best
available magnets during that time. However, given that natural
lodestones are quite weak in their magnetic capabilities, few people
paid much attention to his ideas until the discovery of carbonsteel
magnets in the 1700s. Later, during the 1800s, most of the discoveries
relating electricity to magnetism were made by the early pioneers of the
modern technical world such as men including Gauss, Weber, Faraday
and Maxwell, among others.
Regarding some of the industry’s early scientists, in 1791, Luigi
Galvani demonstrated he could cause a frog's leg muscle to contract
simply by applying an electric current. Later, in 1830, Carlos
Matteucci, an Italian physicist and neurophysiologist who was a
pioneer in the study of bioelectricity, proved that injured tissues
generate an electric current in a series of experiments he pursued until
his death in 1865. Specifically, using a sensitive galvanometer, he was
able to prove that injured, excitable biological tissues generated direct
electrical currents.
For the past two hundred years, it has been possible to build magnets,
aptly called electromagnets, from coils of wire powered by electricity.
Given that such devices can be pulsed to produce magnetic fields that
change very rapidly, their discovery served to open a whole new world
of medical applications since changing magnetic fields can induce tiny
electrical currents in human tissue. Historically, as far back as 1890,
the American Electro-Therapeutic Association held annual conferences
on the therapeutic use of electricity and electrical devices by physicians
on ailing patients.
References suggest that Nicola Tesla, the genius inventor and “father of
modern physics," first observed the effects of electromagnetic fields on
cells and that cells responded favorably to energy. Specifically, around
1895, Tesla’s high voltage coil devices, powered by alternating current
(AC) started to become widely known and applied within the energy
power transmission industry in New York. Shortly thereafter, in 1898,

August 2009 9
BioElectronics Corp. – Sizing the Market Opportunity

Tesla published a paper that he read at the eighth annual meeting of the
American Electro-Therapeutic Association in New York in which he
stated that one of the early observed and remarkable features of pulsed
magnetism was its apparent harmlessness, which made it possible to
pass relatively great amounts of electrical energy through the body of a
person. In those early days of PEMF therapy, coils up to three feet in
diameter were used for magnetically treating the body without contact.
In his 1898 paper, Tesla concluded that bodily "tissues are condensers,"
which are the basic component (dielectric, or a non-conducting
substance) for an equivalent circuit only recently developed for the
human body. This unique property of the human body indicates an
inherent adaptation and perhaps innate compatibility toward the
presence of high-voltage electric fields, possibly due to the high trans-
membrane potential already present in cellular tissue. Tesla also
indicated that the after-effects to patients from his coil treatment were
certainly beneficial. Tesla is best known for his plasma energy work
starting around the turn of the century. The original Tesla therapy
devices, called pulsed diathermy devices, were in common use in
hospitals until the 1950s. These devices were dramatically successful,
as are their modern day successors, in treating a wide range of
conditions.
A later theory by Georges Lakhovsky (1869-1942) held that each cell
in the body of an organism, whether plant, animal or a human being, is
in itself a little radio receiver and works on its own unique little
frequency. He considered that each cell, in addition to being tissue as
well as biology, was also electricity. Within this theory, Lakhovsky
held that pathology was a not matter of biological concern or
intervention, but one of electrical concern and intervention.
His philosophy was that "the amplitude of cell oscillations must reach a
certain value, in order that for the organism to be strong enough to
repulse the destructive vibrations from certain microbes." He went on
to say, "the remedy in my opinion, is not to kill the microbes in contact
with the healthy cells but to reinforce the oscillations of the cell either
directly by reinforcing the activity of the blood or in producing on the
cells a direct action by means of the proper rays." The record of his
treatment of degenerative disease with what amounts to an early
"energy-medicine" device, Lakhovsky’s Radio-Cellulo-Oscillator, was
deemed remarkable.
While electrical devices had been in widespread use to manage pain
and “cure” everything from cancer to impotency, in the early part of the
20th century electromedical current therapy fell into a period of

August 2009 10
BioElectronics Corp. – Sizing the Market Opportunity

disrepute by the medical profession due to its unrefined early electrical


technologies. There was even a period where electrotherapy devices
had become abolished "...and academics frowned upon anyone who
even brought up the subject of electromagnetic therapy.”
Fortunately, immediately after World War II, contemporary
magnetotherapy really began when the technology of both magnetic
and electromagnetic fields, generated by various waveshapes of the
supplying currents, was introduced. Starting in Japan, this modality
quickly moved to Europe, beginning in Romania and the former Soviet
Union. During the period 1960 to 1985, nearly all European countries
designed and manufactured their own magnetotherapeutic systems. In
fact, the first book on magnetotherapy, written in 1982 by N. Todorov,
was published in Bulgaria and summarizes the experience of utilizing
magnetic fields for the treatment of 2,700 patients who had 33 different
pathologies.
Furthermore, following the War, from 1944 to 1945, Antoine Priore, an
electrical engineer and inventor, immediately began work to develop an
electromagnetic device which cured cancer. During the 1960s and
early 1970s, his electromagnetic therapy machine was perfected as a
team of leading French scientists demonstrated conclusive, total
remissions of terminal tumors and infectious diseases in hundreds of
laboratory animals. In addition, and remarkably, the animals’ immune
systems were also restored to normal.
By 1961, it was noted that pulsed radio frequency treatment of a
surgical incision in a dog resulted in less severe edema (swelling) then
in an untreated control group (Cameron, 1961). It was reasoned that if
pulsed electromagnetic energy reduces edema and so accelerates the
acute inflammatory phase of wound healing, it should also enhance the
second and third phases of recovery. Also in the 1960s, a pioneering
medical doctor named Robert Becker established that the Chinese
meridians of the body, or channels along which the energy of the
psychophysical system is considered to flow, are skin pathways of
decreased electrical resistance. He also discovered a host of other
bioelectric effects within the body as well and worked on electrically
stimulating bone growth with Dr. Andrew Bassett, who along with Dr.
Arthur Pilla, developed a very effective PEMF generator to stimulate
bone fracture healing later approved by the FDA. By the end of the
decade in 1969, Wolcott, et al. applied electrical stimulation in the
range of 200-800 microamps to a variety of wounds and found that
treated wounds showed a 200% to 500% faster healing rate, with
stronger tensile strength of scar tissue and antibacterial effects on
infected wounds versus the untreated control group.

August 2009 11
BioElectronics Corp. – Sizing the Market Opportunity

One of the more modern and interesting magnetic theories is "Magnetic


Field Deficiency Syndrome" postulated by Dr. Kyochi Nakagawa of
Japan in 1976. Dr. Nakagawa offered it as an explanation of
biomagnetic effects in which he reasoned the earth’s magnetic field is
not fixed in position or strength but rather, in the last hundred years, it
has weakened on the average by about 6.0% and, in the last thousand
years, it has fallen nearly 30%. Dr. Nakagawa argued that since
humans evolved in a magnetic field, maintaining that magnetic balance
and environment is necessary for proper health. In other words, a
falling magnetic field puts all living beings at risk and magnetic therapy
can serve as a solution to help make up the deficit.
During the 1970s, Andrew Bassett and his team introduced a new
approach for the treatment of delayed fractures, a technique that
employed a very specific biphasic low frequency signal (Bassett et al.,
1974,1977) approved by the FDA to be applied in the United States for
non-union/delayed fractures only. The very effective PEMF generator
developed by Bassett and Dr. Arthur Pilla to stimulate bone fracture
healing holds an 80% success rate. Similar PEMF signals have recently
been used effectively to prevent osteoporosis, even in patients with an
ovariectomy or surgical removal of an ovary(ies).
In 1982, Dr. Bentall, a surgeon, and Timothy Cox, D. Phil., an
electrical engineer, developed the first miniaturized pulsed
electromagnetic device in the form of the Portic Electronic Bandage.
This device and subsequent clinical studies on over 2,000 subjects
helped establish the clinical effectiveness of low power pulsed
electromagnetic energy using a 3-volt lithium battery. Later, the
existence and importance of small electrical charges in the membrane
of all cells was firmly established in 1991 when the Nobel Prize in
Physiology or Medicine was awarded to two German cell physiologists,
namely Erwin Neher and Bert Sakmann, for their discoveries
concerning "the function of single ion channels in cells," as they
successfully measured the incredibly small electrical charge of the cell
membrane.
It is now commonly accepted that weak electromagnetic fields (EMF)
are capable of initiating various healing processes including delayed
fractures, pain relief, multiple sclerosis and Parkinson’s disease.
(Rosch, Markov, 2004). The FDA has also allowed the use of pulsed
radiofrequency electromagnetic fields for the treatment of pain and
edema in superficial soft tissues and has approved several products for
use in various treatments.
In the year 2000, the New Technology Committee of the American

August 2009 12
BioElectronics Corp. – Sizing the Market Opportunity

Society of Aesthetic Plastic Surgeons evaluated and approved PEMF


treatments for edema reduction, accelerated healing and post operative
surgical pain. Two years later in 2002, the U.S. FDA approved low
dose, extended duration ActiPatchTM Therapy by BioElectronics
Corporation for the treatment of edema following blepharoplasty. The
European Common Market later followed in 2004 when it approved
low dose ActiPatchTM Therapy as a Class II medical device, allowing
sales without a prescription, for all pulsed electromagnetic therapy
indications and retail sales. Importantly, that same year, U.S. Medicare
and Medicaid agreed to reimburse for electromagnetic treatment of
chronic Stage III and IV wounds.
To date, there have been many basic research studies and many clinical
trials of pulsed electromagnetic field therapy. Pulsed electromagnetic
therapy has been used on over 500,000 patients in the United States for
aiding non-fusion bone growth stimulation and other applications.
Powerful electromagnets have also been used in brain and muscle
research to generate currents strong enough to fire nerves that trigger
sensations and flex muscles.
Since the pioneering work of these many early scientists and inventors
over the centuries, PEMF therapeutic applications have been reported
for a wide variety ailments including the reduction of post-traumatic
and post-operative pain and edema in soft tissues, wound healing, burn
treatment and nerve regeneration, among others. Magnetic and
electromagnetic fields are now recognized by 21st century medicine as
real physical entities that promise the healing of various health
problems even when and where conventional medicine has failed.

The Mechanics of Cell Healing and The Benefits of PEMF


Technology
Pulsed electromagnetic (PEMF) therapy is a type of healing treatment
that uses electrical energy to direct a series of magnetic pulses through
injured tissue whereby each magnetic pulse induces a tiny electrical
signal that stimulates cellular repair. For decades, physicians and
therapists around the world have used pulsed electromagnetic field
therapy to relieve a host of ailments including to reduce swelling
(edema) and inflammation, muscle pulls and strains, to relieve pain and
accelerate the healing of bone fractures, for surgical injuries and
recovery, osteoarthritis, sprains, cuts and bruises and to help heal
chronic wounds, among others.
It is now widely accepted within plastic surgery, orthopedics, sports
and physical medicine and chronic wound care that weak, non-ionizing

August 2009 13
BioElectronics Corp. – Sizing the Market Opportunity

electromagnetic fields exert a wide range of beneficial effects. With


the inexpensive, self-administered micro-technology becoming
increasingly available, other branches of medicine are also beginning to
recognize and utilize the curative benefits of radio frequency (RF)
therapy. In fact, more than half a million patients with chronically un-
united fractures have benefited from the surgically non-invasive
method of PEMF therapy without risk, discomfort or the comparatively
high costs of operative repair.
PEMF therapy is also increasing in recognition and acceptance within
the established health industry. Pulsed electromagnetic therapy is
considered a form of standard care and is a reimbursable treatment in
the United Kingdom and the European Common Market. In the United
States, Medicare and Medicaid will reimburse for the treatment of
chronic stage III and IV wounds. The technology is also currently
being evaluated by major pharmaceutical manufacturers for several
new products. Additionally, the New Technology Committee of the
American Society of Aesthetic Plastic Surgeons has evaluated and
approved PEMF treatments for edema reduction, accelerated healing
and post-operative surgical pain.

Normal, Healthy Cell Function


At the individual cell level, every normal, healthy skin cell or muscle
cell is comprised of an outer membrane layer that encloses the cell,
encasing and separating its inside contents from its outside
environment. The cell membrane monitors and controls the cell’s
metabolism by taking in nutrients carried to it by blood vessels and
expelling the resulting waste into the lymph fluid which surround the
outside of the cell. Importantly, to regulate and effect this process, the
trans-membrane charge of a normal healthy cell maintains an electrical
potential in the range of 70 millivolts to 110 millivolts.
Schematic of a Normal, Healthy Cell:

August 2009 14
BioElectronics Corp. – Sizing the Market Opportunity

Source: Bioelectronics, Corp

In order to maintain healthy tissue, normal cells also need to be able to


interact with one another at the cell population or cell network level, a
situation that requires maintaining the integrity of an individual cell’s
membrane and its effective electrical potential. Specifically, in healthy
tissue, normal cells manage the functions of the body by acting in
groups at the system or population level. In this regard, normal tissue
is characterized by both well connected cells and clear communication
channels among cell populations. In other words, tissues are composed
of cell networks in which healthy cell-to-cell communication relies
extensively on effective cell-to-cell contact. Furthermore, the actions
of these cell populations are very dependent upon the communication
channels established among the cells in order to create synchronization
among the population. This is important for normal tissue maintenance
and repair, which requires the coordinated activity of multiple cell
types such as in the transport of oxygen and nutrients to a cell via blood
flow and the flushing of toxins out of the cell - crucial under normal
circumstances and of significant importance in the sequence of healing
a wounded cell.

Injured Cells Act Differently


Unlike healthy body tissue, injured tissue is characterized by edema
(swelling). Inflammation can occur following a variety of widely
experienced soft tissue injuries such as cuts, surgical incisions, sprains
and strains (including those in the lower back region), and repetitive
stress injuries such as plantar fasciitis (heel pain), carpal tunnel
syndrome (hand and arms) and so-called tennis elbow, among others.
When soft tissue is damaged, cells in the injured area respond by

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BioElectronics Corp. – Sizing the Market Opportunity

leaking fluid and cellular components break down. Specifically,


following mechanical or other tissue injury, the inflammatory process
initiates a tissue destruction phase in which rapid dilation of blood
vessels and increased vessel leakiness leads to tissue edema (swelling),
which can inhibit the process of wound healing.
Importantly, the damaged cell’s electrical charge is diminished, causing
normal cell functions and operations to shut down. Unlike healthy
cells, damaged or diseased cells demonstrate an abnormally low
membrane potential of only 40 millivolts to 50+ millivolts, well below
that of normal cells. At these levels, the cell is unable to carry out its
complex metabolic functions. The diminished electrical potential of an
unhealthy cell’s membrane results in impairment of the cell’s ionic
pumping activity, as regulated by its membrane, and consequently the
normal speed of cellular metabolism is greatly reduced. Thus, when
injury or disease destroys the normal electrical balance of the
membrane, and metabolism is consequently slowed, causing the
removal of waste to back-up inside the cell, the injured or diseased cells
release chemical signals that cause inflammation, resulting in swelling
(edema) and pain.

Schematic of a Damaged or Diseased Cell:

Source: BioElectronics, Corp.

Furthermore, when the electrical balance of the cell membrane is


comprised due to cell injury and swelling, crucial cell-to-cell contact
channels and cell-to-cell communications necessary for synchronization
amongst the population, and thus healing, are destroyed. When the
body receives an injury during surgery, or from trauma such as a sprain,
the danger of infection is minimal. Nevertheless, the body will respond
to the injury by swelling, in order to prevent an infection. Swelling, in
turn, separates the cells to prevent the transmission of potential

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BioElectronics Corp. – Sizing the Market Opportunity

infection. Likewise, under infectious conditions, tissue edema serves to


disconnect the adjacent cells within the surrounding tissue in order to
prevent the spread of infection. This response is known as the
“inflammatory process” and consists of a rapid tissue destruction phase
followed by a longer duration tissue repair phase. The initial
destruction phase is evidenced by redness, heat, swelling and pain in
the tissue. Unlike infections conditions, however, in the case of non-
infected trauma or aseptic surgical procedures, inflammatory responses
cause discomfort and pain without contributing to the healing process.
In viewing a wounded skin cell with edema, it is possible to see how
the cells have been pushed apart into a chaotic pattern with interstitial
fluid interrupting the normal synchronized cellular communication,
which adversely affects the healing process as disconnected cells
cannot heal. Edematous tissue is characterized by disconnected cells
and a build-up of noxious agents as well as the release of dilation
agents like nitric oxide.

View of a Wounded Cell:

Source: BioElectronics, Corp.

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BioElectronics Corp. – Sizing the Market Opportunity

The Three Phases of Healing

Inflammation Phase
The healing process actually begins at the moment of injury, as the
body’s repair response is initiated immediately. Under a biological
phenomenon known as the inflammatory cascade, the presence of tissue
injury or pathogens in the bloodstream elicits an inflammatory response
and results in edema in the area of injury which is responsible for the
onset of pain and swelling.
The main function of the inflammatory phase is phagocytosis of
bacteria, which is the process used by the human body to destroy dead
or foreign cells. It is important to note that phagocytosis is not
essential for aseptic, non-invasive or normal wound healing.

Proliferation Phase
The proliferation phase is characterized by the migration of new cells
and the formation of granulation tissue, or the perfused, fibrous
connective tissue that replaces a fibrin clot in healing wounds. It is
during the proliferation phase, around the third day following an injury,
that collagen is first detected in the wound. Large quantities of
collagen serve to form the extra-cellular matrix (ECM) that is
responsible for imparting tensile strength to the wound’s or injured
area’s scar tissue.
As a side note, most of the cells in multi-cellular organisms are
surrounded by a complex mixture of nonliving material that makes up
the extra-cellular matrix. This matrix is secreted by the cells and

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BioElectronics Corp. – Sizing the Market Opportunity

consists of protein fibers embedded in an amorphous mixture of huge


protein-polysaccharide ("proteoglycan") molecules and, in the case of
bone, mineral deposits. In biology, the extra-cellular matrix is the
extra-cellular part of tissue in humans and certain animals that usually
provides structural support to cells in addition to performing various
other important functions. The extra-cellular matrix is the defining
feature of connective tissue whose cells are embedded in a great
amount of extra-cellular material.

Maturation Phase
Almost as soon as the extra-cellular matrix is established, its
reorganization begins. In a process known as remodeling, there is a
gradual change in the cellular composition and vascularity of the
reparative tissue. Wound contraction, or inward movement, is another
important step in the healing process. Early inflammatory reduction,
such as that delivered via PEMF therapy, and wound closure can help
reduce scarring and increase the healed area’s tensile strength.

Untreated Cells Heal in a Random, Chaotic Pattern


There are many factors that can influence the course of healing
including appropriate blood flow to an injured area, transport of oxygen
to the wound, edema and the inflammatory reaction of damaged cells as
well as the body’s overall nutritional status in which vitamins A, B, C
and D are all essential, as are proteins. Additionally, the use of drugs
such as steroids, among others, and any underlying pathologies
(diabetes, renal failure etc.) clearly impact the body’s ability to heal
well.
Just as healthy tissue maintenance and repair requires the coordinated
activity of multiple cell types, while damaged cells are under repair,
and the electrical potential of their membranes are deficient, the normal
cell-to-cell communication and cell-to-cell alignment activity that
would otherwise take place between healthy cells fails to occur, thereby
inhibiting healing. The effects of this deficit can be seen in the
micrograph below contrasting healthy cells with injured, swollen cells.

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BioElectronics Corp. – Sizing the Market Opportunity

View of a Healthy Cell View of a Swollen Cell

Source: BioElectronics, Corp.

If untreated, the formation of new extra-cellular matrix can be random,


haphazard and chaotic, as occurs under the normal healing process.
That is, without PEMF therapy, the natural, untreated healing process
can be slower and the tensile strength of the healed skin can be lower
than under PEMF administered therapy.
If, on the other hand, formation of the new matrix is able to take place
via a facilitated and more organized process, the healed wound tends to
be stronger and requires less remodeling. PEMF therapy works to
restore healthy membrane electrical potential, resulting in enhanced
lymphatic flow that facilitates a “cleaning-up” of the wounded area.
Dead cells and interstitial proteins are more rapidly removed from the
injured cells and tissue area, enabling wounds to heal stronger and scar
less than PEMF-untreated cells. In fact, PEMF treatment can improve
a wound’s appearance 50% faster than untreated wounds.
The micrograph below shows actual skin treated by PEMF solutions
from BioElectronic’s product line in order to ensure the physical
alignment of the cells, necessary for effective cell-to-cell
communication in the healing process, in the newly formed extra-
cellular matrix.

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BioElectronics Corp. – Sizing the Market Opportunity

View of Skin Treated by BioElectronic’s PEMF


Therapy Products

Source: BioElectronics, Corp.

PEMF Therapy Accelerates Natural Healing in Cells


Effective PEMF treatment, such as that delivered by the Company’s
product line, has been shown to have a therapeutic effect when used in
the treatment of connective tissue injury in humans.
In swollen tissues, cell-to-cell communication is greatly reduced and/or
impaired, resulting in poor coordination between cells involved in the
repair process and delayed healing. In the absence of normal cell
contact, induced electric fields can be used as a coordinating signal to
synchronize the activity of the cells within the damaged tissue area,
thereby returning cells and the tissues they comprise to a normal level
of functioning within a shorter period of time than if left untreated.
BioElectronic’s PEMF therapy solutions use an ELF (extremely low
field) system to project an indiscernible electrical current into damaged
cells at a frequency that recharges them to their normal level of electric
potential. This system is able to target only the swollen cells and apply
an induced electro-medicating field across their cell membrane, with
the effect of restoring the energy, or electric potential, of the swollen
cell’s membrane to its normal, healthy state so that the cell’s own
natural healing process can work better toward a full recovery of the
total cell.
By restoring the normal charge of the cell membrane, PEMF therapy is
able to stop the cell’s release of inflammatory mediators and reestablish
normal cell interaction. PEMF therapy facilitates improved micro-
vascular perfusion of damaged tissue, resulting in a faster clearing of
edema fluid and a more rapid elimination of many of the noxious

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BioElectronics Corp. – Sizing the Market Opportunity

agents such as nitrous oxide and histamine, among others, released into
tissue following an injury. These mechanisms provide an environment
in which cell-to-cell communication in the involved tissue area is re-
established. By helping to re-establish coordinated cell activity in
injured tissue, PEMF therapy can induce an immediate reduction in
swelling and inflammation of the damaged tissue, and decrease the
associated pain of tissue injury, and contribute to a beneficial
acceleration in the body’s normal the healing process.

Schematic of a Cell Treated with Effective PEMF Therapy:

Effective PEMF
Therapy Restores
Cell Membrane
Electrical Potential
to Normal Levels

Source: BioElectronics, Corp.

Thus, to enhance the healing of non-infected injuries, the therapeutic


goal of PEMF therapy is to induce the tissue to rapidly pass through, or
by-pass, the tissue-damaging phase of the inflammatory process and
move to the tissue repair mode. In the case of BioElectronics, the
Company’s PEMF solutions have the benefit of boosting the natural
healing process in injured or swollen cells by:
 Penetrating through the skin in a non-invasive manner to reach
and deliver treatment to muscles and tendons;
 Increasing lymph flow around the injured cell, thereby
reducing swelling;
 Reducing bruising by helping the lymph fluid remove waste
products faster;
 Restoring synchronization among the injured tissue cells and;
 Accelerating the migration of new skin cells.
Additional benefits include the rapidly improved appearance and
increased tensile strength, and hence an improved quality, of newly
formed skin as well as the reduced risk of infection. Importantly to

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BioElectronics Corp. – Sizing the Market Opportunity

many patients and medical professionals, PEMF therapy also represents


a drug-free solution to pain relief and healing.
Today, most electro-therapies utilize induced electric fields in the
extremely low frequency (ELF) range of 3Hz-3000Hz. The earliest
demonstrations of induction of cell coordination by induced ELF
electric fields (Wachtel, 1979) showed that electric fields at intensities
in the range of 100-1000 µV/cm2 were sufficient to initiate
synchronous cell activity within seconds of application. Subsequent
studies by McLeod et al, 1987, showed that cell ensemble activity
could be influenced by induced electric fields as low as 30 µV/cm, as
long as exposures extended for four hours or more. More recent studies
(McLeod, et al., 2000) indicate that cell ensemble activity can be
significantly influenced by induced electric fields as low as 1 µV/cm
when using continuous exposures as applied over several days.

BIOELECTRONICS PRODUCT OFFERING


BioElectronics Corporation is in the business of putting proven medical
technology into advanced miniaturized electronics to create convenient,
efficacious and cost-effective therapies to help change the way people
heal. PEMF therapy is a proven safe, effective alternative for many
musculoskeletal disorders and there is a growing body of research
evidence showing its effectiveness in speeding surgical recovery and in
reducing, or completely eliminating, the amount of pain medication
required, with no known side effects.
Specifically, BioElectronics Corporation is the maker of patented,
inexpensive, drug–free, anti-inflammatory medical devices and patches
as developed and based upon underlying, and proven-to-be-theraputic,
PEMF technology. The Company's wafer thin patches are applied
directly to the skin and contain an embedded microchip and micro-
battery that deliver pulsed electromagnetic energy, a clinically proven
and widely accepted anti-inflammatory and pain relief therapy that
heretofore has only been possible to obtain from large, facility-based
equipment. Furthermore, product testing has shown that this
“wearable” technology is easy to apply, comfortable to next to the skin
and, most importantly, has been shown to be highly effective.
While PEMF technology has been proven safe and effective in
hundreds of peer-reviewed scientific studies, historically it has not been
made widely available to the individual consumer or even to smaller,
more economically conscientious medical practitioners due mainly to
the size of delivery mechanisms and cost. Until recently, and with the
advent of the BioElectronic’s product line launched several years ago,

August 2009 23
BioElectronics Corp. – Sizing the Market Opportunity

PEMF devices have been very expensive, large-scale devices and/or


high-powered machines that administer the therapy in limited sessions,
usually based in clinical settings such as clinics or hospitals. Now,
however, BioElectronics is making the product available to the general
public for home use.
Through the use of advanced micro-circuitry established over the past
decade of research and development, engineers at BioElectronics have
successfully shrunk or down-sized this technology into a portable,
wafer-thin device that can be worn directly on the skin as a patch in
order to relieve pain, swelling and speed healing, often cutting the
healing time of cuts, bruises and soft tissue injuries by more than half.
Furthermore, as consumers and the U.S. Food and Drug Administration
become more aware of the potential dangers of drugs such as
acetaminophen, the main ingredient in many well known pain killers
including the Tylenol brand, consumers are increasingly searching for
alternatives, including non-drug options. BioElectronic’s portable, self-
administrable PEMF technology-containing patches represent an
interesting and sought-after solution for many consumers, patients and
medical community members.

BioElectronic’s Significant Patent Holding


In June 2009, BioElectronics received a significant new patent from the
United States Patent and Trademark Office, representing an important
event for the Company. This patent protects BioElectronics
Corporation's systems and techniques for applying an electromagnetic
field to bodily tissue, including a self-contained and, importantly,
portable electromagnetic field generating device disposed over a
surface of body tissue, such as the Company’s skin patch delivery
format.
This key patent, which relates specifically to a portable PEMF device
that is worn next to the skin, including a patch of any size or shape for
example, represents broad, exclusive protection for the very
fundamental portable technology of BioElectronic’s unique PEMF
therapy line and covers a wide variety of product opportunities. By
being granted this critical patent, the Company’s existing products and
many new future product opportunities are protected from imitation and
would-be competitors.
The Company’s new patent ensures BioElectronic’s ability to be the
sole provider of this PEMF technology in a wearable and portable form
factor, likely increasing the value of the Company significantly as
consumer awareness about the benefits of PEMF therapy grows and

August 2009 24
BioElectronics Corp. – Sizing the Market Opportunity

future product lines become available from the Company.


BioElectronics has also applied for an additional patent to further
protect its intellectual property. While it is difficult at present to
predict when the U.S. government patent office will issue its
determination, should the Company be granted a patent as requested, it
would mean significant further intellectual property protection for
BioElectronics in this important field.
While the management team at the Company has done a good job in
protecting its intellectual property rights in the U.S. market thus far, we
would note there may be some issues relating to international
protections. Internationally, intellectual property protection is an
expensive process requiring resources that are currently beyond the
capabilities of this Company. As BioElectronics progresses in its
business growth, however, we would expect the management team to
take steps to gain any needed international intellectual property
protections.

Market Opportunity
The market potential for PEMF therapy products is significant and
growing substantially, likely representing a possible market opportunity
of hundreds of millions of dollars per year on a worldwide basis.
For decades, physicians and therapists around the world have used
pulsed electromagnetic field therapy to relieve a host of ailments and
accelerate healing, including use for reducing swelling (edema) and
inflammation, muscle pulls and strains, relieving pain, accelerating
bone fracture repair, facilitating surgical injury recovery, osteoarthritis,
sprains, cuts and bruises and to help heal chronic wounds, among other
applications. Over the past few years, it is now becoming more
generally accepted within plastic surgery, orthopedics, sports and
physical medicine and chronic wound care areas that using electrical
energy to direct a series of magnetic pulses through injured tissue
exerts a range of beneficial effects, as each magnetic pulse induces a
tiny electrical signal to stimulate cellular repair and accelerate patient
healing. Nonetheless, despite the technology’s long-time existence and
more modern day introduction into the field of healing, the actual
addressable markets that could benefit from PEMF therapy remain both
under-informed and underserved.
While many people suffering from injury, recovering from surgery and
even enduring general physical discomforts could likely benefit from
PEMF treatment, much of the consumer/patient population as well as
the medical community at large are either unaware or do not often

August 2009 25
BioElectronics Corp. – Sizing the Market Opportunity

recognize the opportunity to consider use of effective PEMF therapy as


an option or solution. Likewise, until recently, most forms of
delivering PEMF therapy have been limited to very expensive, large-
scale devices/high-powered machines that administer the therapy in
limited sessions, usually based in clinical settings such as clinics or
hospitals. This situation has had the effect of making beneficial PEMF
treatment cost prohibitive and relatively unavailable to the public at
large, even potentially excluding those would-be users with the
foresight to recognize its advantages.
Today, however, all this is beginning to change, representing an
exciting opportunity for PEMF therapies in the field of healing and pain
treatment. Specifically, as the general public and the U.S. Food and
Drug Administration become more aware of the potential dangers of
drugs such as acetaminophen, the main ingredient in many well known
pain killers including Tylenol, medical providers and
patients/consumers are increasingly searching for alternatives. As these
groups look for effective alternatives to traditional pain killers and
medications of all types, and as information about PEMF therapy and
its effects become increasingly available, including through many
currently important ongoing clinical studies, both awareness and
demand for PEMF solutions will likely rise. This in turn is expected to
lead to substantial increased market penetration of affordable and
convenient PEMF products in both the pain medication and injury
healing markets.
Cost effective and widely available PEMF therapy products, such as the
Company’s portable ActiPatchTM, Allay™, RecoveryRxTM brands, face
a significant global opportunity to address the growth in demand for
solutions to alleviate pain and provide injury/post-surgery healing,
particularly as awareness of PEMF solutions increases, as people look
for effective non-drug alternatives to pain killers and as the absolute
number of patients and surgical procedures rise with a growing
population and, in the United States, the aging and increasing medical
needs of the baby boom generation.
Below we examine the value potential of just a few of the very large
and growing market segments for which PEMF therapy, and hence
BioElectronic’s products, are applicable.

August 2009 26
BioElectronics Corp. – Sizing the Market Opportunity

Global Pain Pharmaceutical Market


According to certain estimates, the global pain pharmaceutical market
is set to become a serious growth area, experiencing a compound
annual growth rate of 4.56% to 2012. With the world market currently
valued at approximately $34.0 billion in 2009, revenues are forecasted
to increase to just under $40.0 billion in 2012. Specifically, the non-
narcotics market alone is set to dominate the pain relief market over the
forecast period 2007-2012, accounting for almost 36.8% of market
revenues by 2012 and well set for growth through the next 15 years.
Currently, the major market areas for drug-related options to treat a
variety of sources of pain include the anti-migraine market, the anti-
rheumatics (medical problems affecting the joints and connective
tissue) non-steroidal market, the narcotics market and, of course, the
non-narcotics market. We believe that as there are clearly R&D
opportunities for “new-comer” industry players to the pain
pharmaceutical market, PEMF therapy and all its associated benefits
also has a distinct opportunity to participate meaningfully in this
therapeutics growth sector going forward, a role which is already only
just beginning to take place today.
Below is a brief analysis of the global pain pharmaceutical market and
the potential value to the PEMF industry, and BioElectronics, of
acquiring a modest market share stake by replacing the drug-related
treatment with an alternative PEMF solution.
2009 2010 2011 2012
Industry Compound Annual Growth Rate: 4.56% 4.56% 4.56% 4.56%
Global Pain Pharmaceutical Market (millions of $'s) $33,892 $35,437 $37,053 $38,743

PEMF Market Share Analysis:


Value of a 0.25% market share stake $84.7 $88.6 $92.6 $96.9
Value of a 0.50% market share stake 169.5 177.2 185.3 193.7
Value of a 0.75% market share stake 254.2 265.8 277.9 290.6
Value of a 1.00% market share stake 338.9 354.4 370.5 387.4
Value of a 1.50% market share stake 508.4 531.6 555.8 581.1
Value of a 2.00% market share stake 677.8 708.7 741.1 774.9
Value of a 2.50% market share stake 847.3 885.9 926.3 968.6
Value of a 5.00% market share stake 1,694.6 1,771.9 1,852.7 1,937.1

C-Section Market
In 2006, the last year for which data is available, the rate of U.S. births
by C-section hit an all-time high of 31.1%, or 1.34 million births via c-
section out of a total 4.3 million births that year. America leads the
world with one of the highest percentage rates of C-sections performed
per births, in addition to Italy and Australia.
To target this market, BioElectronics has developed a Caesarian
Section Recovery Kit for drug free pain relief and accelerated healing.

August 2009 27
BioElectronics Corp. – Sizing the Market Opportunity

The product is designed to treat cesarean section surgery pain without


the use of drugs and to speed healing of the incision. The use of drugs
after a cesarean section is a major concern to both obstetricians and
new mothers, as many pain medications can be transferred via breast
milk with unknown consequences to the newborn.
The analysis below demonstrates the approximate value to the
Company of participating in the U.S. C-section surgery market. With
1.34 million procedures performed per year and a product sales price of
$40.00 for BioElectronic’s Caesarian Section Recovery Kit, inclusion
in this market segment alone could become of significant value to the
Company. As a side note, these estimates are conservative as we are
using a price point here of only $40.00 for the purpose of this analysis,
whereas BioElectronics is currently charging $50.00 per unit.

Total C-Section Surgeries Performed in the U.S. 1,340,000


Sales Price of BioElectronics PEMF Product $40.0
Market Share Market Share
PEMF Market Share Analysis: Stake Value
1.0% market share stake 13,400 $536,000
1.5% market share stake 20,100 $804,000
2.0% market share stake 26,800 $1,072,000
2.5% market share stake 33,500 $1,340,000
5.0% market share stake 67,000 $2,680,000
10.0% market share stake 134,000 $5,360,000
15.0% market share stake 201,000 $8,040,000
20.0% market share stake 268,000 $10,720,000
25.0% market share stake 335,000 $13,400,000

Market for Cosmetic Procedures & Surgeries


In 2008, the American Society of Plastic Surgeons reported a total of
12.1 million cosmetic procedures. Of these, 1.7 million were cosmetic
surgical procedures with the top five being breast augmentations, eyelid
surgery (blepharoplasty), liposuction, nose reshaping (rhinoplasty) and
tummy tucks (abdominoplasty). In addition to the millions of cosmetic
procedures performed last year in the United States, there were 4.9
million reconstructive procedures performed for breast reduction, hand
surgery, laceration repair, scar revision and tumor removal, among
others.

The table below outlines the approximate value to the Company of


participating in the U.S. cosmetic surgery and reconstructive
procedures market, with a combined total of approximately 6.6 million
such procedures performed last year. At a product sale price of $40.00
for its RecoveryRx™ line of PEMF therapies for the medical market,

August 2009 28
BioElectronics Corp. – Sizing the Market Opportunity

BioElectronic’s inclusion in this sector could also become of significant


value to the Company. The size of this market may also be
underestimated, as we are again using only a $40.00 price point for the
product where as BioElectronics currently prices each unit targeting
this area at $50.00.

Total U.S. Cosmetic Surgical Procedures: 1,700,000


Total U.S. Surgical Reconstructive Procedures: 4,900,000
Total 6,600,000
Sales Price of BioElectronics PEMF Product $40.0
Market Share Market Share
PEMF Market Share Analysis: Stake Value
1.0% market share stake 66,000 $2,640,000
1.5% market share stake 99,000 $3,960,000
2.0% market share stake 132,000 $5,280,000
2.5% market share stake 165,000 $6,600,000
5.0% market share stake 330,000 $13,200,000
10.0% market share stake 660,000 $26,400,000
15.0% market share stake 990,000 $39,600,000
20.0% market share stake 1,320,000 $52,800,000
25.0% market share stake 1,650,000 $66,000,000

The obsession of Americans to look young drives demand for cosmetic


surgery and the large and growing market for cosmetic surgery
procedures is projected continue to grow in the United States going
forward, reaching $15.13 billion by 2012. In Europe, the second
largest market for cosmetic procedures, cosmetic surgery is a $2.2
billion business and growing. These trends should continue to drive the
need for post-operative care products, presenting an exciting
opportunity for PEMF therapy solutions such as those supplied by
BioElectronics. This market is clearly a significant opportunity for the
Company and, importantly for BioElectronics, it could perhaps
represent a field in which there would be few competitors due to the
Company’s strong intellectual-property protections on portable PEMF
technology therapy.

Back Pain Market


While there is clearly a meaningfully sized market for cosmetic and
reconstructive surgery recovery therapy, potentially worth tens of
millions of dollars per year to the Company, it pales in comparison to
the significant opportunity presented by one of the most common
human ailments, namely, musculoskeletal complaints. While this is
especially true regarding the substantial market for treating back pain,
additional opportunities exist in other types of musculoskeletal
complaints such as sore knees, tennis elbow, heal and foot pain, plantar

August 2009 29
BioElectronics Corp. – Sizing the Market Opportunity

fasciitis and a host of other similar types of conditions.


Due to the difficulties in sizing all of these markets, this report will
focus on what we believe is the largest of these - the market for treating
back pain.
According to the U.S. National Institute for Occupational Safely and
Health (NIOSH), back pain is one of the most common and significant
musculoskeletal medical problems in the world. In fact, some 80% of
adults seek professional care at some point for low back pain, and one
third of all disability costs in the United States are due to lower back
disorders. A surprisingly high 16.2 million office visits result from
back pain conditions each year.
Other notable statistics that make the back pain sector of particular
importance as a large business opportunity to the injury and healing
products market include the following facts:
 Back injuries are the leading cause of disability in the United
States for people younger than 45 years of age and represent
the most expensive health care problem for people between 20
years and 50 year old;
 Approximately 1.0% of the United States population is
chronically disabled due to back pain and an additional 1% is
temporarily disabled and;
 Each year, two percent of the United States work force has
compensable back injuries each year.
Patients suffering from back pain consume more that $90 billion
annually in health-care expenses, with approximately $26 billion of that
amount directly attributable to treating back pain. Furthermore, a study
by Duke University found the annual per capita expenditures for
patients with back pain were 1.6 times higher than those without back
pain. These increased expenditures were found in all categories
including inpatient charges, office visits, prescription drugs, outpatient
care, home health care and emergency room care. Back pain is
classified into three categories, based on the duration of symptoms, as
acute (pain that has been present for six weeks or less), sub acute (a six-
to 12-week duration) and chronic (longer than 12 weeks).
The chart below indicates the potential value of the Company’s PEMF
therapy solutions for the U.S. back pain market based on the number of
office visits resulting from this condition each year.

August 2009 30
BioElectronics Corp. – Sizing the Market Opportunity

Total U.S. Office Visits from Back Pain: 16,200,000


Sales Price of BioElectronics PEMF Product $40.0
Market Share Market
PEMF Market Share Analysis: Stake Share Value
1.0% market share stake 162,000 $6,480,000
2.0% market share stake 324,000 $12,960,000
5.0% market share stake 810,000 $32,400,000
10.0% market share stake 1,620,000 $64,800,000
15.0% market share stake 2,430,000 $97,200,000
20.0% market share stake 3,240,000 $129,600,000
25.0% market share stake 4,050,000 $162,000,000
30.0% market share stake 4,860,000 $194,400,000
35.0% market share stake 5,670,000 $226,800,000

In Europe, the situation is no different. Lower back pain is a major


health and socio-economic problem throughout the region and the
second leading cause of sick leave. An EU Commission study recently
suggested that a very significant 67 million people suffered pain in their
lower or upper back in the previous week. The lifetime prevalence has
been estimated at anything between 59% to 90%, and in any one year,
the incidence of back pain is reported to be about 5.0% of the
population. Furthermore, while most episodes of low back pain settle
after a couple of weeks, many have a recurrent course with further
acute episodes affecting 20% to 44% of patients within one year in the
working population and lifetime recurrences of up to 85%, making
effective solutions to back pain and helping to aliviate back pain
suffering a very important market.
As can be seen from the analysis below of the European back pain
market, if only a fraction of those complaining of back pain at any
given time sought relief and treatment via PEMF therapy, the market
for BioElectronics’s ActipatchTM could quickly become enormous.

Total European Population Experiencing Back Pain: 67,000,000


Sales Price of BioElectronics PEMF Product $40.0

Market Share Market


PEMF Market Share Analysis: Stake Share Value
1.0% market share stake 670,000 $26,800,000
2.0% market share stake 1,340,000 $53,600,000
5.0% market share stake 3,350,000 $134,000,000
10.0% market share stake 6,700,000 $268,000,000
15.0% market share stake 10,050,000 $402,000,000
20.0% market share stake 13,400,000 $536,000,000
25.0% market share stake 16,750,000 $670,000,000
30.0% market share stake 20,100,000 $804,000,000
35.0% market share stake 23,450,000 $938,000,000

Menstrual Pain and Market


Earlier this year, BioElectronics announced a revolutionary, drug-free

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BioElectronics Corp. – Sizing the Market Opportunity

treatment for the pain and discomfort associated with menstruation, for
which we believe there is a significant market opportunity. Various
researchers estimate between 60% and 70% of women suffer from pain
during menstruation, with millions of women experiencing pain severe
enough to restrict their daily activities.
There are currently approximately 300 million people in the United
States with roughly half or about 150 million representing women.
Assuming approximately one third are of childbearing age, the total
potential addressable market for the Company's AllayTM product
becomes around 50 million women in the United States. Gaining only
a 5.0% market share of this segment would represent a significant
market opportunity for the Company of approximately 500,000 women.
Considering each AllayTM product lasts for approximately three periods
(over three months time), many women would likely purchase up to
four units per year. At $40.00 per unit and a 5% market share,
BioElectronics could easily experience revenues of $80 million per
year in the United States, with the European market likely being
equivalently sized.
Below, we have speculated some possible market sizing scenarios
relative to the Company's Allay Period Relief Patch Product.
Menstrual Pain Market Opportunity

Total women in the U.S.A. (approx. half the 300MM population): 150,000,000
* 1/3rd are of childbearing age: 50,000,000
* Approx. 20.0% experience severe to moderate mentral pain: 10,000,000
Allay™ brand for menstrual pain (one patch good for 3 month duration) product price : $40.00
* Product sales per year (12 months): $160.00

Market Market
PEMF Market Share Analysis: Share Stake Share Value
1.0% market share stake 100,000 $16,000,000
2.5% market share stake 250,000 $40,000,000
5.0% market share stake 500,000 $80,000,000
7.5% market share stake 750,000 $120,000,000
10.0% market share stake 1,000,000 $160,000,000
12.5% market share stake 1,250,000 $200,000,000
15.0% market share stake 1,500,000 $240,000,000
17.5% market share stake 1,750,000 $280,000,000
20.0% market share stake 2,000,000 $320,000,000

Veterinary Market
BioElectronics recently entered the veterinary care market in early
2009 when the Company launched its HealFast™ Therapy electro-
treatment line for dogs, cats and horses (equine). Based on the
Company’s same ActiPatch™ technology, HealFast™ Therapy is a
drug-free line of wearable patches sized for pets to fit the wound or

August 2009 32
BioElectronics Corp. – Sizing the Market Opportunity

sore joint of the animal. HealFast™ helps rapidly restore normal cell
function and accelerate healing, speeding the healing of muscle and
tendon injuries in animals.
BioElectronics offers three separate product lines for dogs, cats and
horses (equine), with each product line comprised of three distinct
offerings:
 HealFast™ Therapy Kit for chronic pain conditions, including
sore muscles, tendons or joint pain in which the patch can be
directly positioned over the swollen location or joint without
putting adhesive on the pet's fur;
 HealFast™ Flex Loop Pet Patches for boosting the speed and
strength of healing following surgery where the patch can be
applied by veterinarians over surgical wounds using the
medical tape of their choice and;
 The HealFast™ Crescent Patch for sores or abrasions.
In the United States, the veterinary services market is estimated to be
an approximate $28 billion per year industry. While animal hospitals
and clinics treat injuries and diseases, they derive most of their revenue
from animal health procedures like neutering and spaying, vaccinations
and regular checkups.
As further evidence of the importance of the U.S. market for veterinary
services and products, the United States has more dogs per capita than
any other country in the world. According to the American Pet
Products Manufacturers Association 2007-2008 National Pet Owners
Survey, there are approximately 74.8 million owned dogs in the United
States, 75% of which are spayed or neutered, with dog owners spending
an average of about $219 on veterinary visits (vaccine, well visits)
annually.
Furthermore, there are approximately 88.3 million owned cats in the
United States, 87% of which are spayed or neutered, with cat owners
spending an average of about $175 on routine vet visits per year.
Additionally, there are approximately seven million “prized animal
status” horses owned in the United States. Owners and trainers of these
important animals spend a significant sum of money each year for their
care and treatment, likely in the range of several thousands of dollars or
more per year. We believe the equine market alone is very significant
and will likely be the sector in which the Company places the majority
of its emphasis.
We also believe there is a substantial market in the greyhound racing
industry. Within the greyhound racing industry, there is a strong

August 2009 33
BioElectronics Corp. – Sizing the Market Opportunity

emphasis on animal safety and a corresponding extensive screening


process to detect for performance enhancing drugs. Considering
HealFastTM is a drug-free and non-invasive treatment, we believe many
greyhound racing owners could be interested in using this treatment on
their animals. The BioElectronics management team is apparently
working with at least one greyhound racing association in Europe and
we expect information on this topic to be forthcoming.
The potential for participating the veterinary care market in the United
States alone is significant and this product line could easily be spun-off
into a separate publicly traded company. We believe BioElectronics
could best be served, however, by targeting its limited resources on the
equine and older pet canine markets, although other racing animals
such as greyhounds could also represent a meaningful market
opportunity.
As can be seen from the brief analysis below, if a modest percentage of
pet owners purchased products from the Company’s HealFast™
Therapy line in a given year, the revenue stream to the Company from
this market could quickly become relevant. In our analysis below, we
use an average HealFast™ product price of approximately $63.00.

Owned Dogs in the United States: 74,800,000


Owned Cats in the United States: 88,300,000
"Prized Horses" Owned in the United States: 7,000,000
Total 170,100,000
Average Price - All Product Lines $63.28
Market Share Market Share
PEMF Market Share Analysis: Stake Value
1.0% market share stake 1,701,000 $107,644,950
2.5% market share stake 4,252,500 $269,112,375
5.0% market share stake 8,505,000 $538,224,750

Acetaminophen (Tylenol): The Most Commonly Used


Pain Reliever
Acetaminophen, also known as paracetamol, is a generic and widely
used over-the-counter analgesic (pain reliever) and antipyretic (fever
reducer); it is not used for inflammation. Acetaminophen is often
labeled “APAP,” which is an acronym for its chemical name, N-acetyl-
para-aminophenol. Specifically, acetaminophen is commonly used for
the relief of fever, headaches and other minor aches and pains, and it is
also a main ingredient in numerous cold and flu remedies.
Additionally, acetaminophen is used in the management of more severe
pain, such as cancer or postoperative pain, in combination with non-

August 2009 34
BioElectronics Corp. – Sizing the Market Opportunity

steroidal, anti-inflammatory drugs (NSAIDs) and opioid analgesics.


Over the years, acetaminophen has grown in popularity among
consumers largely due to its reputation for safety. In fact, for
generations, Tylenol (McNeil Consumer & Specialty Pharmaceuticals,
a unit of Johnson & Johnson) ads have promoted it as “the pain reliever
hospitals use most.” Today, acetaminophen is contained in more than
300 over-the-counter and prescription products, from headache and
cold remedies to cough syrup and sleep aids. Aacetaminophen is the
key ingredient in Tylenol, Excedrin and many other pain-killing
medications.

FDA Panel Recommends Significant Restrictions on


Acetaminophen

On July 3rd, 2009, a federal advisory panel comprised of 37 experts


recommended that the FDA approve sweeping limits on the use of
acetaminophen. The FDA assembled and tasked the Panel with
advising the Agency on ways to reduce the risk of liver injury and
deadly overdoses associated with acetaminophen, which can occur at
doses not much higher than those considered safe and represent the
leading cause of liver failure in the United States. In its ground-
breaking conclusion earlier last month, unintentional overdoses of
acetaminophen by unwitting consumers, often with severe to fatal
consequences, recently prompted the Panel to recommend that the FDA
approve the following significant restrictions on the use of
acetaminophen:
 lowering the maximum daily dose of acetaminophen to 2,600
milligrams (mg), down from the current 4,000 mg maximum
daily dose (equal to eight pills of a drug such as Extra Strength
Tylenol);
 limiting the maximum single dose of acetaminophen to 650
milligrams, down from 1,000 milligrams (1,000 milligrams is
the current single dose of Extra Strength Tylenol as contained
in two tablets);
 limiting the amount of acetaminophen in a single over-the-
counter pill to 325 mg, down from the existing 500 mg;

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BioElectronics Corp. – Sizing the Market Opportunity

 making extra-strength doses of acetaminophen (1,000-


milligrams), such as that in Extra Strength Tylenol, available
via prescription only; and
 banning sales of prescription pain relievers that combine
opioids/narcotics with acetaminophen, including the drugs
Percocet (Endo Pharmaceuticals) and Vicodin (Abbott
Laboratories), which are among the most widely prescribed
drugs in the United States. (FDA data indicates 60% of
acetaminophen-related deaths are related to prescription
products.)
The FDA advisory panel voted against additional safety restrictions for
other over-the-counter drugs such as NyQuil (Procter & Gamble ) or
Theraflu (Novartis), which contain acetaminophen and other
ingredients that treat coughs and runny noses. These drugs will stay on
the market, as the Panel rejected a proposal to take them off store
shelves. Patients often mix these cold medications with pure-play
acetaminophen drugs including Tylenol which can leave them
vulnerable to dangerously high levels of acetaminophen.
While the FDA is not obligated to follow the recommendations of its
advisory panels, it typically does so. However, while the Agency gave
no indication when it would act on the Panel’s recommendations, any
possible action by the FDA is likely to take years.
If the FDA follows the Panel’s full advice, it is expected to have a
major impact on the multibillion-dollar pain relief industry as well as
on the greater U.S health-care system. In fact, many consumers and
health care industry professionals have already expressed their fear that
the Panel’s recommendation to make the 1,000-milligram dose of
acetaminophen available only by prescription would overburden the
health-care system, especially given the massive number of people who
already rely on this drug for pain control as an existing over-the-
counter dose option.
Additionally, it should be noted that prescription pain relievers
combining other drugs with acetaminophen, including Percocet and
Vicodin, are among the most widely prescribed drugs in the United
States. According to the FDA, prescription acetaminophen
combination drugs were prescribed 200 million times last year in 2008.
Banning sales of these drugs could lead pharmaceutical companies to
offer consumers the ingredients in these current combination-
medications separately, a scenario that would, for example, allow
patients to take more opioid without the added liver risk from
acetaminophen. But while any new version would likely require FDA

August 2009 36
BioElectronics Corp. – Sizing the Market Opportunity

approval as a new drug, a costly and time-intensive process, more and


more patients are expected to begin seeking alternatives to these
currently available pain relievers, including non-drug solutions such as
PEMF therapies. Finally, while some patients may even consider
switching to other drugs, their unknown side-effects are also expected
to further prompt consumers to seek viable non-drug alternatives to
healing.

Problems with Pain Killers


While acetaminophen is generally safe for human consumption at
recommended doses, acute overdoses such as those above 1,000 mg per
single dose, and those above 4,000 mg per day for adults, or above
2,000 mg per day in combination with drinking alcohol, can cause
potentially fatal liver damage.
Acetaminophen toxicity is the foremost cause of acute liver failure in
the western world, and accounts for most drug overdoses in the United
States, the United Kingdom, Australia and New Zealand. In the United
States, acetaminophen-related liver problems in drug users causes 450
deaths and 56,000 emergency-room visits a year. In November 2005, a
study in the Journal Hepatology confirmed the majority of acute liver
failure cases in the United States were caused by acetaminophen
poisoning, with more recent research suggesting these cases may be on
the rise. While professional opinions vary about what constitutes a safe
level, many experts agree that a daily dose of 7,000 mg can cause
severe liver damage in an adult. Nonetheless, about 10% of the
acetaminophen-related deaths have occurred at much lower levels of
between 2,000 mg and 4,000 mg, well within the existing
recommended daily maximum dosage.
Furthermore, while doctors can administer an antidote to an
acetaminophen overdose, such action must be taken within 12 hours,
potentially, and problematically, well before any symptoms have
appeared. And even though the liver is capable of regenerating from
some injuries, that is not the case with acetaminophen poisoning, which
causes permanent problems as every cell is being damaged at once.
While public awareness of the potential problems with acetaminophen
has recently been highlighted with the Panel’s recent recommendation
to the FDA, compared to other popular drug alternatives, such as the
inflammation blockers aspirin and ibuprofen, acetaminophen generally
represents the safest choice for pain and fever if taken in the proper
dose. Aspirin and ibuprofen, on the other hand, are not as easy on the
stomach and have even more safety concerns than acetaminophen as

August 2009 37
BioElectronics Corp. – Sizing the Market Opportunity

they can cause ulcers and bleeding, high blood pressure and kidney
disease.

Consumer Risk Awareness


Given its hither-to-now perception as a relatively “safe-to-take”
solution for pain relief, many experts have voiced concern that
acetaminophen’s, and the popular Tylenol brand’s, reputation for safety
may be lulling consumers into complacency.
The concern is that while doses are considered safe as instructed, some
pain specialists say its hard to get patients to focus on how much
acetaminophen they are actually taking, and that many consumers do
not think twice about popping more than the recommended drug
amounts, nor do they often take the time or make the effort to read the
ingredients on familiar over-the-counter products.
The problem can become dangerous if an uninformed or unaware
consumer is taking Percocet for lower back pain, for example, with
Tylenol for a headache, and cough syrup three times a day and then, if
they cannot sleep, they also take an over-the-counter sleep aid or even
combine this regimen with alcohol. At this point, the consumer is well
beyond taking more acetaminophen than they are likely to be aware of
had they been paying closer attention or been better informed.
Regardless of the final outcome of the FDA’s decision to limit sales of
acetaminophen, important risks to consumers still remain. For
consumers who elect to alleviate their pain with these approved drug
options, they must be aware and self-attentive to the fact that its easy to
take more than the recommended daily dose without realizing it; the
margin between a safe dose and a potentially lethal one is small; and
the first symptoms of acute liver failure caused by an overdose tend to
mimic the common flu and do not set-in for several days, by which
time it may be too late to save the liver and consequently the person’s
life.

Potential Implications for Tylenol


Despite its long upholding as the “The pain reliever hospitals use
most,” some consumers have already begun to turn on Tylenol and, as
public awareness of the recommendations recently made by the FDA
Panel increases, more are likely to seek pain relief alternatives to the
popular Tylenol brand. In fact, on June 25th, the Tylenol brand's “buzz
score,” which is rated on a scale of (+100) to (-100) and calculated by
subtracting negative feedback from positive, was 38.9%. This stands in

August 2009 38
BioElectronics Corp. – Sizing the Market Opportunity

sharp contrast to July 9th when, following the FDA Panel’s


recommendations, the score declined substantially to 18%.
Please see the diagram below.

BrandWeek Buzz Score for Tylenol Brand

Source: Brandweek

Even without the recent effects of the FDA Panel’s announcement,


health conscious younger generations are increasingly seeking to steer
away from drug medications to ease their pain. In fact, each year
10.2% of 18-to-34 year-olds who use Tylenol are switching away from
it, three times the switching rate of any other age group. They are
opting instead to use herbal remedies or “tough it out” by doing without
any sort pain medication while some are switching to rival brands.
BioElectronics has stated that one of its primary objectives is taking
advantage of the falling market perception of Tylenol by helping to
“rewrite” how consumers treat their pain (ie: using a non-drug option
instead of traditional “pill-taking”). If the Company is able to
capitalize on the expected FDA actions relative to acetaminophen, we
believe it could be a significant boost for the Company.

Market Opportunity for PEMF


The pain relief market is a multibillion-dollar industry and the total
market for all acetaminophen drugs in particular is large, with total
sales in 2008 reaching $2.6 billion in the United States. According to
IMS Health, a health care analysis firm, 80% of the acetaminophen
market is currently comprised of over-the-counter products. Tylenol
products for adults currently generate about $1 billion in annual sales.

August 2009 39
BioElectronics Corp. – Sizing the Market Opportunity

According to the FDA, Americans purchased roughly twenty-nine


billion extended units (tablets/capsules/milliliters) of prescription and
over-the-counter acetaminophen-containing products through retail and
non-retail pharmacies in 2005, and roughly 19% of the U.S. adult
population uses some form of the medication in a given week. Any
increased government oversight into something that heretofore has been
less than present will have far reaching consequences for both industry
players, such as the pharmaceutical companies, as well as for their
customers, health care patients and medical professionals.
Given consumer’s heightened awareness of the potential dangers of
acetaminophen, and of the Tylenol pain killer in particular as a widely
recognized and popular brand name, it is likely many consumers will
seek information about new pain relief solutions and try new
alternatives to traditional drugs.
The analysis below shows the potential value to the Company of
participating in the market for acetaminophen-related drugs via a
modest share by supplanting the drug-related treatment with an
alternative PEMF solution.

Market for Acetaminophen-Related Drugs: $2,600,000,000


Market Share
PEMF Market Share Analysis: Value
Value of a 0.5% market share stake $13,000,000
Value of a 1.0% market share stake $26,000,000
Value of a 2.5% market share stake $65,000,000
Value of a 5.0% market share stake $130,000,000
Value of a 7.5% market share stake $195,000,000
Value of a 10.0% market share stake $260,000,000
Value of a 12.5% market share stake $325,000,000
Value of a 15.0% market share stake $390,000,000
Value of a 20.0% market share stake $520,000,000

BioElectronics PEMF Therapy Product Line


BioElectronics markets its PEMF products under four brand names: 1)
ActiPatchTM, which is primarily used to treat general musculoskeletal
complaints, 2) AllayTM Menstrual Pain Therapy, which is used to treat
the pain associated with dysmenorrhea, 3) RecoveryRxTM, which is
primarily targeted at the postsurgical recovery market and 4)
HealFastTM, which is the Company's veterinary and animal related
product line.
All of these products are designed to reduce pain and swelling and
accelerate healing. BioElectronics’ products are based on the same

August 2009 40
BioElectronics Corp. – Sizing the Market Opportunity

proven and highly effective pulsed electromagnetic therapy used for


decades by physicians, therapists and athletic trainers.
A detailed description of each of the Company’s product line follows
below.

ActiPatch™ Therapy

The Company developed and currently offers six distinct retail


treatment kits. Five kits are marketed under the ActiPatch™ Therapy
for Pain brand name and the sixth kit is marketed under the Allay™
brand for menstrual pain.
BioElectronic’s ActiPatch™ Therapies include PEMF based systems
for treating the following areas:
 Back
 Knee
 Foot & Ankle
 Wrist
 Elbow

Each of the Company’s retail kits are unique to the market as drug free,
anti-inflammatory therapeutic agents that rapidly and safely reduce
pain, swelling and required healing time. Each retail kit is designed for
720 hours of use, with an on/off mechanism, and includes a free
extremity wrap and an unconditional money back guarantee.
ActiPatch™ Therapy devices are wafer thin, easily concealed,
comfortable and easy to use. There are no “messy” odorous topical
ointments or creams and, because they do not use heat or ice, they are
safe to use for diabetics and the bedridden.
The key benefit of the ActiPatch™ Therapy product is portability,
namely the complete mobility of the user while wearing the PEMF
patch. This portability feature of the product and mobility of the patch-
user enables a quicker functional return to the patient’s regular
activities resulting in less lost time from work, sports and other
activities. Specific markets addressed by the Company’s PEMF based
ActiPatch™ solutions are discussed below.

August 2009 41
BioElectronics Corp. – Sizing the Market Opportunity

Back Pain – More than 25% of adults in the United States suffer from
back pain at some point during their lives. While the number of
medically untreated patients is unknown, Proctor & Gamble spent $35
million to launch its ThermaCare product, effectively a disposable
heating pad. The ThermaCare system for back pain consists of two
extra large pads at a cost of either $7.59 or $3.79 for an eight hour heat
treatment. Neither ThermaCare nor competitive products make a
specific medical claim as to any therapeutic benefits. Nonetheless, U.S.
sales of ThermaCare exceed six million units. Given the current
acceptance and application of such products by the patient, it is likely
consumers will pay a premium for the convenience and mobility of not
having to use a heating pad to treat their pain. Bioelectronics’ products
are priced very competitively relative to the ThermaCare back pain
product. The product retails for approximately $39.95 and last for
approximately 720 hours, which equates to less than six cents per hour
of treatment.
Knee Pain - Knee pain is one of the most common musculoskeletal
issues that causes people to see their doctor, and with today's
increasingly active and aging society, the number of knee problems
people are experiencing is increasing. Knee pain is generally treated
with ice or heat, rest and drug therapy. ActiPatch™ is an inexpensive,
effective therapy that provides convenient pain relief and accelerated
recovery.
Foot & Ankle – The Company’s ankle and foot kit is a unique
therapeutic agent for a multitude of foot ailments including ankle
sprains, heel pain, arch pain, achilles tendonitits and tarsal tunnel
syndrome. The ActiPatch™ provides overnight relief and restoration
of functionality for acute injuries of the foot and ankle. One of the most
important markets relative to foot and ankle pain is plantar fasciitis,
which is the most common cause of heel pain. This condition causes
pain and inflammation of a thick band of tissue called the plantar
fascia, which runs across the bottom of the foot connecting the heel
bone to the toes. Plantar fasciitis often causes a stabbing pain that
occurs with the first steps taken in the morning. While this pain often
diminishes as the ligament limbers up, the pain often returns later in the
day after periods of standing or after getting up from a seated position.
Rates of plantar fasciitis are rising rapidly in the United States and
Western Europe as the condition is often related to obesity.
With the recent study completed by Dr. David G. Genecov who used
the ActiPatchTM product to treat this condition with what appears to be
statistically significant efficacy, we believe this product could be a
winner for BioElectronics.

August 2009 42
BioElectronics Corp. – Sizing the Market Opportunity

Wrist Pain - In addition to treating sprains and strains, the Company’s


wrist kit is also designed to treat carpal tunnel syndrome. It is
estimated that there are over 10 million people suffering from carpal
tunnel syndrome. Current therapy is limited to restriction of the wrists,
anti-inflammatory drugs and surgery to relieve the pressure on the
nerves.
Elbow Pain - BioElectronics is also designing a separate kit to treat
elbow pain, primarily targeting those with the condition known as
tennis elbow, which is a condition that causes pain primarily where the
attendance of the forearm muscles attach to the bony prominence on the
outside of the elbow. While surgery is rarely needed for treatment, use
of the ActiPatchTM product could be an effective aid to reduce pain and
speed healing.

Allay Menstrual Pain Therapy

AllayTM Menstrual Pain Therapy, often called the AllayTM Period Relief
Patch, is a new, drug-free treatment for pain and discomfort associated
with menstruation. The Company filed for U.S. FDA pre-marketing
clearance to market the product in the United States on June 15, 2009.
We believe this is a revolutionary new product for this market sector.
Most women typically use acetaminophen or ibuprofen to treat pain
associated with dysmenorrhea (period pain), with many women taking
maximum dosages of these medications.
The drug-free AllayTM product, on the other hand, is usually worn
tucked into a woman's undergarments with the product’s flexible loop
covering the site of pain. The product will last an average woman for
about three or four periods (ie: three or four months).
The AllayTM product retails for $39.95 and is currently being marketed
over the Internet within the United States, although women must
successfully complete a health related questionnaire designed by
medical professionals to qualify for the product.
Placement of the Allay AllayTM Period Relief Patch on Woman

August 2009 43
BioElectronics Corp. – Sizing the Market Opportunity

Source: Allay Online Marketing, LLC

Below, is a photo of the AllayTM Period Relief Patch and its hypo-
allergenic product sleeve.

Source: Allay Online Marketing, LLC

Allay Clinical Studies


To date, two clinical studies have been completed on the Company’s
AllayTM product. The first was an initial pilot study, which was
released during October of 2008. In the study, 23 female patients with
problematic menstrual issues used the AllayTM patch continuously for
five days following the onset of their menstrual period. The women
rated their pain over this time frame using the same 1-10 pain scale that
they had used during a control period. During the control period, the
average composite pain rating was 7.8, with average daily composite
pain ratings from day one through day five at 8.3, 7.9, 7.4, 6.5 and 5.7,
respectively. During the later treatment sessions, the average
composite pain rating was only 5.4, with average daily composite pain
rating of 5.7, 4.8, 4.3, 3.4 and 2.1. This correlated to an overall pain
reduction on a daily basis of 31%, 39%, 42%, 48% and 73%,

August 2009 44
BioElectronics Corp. – Sizing the Market Opportunity

respectively.
On June 6, 2009 the Company released the results of a larger study.
The randomized, double-blind and positive controlled clinical trial was
conducted in two different cities, Indianapolis and San Francisco, on
randomly selected women between the ages of 18 years and 35 years
who experienced moderate to severe menstrual pain. AllayTM patches
were worn at the onset of the menstrual cycle for five consecutive days.
Prior to wearing a patch, each woman reported her level of pain during
a traditional menstrual cycle. 91 total women were enrolled in the
study; 48 patients had active patches while the remaining 43 used
placebos.
The results of the study were impressive. Of the AllayTM patch group,
77% reported either complete elimination or reduction in their typical
menstrual pain symptoms. Four patients in the active group actually
reported no pain at all while the average amount of pain reduction for
the remainder was 55%. Approximately half of these women showed
at least a 50% reduction in pain. Within the placebo group, however,
no patients reported complete elimination of pain while the reduction in
pain averaged only 20%. The difference in results between these two
groups was determined to be statistically significant.
From these results, the principal investigator, Dr. Barry Eppley,
concluded that the AllayTM patch is an effective and safe non-drug
method for use in the treatment of primary dysmenorrhea.
Furthermore, the conclusion that the patch was effective in additional
finding is also of significance, in our opinion. Dr. Eppley also
concluded that while the patch can be used as a primary treatment
method for those women with moderate dysmenorrhea, and certainly
for more severe cases of dysmenorrhea, it can also be used as an
adjuvant treatment to reduce the amount of total treatment duration or
use of other oral medications, such as acetaminophen.
As we indicated above, BioElectronics applied for FDA pre-marketing
clearance for the AllayTM product on June 15, 2009. We believe this
data presents a compelling case for its clearance and find it important
that, considering the FDA's assessment of acetaminophen and its
potential dangers, rejection seems unlikely.
We also believe that FDA clearance is likely because the basic
technology on which the AllayTM product is based has already been
approved as safe by the FDA for the plastic surgery procedure called
blepharoplasty (eyelid surgery). Therefore, it appears that
BioElectronics must only prove efficacy, which appears to be supported
by the clinical study data.

August 2009 45
BioElectronics Corp. – Sizing the Market Opportunity

RecoveryRx™ Therapy
BioElectronics has developed five distinct Surgical Recovery Kits for
the medical market segment under the trade name RecoveryRx.™
Products currently available for this market are primarily designed for
the cosmetic and oral maxillofacial markets for plastic and
reconstructive surgery.

These products are sold to medical professionals for between $39.95


and $49.95 and offer surgeons a means by which to favorably
distinguish their practice as a cutting edge facility with the latest PEMF
technology available for post surgical recovery options. These products
are well researched by several prominent surgeons, many of whom use
the RecoveryRx™ product on the majority of their patients.

Source: BioElectronics, Corp

Marketing into the surgery market has been difficult for BioElectronics
for two main reasons. The first is a lack of FDA clearance for surgeries
other than blepharoplasty. The second is resistance among most
surgeons to implement innovative technologies and techniques.

Several years ago, BioElectronics applied for and received clearance


from the FDA to treat post blepharoplasty pain and edema. This
segment, however, is a relatively small market for the Company.
Surgeons are clearly able to use the product “off label” on other
surgical procedures, but often resisted doing so until reliable clinical

August 2009 46
BioElectronics Corp. – Sizing the Market Opportunity

data is available for their review. A lack of clinical data thus far has
hence slowed market acceptance of the Company’s RecoveryRxTM
product line.

While the lack both of clinical data and additional FDA indications of
use beyond blepharoplasty have clearly been a major factor in the
limited acceptance of the RecoveryRxTM product line, in our opinion,
surgeon resistance is probably a more significant reason for explaining
the Company’s low penetration rate. In our view, many surgeons seem
to project an attitude that surgical recovery is inherently painful and
that patients will recover through the natural healing process. For this
reason, it appears use of a portable PEMF device to reduce pain and
speed healing is simply not compatible with the thought process
invoked by many surgeons.

Because of surgeon resistance to PEMF technology and the high costs


likely associated with changing such mindsets, we believe the
Company will limit its marketing efforts of the RecoveryRxTM product
line and will instead spend its budget on other more likely lucrative
areas such as the market for musculoskeletal complaints.

HealFastTM Therapy

HealFastTM Therapy is a drug-free therapy for horses, cats and dogs that
reduces swelling and pain while speeding the healing time of muscle
and tendon injuries, sores and incisions. BioElectronics launched this
product line early in 2009, with the primary target markets being
equines and companion animals. To date, the Company has seen some
success with veterinarian endorsements and horse trainers and we
expect to hear about distribution agreements for the product over the
coming months.

Future Target Applications for BioElectronics’ Technology


There are many markets we believe BioElectronics can target with its
patented, drug-free PEMF technology. As indicated above, we believe
the largest market opportunity the Company faces relates to

August 2009 47
BioElectronics Corp. – Sizing the Market Opportunity

back pain. We also believe the AllayTM Period Relief Patch represents
an additional, meaningful market opportunity for the Company. As
also indicated above, however, we are less positive about the market for
general surgical related products since the process of revising current
attitudes among surgeons can be both very expensive and time-
consuming. The pet market on the other hand, which is being targeted
with BioElectronics’ HealFastTM Therapy line, could very well develop
into an additional large market sector for the Company, although we
believe it is simply too early to make this determination considering the
Company’s limited history with this product line to date.

Nonetheless, we see many other possible markets where BioElectronics


can successfully market its technologies and products. A few of these
are examined below.
Heel and Foot Pain and Plantar Fasciitis Markets - We believe this is
a significant market opportunity for the Company. BioElectronics
recently announced initial results of a clinical study on heel and foot
pain. The study, which was discussed on a recent conference call, was
completed by a very prominent surgeon named Dr. David G. Genecov.
In summary, we believe the data will be extremely high quality and the
corresponding FDA application will likely receive quick and positive
action.
This scenario should allow the Company to target the over-the-counter
retail podiatry market and the market for direct product distribution by
podiatrists. We believe either of these outcomes could be valued in the
range of tens of millions of dollars per year. Furthermore, an FDA
clearance in the United States relative to podiatry would also likely be
very beneficial toward convincing foreign distributors and retailers to
market the products in their local markets. We believe this represents a
substantial market opportunity for BioElectronics and one we expect
the management team to aggressively pursue.
Chiropractic Market - It is worth noting that chiropractors within the
United States alone see more than 290 million patients annually. 55%
of these visits are for back pain. An FDA indication for general
musculoskeletal complaints or back pain could open up this
chiropractic market for Bioelectronics, again likely representing tens of
millions of dollars in potential value.
Sports Medicine - Over the past few years, the management team of
BioElectronics has enjoyed some success in convincing sports trainers
to use its PEMF therapy products to treat athletic related injuries. In
fact, several professional sports teams are currently using the

August 2009 48
BioElectronics Corp. – Sizing the Market Opportunity

Company’s product line and we believe such use can be significantly


expanded in this area. In order to address this market, however, it is
likely BioElectronics will need a distribution agreement targeting this
specific market given the Company’s limited management resources.
Dental and Oral Surgery - Several oral surgeons and dentists have
explored the use of the Company's technologies to speed recovery after
major dental procedures or oral surgery. We believe this market
represents a huge opportunity for the Company over the coming years.
We see only limited management resources preventing BioElectronics
from addressing this area.
Other Areas of Possible Market Expansion - A host of other
applications exist where the Company's technologies could be
effectively used. Many of these relate to surgical procedures, with
large opportunities for cesarean sections, gynecological laparoscopy,
and angioplasty. Additionally, several physicians have expressed
interest in conducting clinical trials regarding the treatment of
migraines and Mohs micrographic surgical recovery.

Competition
We have seen little real competition for BioElectronics from other
corporate entities that manufacture PEMF systems. Rather, we believe
the Company's biggest “competitor” is over-the-counter pain remedies
such as Tylenol and Motrin, marketed by large multinational
corporations, in addition to traditional pain relief treatments such as
hot/cold compresses, medicated ointments and other over-the-counter
remedies.
Additionally, nutrition, acupuncture/acupressure and homeopathy-
based treatments can also be considered treatment alternatives to the
Company's product offerings, although the efficacy of these treatments
is widely disputed and often doubted by many.
While some form of electromagnetic technology has been used to treat
all types of conditions with varying success for over 50 years, this
technology has mainly been unavailable to the general public. There
have even been remarkable advances in electronics, engineering and
consolidated groundbreaking research and clinical applications of the
most renowned scientists in the emerging field of electrotherapeutics to
support the increasing use and awareness of the benefits of PEMF
therapies in treating a variety of pains, ailments and tissue injuries.
Despite these advances, however, delivery of PEMF treatment remains
mostly limited to large-scale devices and/or high-powered machines
where expensive therapies are often administered in clinical settings

August 2009 49
BioElectronics Corp. – Sizing the Market Opportunity

such as clinics or hospitals, making them relatively inaccessible to the


average would-be user.
Currently, BioElectronic’s patented PEMF therapy patch solutions
stand in distinct contrast to other treatment options given their
portability and cost-value proposition, enabling access to these
therapies for the first time to the individual consumer for at-home and
on-the-go use.

Nutrition

There are many theories within the medical community relating to the
effectiveness of nutrition modification in order to treat any number
pains and ailments. Certain research has centered on the increased
intake of essential fatty acids, found in cold-water fish, nuts and seeds.
Research has also looked into the reduced intake of saturated fats (meat
and dairy products), elimination of refined foods, sugar, dairy products,
and methylxanthines (coffee and chocolate) and on the increased intake
of fresh fruits and vegetables, proteins and whole grains. There are also
many theories about the use of vitamin supplementation and herb-based
remedies to treat and prevent certain pains. While nutritional intake
and appropriate exercise are unequivocally related to health, the vast
majority of physicians and patients often seek more immediate relief to
pain suffering and injury healing and, therefore, do not consider
nutrition and vitamin supplementation as immediately effective
solutions.

Homeopathy

Homeopathy is the practice of treating disease by drugs, given in


minute doses, that would produce in a healthy person symptoms similar
to those of the disease. Only a few existing studies have examined the
effectiveness of specific homeopathic remedies. Within the practice of
homeopathy, an experienced homeopathic professional typically
assesses and takes into account a person's constitutional type, or
physical, emotional, and intellectual makeup, before prescribing the
most appropriate remedy for a particular candidate. While some of
these remedies may include Belladonna, Chamomilla, Cimicifuga, Nux
vomica, and Pulsatilla, none of these are considered main stream
solutions and there is very little, if any, scientific evidence to support
either safety or efficacy.

Acupuncture and Acupuncture

The National Institute of Health recommend acupuncture as either a

August 2009 50
BioElectronics Corp. – Sizing the Market Opportunity

supplemental or alternative treatment for many pains and ailments, and


there has been some clinical data that supports its use, showing that
acupressure and ibuprofen were significantly better than a placebo at
reducing pain. Of course, seeking neither acupressure nor acupuncture
treatments are often practical for most pain suffers in need of
immediate relief due to cost, time and convenience issues.

Other

Ice – Ice as a treatment is generally messy and inconvenient vis-à-vis


BioElectronic’s ActiPatchTM or RecoveryRxTM which is relatively
simple, convenient and portable for 24 hour constant therapy use,
particularly during the initial inflammatory phase days of pain and
injury healing.
Hot/Cold Treatments – These provide tactile comfort but have little
therapeutic or long term benefits. Additionally, hot treatments can
present safety and burn issues.
Elastic Bandages and Neoprene Support Braces - These treatment
options are used to restrict movement and provide support in order to
allow the damaged tissue to heal. ActiPatchTM or RecoveryRxTM adds a
therapeutic agent that reduces pain and swelling and accelerates
healing.
NSAIDS and Narcotics – These drugs are dangerous for certain patients
and can present significant adverse side effects. ActiPatchTM and
RecoveryRxTM have no known side effects and are non-invasive and
safe, including for diabetics, arthritics, the elderly and the bed-ridden.
Furthermore, it should be noted that current drugs and therapies for
managing pain and edema are marginally effective for the 400 million
annual soft tissue injuries that occur worldwide.
Pain Pumps – Pain pumps, also known as intrathecal drug delivery or
intrathecal injection, are an injection into the spinal canal. Pain pumps
are generally expensive and invasive with high infection risks.
ActiPatchTM and RecoveryRxTM are inexpensive, non-invasive and pose
no risk of infection.

We believe the few companies that manufacture PEMF technologies


are competing in a very different space compared to BioElectronics
Corp. Specifically, all the competitors we have been able to identify
offer only very large, expensive machines that are in no way portable
and, in our opinion, are relatively useless for the vast majority of
potential PEMF applications.

August 2009 51
BioElectronics Corp. – Sizing the Market Opportunity

August 2009 52
BioElectronics Corp. – Sizing the Market Opportunity

Alquemie Partners
Analyst and Other Important Disclosures

Analyst Certification - I, Independent


Analyst, Carrier Snyder, hereby certify,
(1) that the views expressed in this research
Company report accurately reflect my personal
views about any or all of the subject securities or
issuers referred to in this Company report and
(2) no part of my compensation was, is, or will be
directly or indirectly related to the specific
recommendations or views expressed in this
Company report.
Analyst Background:

Carrie Snyder is a co-founder and partner of Alquemie Partners, a strategic financial advisory, business and
research consultancy firm. Prior to founding Alquemie Partners in 2008, Ms. Snyder spent over ten years in
the investment banking industry. During her time in investment banking, Ms. Snyder played a leading role in
multiple M&A transactions as well as private and public debt and equity financing deals.
She has experience working with clients across a wide range industry sectors and has managed all aspects of
the transaction execution process including deal origination, valuation and financial modeling, creation of
offering memorandums, management presentations and related deal documentation, identification of potential
buyers/investors, management road shows, due diligence and internal committee approval processes. She has
advised on multiple M&A transactions totaling over $5.0 billion and on more than $8.0 billion in public and
private debt and equity financings.

Ms. Snyder also worked in equity research where she helped maintain research coverage of 19
communications equipment, telecom and technology companies and initiated coverage of nine new companies.
Her experience in equity research includes analyzing the coverage universe according to corporate strategy and
business plan execution, financial performance and operating metrics, valuation and investment returns,
trading statistics, industry competitiveness and strategic positioning. She was also responsible for making
investment recommendations to institutional investors, including daily briefings to the sales and trading force.
Ms. Snyder began her investment banking career in 1997 at JP Morgan Chase in New York City, and later
moved to Salomon Smith Barney in 2000. In July 2003, she joined Pacific Growth Equities in San Francisco
as part of the equity research team.
She returned to investment banking in 2005 with Wells Fargo Securities and later joined Nollenberger Capital
Partners. Ms. Snyder holds an MBA from Georgetown University, where she served as the President of the
Graduate Student Consulting Group, and a Master of Arts from the George Washington University's Elliott
School of International Affairs. She also served as a Graduate Intern in the U.S. Department of Commerce
and the U.S. Senate. Ms. Snyder conducted her undergraduate studies at the University of California, Davis
and Los Angeles, receiving BA degrees in both Economics and Psychology in addition to a minor in German.

53
BioElectronics Corp. – Sizing the Market Opportunity

Alquemie Partners
The coverage analyst uses a relative rating system in which stocks are rated as: BUY, SELL, or HOLD.

Guide to Stock Ratings:


BUY - the stock is expected to outperform the unweighted expected
total return of the sector over a 12-month investment horizon.
SELL - the stock is expected to under perform the unweighted
expected total return of the sector over a-12 month time horizon
HOLD - the stock is expected to perform in line with the unweighted
expected total return of the sector over a 12-month investment
horizon.
__________________________________________________________________________________________________________________________
__

Information, opinions, or recommendations contained in this research report are submitted solely for informational
purposes. The information used in statements of fact made has been obtained from sources considered reliable, but we
neither guarantee nor represent their completeness or accuracy. Such information and the opinions expressed are subject
to change without notice. This research report is not intended as an offering or a solicitation of any offer to buy or sell the
securities mentioned or discussed. The firm, its principles, or the assigned analyst may or may not own or trade shares,
options, or warrants of this covered Company. Additionally, the analyst responsible for the production of this report may
or may not own the common stock or warrants in the subject Company or companies. The views expressed in this
research Company report accurately reflect the analyst’s personal views about any or all of the subject securities or issuers
referred to in this Company report, and no part of the analyst’s or the firm’s compensation was, or will be directly or
indirectly related to the specific recommendation or views expressed in this report. Opinions expressed herein reflect the
opinion of Alquemie Partners and are subject to change without notice. We claim no responsibility to update the
information contained in this report. Investors should consider the suitability of any particular investment based on their
ability to accept certain levels of risk, and should not rely solely on this report for information pertaining to the Company
covered. The material in this document is intended for general circulation only and the recommendations contained herein
do not take into account the specific objectives, financial situation, or particular needs of any particular person. Alquemie
Partners reserves the right to consult with this or any other company at any future date. An investor should consult his
investment representative regarding the suitability of this investment and take into account any specific investment
objectives, financial situation, or particular needs before he or she makes a commitment to purchase the shares of this or
any other Company's stock. No part of this document may be reproduced in any manner.

August 2009 54

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