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A strong balance sheet, sales growth in
disposable products and new technology releases brightening the future for Bio-Logic
Medical Equipment & Supplies
(BLSC - NASD)
Bio-Logic Systems Corp.
One Bio-Logic Plaza
Mundelein, IL 60060
Roderick G. Johnson and Gabriel
Raviv, Chairman & CEO
Roderick G. Johnson
Chief Operating Officer
Interview Conducted by:
Diane Reynolds, Co Publisher
Gabriel Raviv has been a
Director of the Company since it commenced operations in March 1979. He became President
and Chief Executive Officer of the Company in February 1981. In September 1999, Dr. Raviv
relinquished the role of President retaining the position of Chief Executive Officer of
the Company. Dr. Raviv formerly served as director of the Clinical Research
Instrumentation Laboratory at Evanston Hospital (an affiliate of Northwestern University)
and is currently Adjunct Professor at Northwestern University. Dr. Raviv received his M.S.
and Ph.D. degrees in Electrical Engineering and Computer Sciences from Northwestern
joined the Company in September 1999 as President, Chief Operating Officer and a member of
the Board of Directors. He founded the Neurocare Group in 1994 and served as Chairman,
President and Chief Executive officer until 1999. From 1992 through 1994, Mr. Johnson
served as Chief Executive Officer in Residence at Weiss, Peck & Greer and the
Continental Illinois Venture Capital Corporation. In addition, from 1988 through 1991, Mr.
Johnson was President and Chief Executive Officer of Domino Amjet, Inc.
Bio-logic Systems Corp. is a leader in the design, development and marketing of
computerized electro-diagnostic systems used in hospitals, clinics and physicians
offices. Its core businesses are in hearing, neurology and sleep. Bio-logic has been a
leader in the hearing assessment market since the Companys inception in 1979,
offering integrated solutions for hearing screening and diagnostics incorporating the
latest technology. And now offers a wide range of systems and disposables for screening
and diagnosis of sleep disorders, also a broad range of computerized systems used by
neurologists, epileptologists, EEG technologists, neurosurgeons and other professionals to
record and analyze electrical activity in the brain (EEG), which is used for the diagnosis
and management of intractable seizure disorders.
Each area has its own market potential:
Hearing assessment: Automated hearing screening
in newborns, aimed at early detection of hearing loss, is one of the fastest growing
markets. Of the 4 million births in the U.S. each year, approximately 3 of every 1,000
infants are born hearing impaired. This focus on early intervention has generated a
growing need for improved diagnostic equipment that can quickly and accurately identify
and assess the babys hearing loss.
Sleep disorders: There are a wide range of
sleep disorders including sleep apnea, narcolepsy, insomnia, pediatric disorders and many
others. These disorders affect the quality of life, pose a threat to public safety on the
road and at work, and can be fatal. Its been estimated that the diagnostic market
will grow to $100 million annually within five years.
Electrical activity in the brain (EEG):
Long-term monitoring is used to diagnose disease, monitor the efficacy of medications and
obtain information critical for surgical treatment with indicated. The market is in
transition from analog to digital video technology. Digital video systems save both EEG
and video records in digital form, replacing paper and videotapes.
Airflow Pressure Transducer
Mr. Johnson, please tell us about Bio-Logic Systems?
Bio-logic is a medical equipment company that has been public since 1983, we have
two main business units, with over $29 million of sales in more than 56 countries. Our
computerized diagnostic products are sold to neurologists and sleep specialists on the
neurology/sleep side of our business. Our other division is hearing, where we sell infant
hearing screener systems to hospital nurseries and NICUs, and diagnostic systems to
audiologists. Although we are a primarily a medical equipment company in terms of revenue,
we have seen more and more sales from our disposable products used with our hearing
screening systems as well as for a competitors systems.
Which area currently generates the greatest revenues and will that trend continue?
Mr. Johnson: Its been about even as we have
disclosed previously, and it may bounce around. Neurology used to be the lion-share
of the business, but our hearing business is vying for the lead.
Are there other areas that you would like to focus on to give you a more diverse edge?
Mr. Johnson: Were getting diversification from
within the hearing division where we have been putting a lot of the growth of research and
development expenditures. Two new products are being introduced in that area to expand the
diagnostic product line of the hearing division. . I dont anticipate straying from
our core businesses because we have so much on our plate right now, unless its quite
an attractive acquisition opportunity of a business or new technology.
Is long term monitoring gaining on the other areas of neurology?
Mr. Johnson: Not really because sleep monitoring is the
largest market segment and is growing faster than neurology segments such a long term
monitoring and basic EEG. The epilepsy segment can fluctuate a lot because the size of the
orders for multiple bed installations can be several hundred thousand dollars.
Going forward in developing these two different areas, where do you see the most
Mr. Johnson: Were pretty much dedicating 15-18%
of sales to R&D both divisions. There may be a spike in one year for instance in
hearing but certainly neurology/sleep will continue take a significantly set amount of
research and development as well. The accounting for R&D may fluctuate due to
capitalization of significant software enhancements.
Have you done much work with miniaturization?
Mr. Johnson: On the hearing side in particular we have
the most miniaturized hand held device that is used for hearing screening for infants. In
that respect, we are confident that we have not only the most compact version but also the
lowest cost version. Our product development continues to work on reducing the size of
patient interface headboxes and ambulatory devices."
That is where some people may be confused when they look at the company itself.
Mr. Johnson: Correct! On the neurology side, think of
fairly high-end computer systems interfacing to our proprietary devices that are being
used to monitor, both short term and long term EEG along with digital video and
sophisticated software to analyze these brainwaves. On the hearing side, the portable
units are produced to our design, but the bulk of the work and the spending that we have
in R&D is clearly for the application software. So you should look at Bio-Logic as
being primarily a diagnostic software company and secondarily a hardware company.
Are your products user friendly?
Mr. Johnson: The answer has be yes for the different
customers that use our products. For hearing screening the products have to be simple
enough so that with the press of a few buttons and an insertion of the probe into the
babys ear a nurse or technician can easily complete a hearing screen within one
minute. On the more complex systems like sleep monitoring and long term monitoring for
epilepsy, the software is more technical so registered EEG and sleep technicians are being
trained to use all the key features of the system. Also, the software has to be user
friendly and powerful enough to help the physician analyze all the data being collected
from the patient. An enhanced initiative this year we are sponsoring over 22 new
technology workshops in the U.S. and several overseas for audiologists, technicians and
I noticed that at one point, a higher inventory was a problem.
Mr. Johnson: Yes, that was the 2002 fiscal year. What
happened was that with the switch to a new device for neurology, which was very quickly
adapted by customers, we built up some inventory that had become obsolete. We wrote
off a million dollars to deal with this and other obsolete inventory.
So youre trying to keep the inventory down understanding the type of market you are
Mr. Johnson: That is correct. One thing in high-tech
you dont want a is lot of extra inventory.
Are you an international company?
Mr. Johnson: The Company has been international for a
long time with 70 distributors selling in 55 countries. We have a subsidiary overseas
where we have some of our product development taking place. Id say that when
we launch a product it is for the global marketplace.
How do revenues compare between the US and abroad?
Mr. Johnson: If our trailing 12 months total revenues
is around 29 million dollars, we have over $4 million in international sales. Some years
it could be higher especially in hearing screening and diagnostics products.
Has everything that is going on in todays situation with the international markets
affected your company in any way?
Mr. Johnson: In certain areas it has. I think in Europe
in the healthcare arena there is a lot of pricing pressure. In Japan the recession is
holding back spending on new equipment in the hospitals and clinics, so the speed at which
some of the new technology is utilized by customers has been affected by the slower
economy and lack of funding for new equipment in the healthcare systems.
What new trends can we expect internationally?
Mr. Johnson: If we are speaking about international
distributors, we should see expanded interest in hearing diagnostics to add to our broad
hearing screening product line.
How often do you go back and upgrade the existing products?
Mr. Johnson: Because we are primarily software driven,
it is a constant process when we get feedback on features and issues. I would say, several
times a year there will be major releases and along the way, there may be minor releases
for software. Approximately, every two years or so we will redesign our proprietary
hardware. Of course, we continually update the computer systems and peripherals once these
are available in the marketplace
How do you handle upgrades?
Mr. Johnson: The first year during the warranty period
everything except consumables is covered. Beyond the first year we provide several
warranty packages that keep the customer updated until they need to upgrade the computers
and software. At that time we give trade-in or upgrade promotions..
Are you relying on any one customer for the majority of your revenues?
Mr. Johnson: Not this year! Last year we had a
major sale of $4.5 million to the Province of Ontario for hearing screening and
diagnostics but I dont see anything like that this year.
Will your growth be internal, external or a combination of both?
Mr. Johnson: Weve looked at all of those because
the board of directors and our shareholders are always asking how we are going to improve
the valuation of the company. Id say that the primary way of growing would continue
to come internally. However we may seek out well defined acquisition opportunities, but
Id put this as more of a secondary growth strategy.
Where will your internal growth come from?
Mr. Johnson: Our growth is going to come primarily from
the hearing area for diagnostics and our two new products. The first product is
M.A.S.T.E.R,( Multiple Auditory STEady State Response Technology ) which is a
product used by Audiologists and ENTs to fit hearing aids for infants. The second product
is called Stacked ABR and that will be used by ENTs to screen patients for auditory nerve
tumors. We are fairly confident that will be very good for us. We should also see more
growth from our sleep diagnostics product line with the release of our new sleep analysis
software this year.
Where are you in the approval process?
Mr. Johnson: Stacked ABR is in the FDA 510(k) review
process. All other products are being sold now.
Do you have any exclusivity in the hearing area?
Mr. Johnson: In the hearing area we do have some
exclusivity in the licenses and technologies which I have referred to earlier. Stacked
ABR, the one that is coming this year to be released is an exclusive product. We licensed
it from the House Ear Institute in Los Angeles. The M.A.S.T.E.R. diagnostic is exclusively
licensed from a research group in Toronto. .
Now all you have to do is pump up your sales and marketing force to get them excited about
this product and start selling.
Mr. Johnson: Because these technologies have been
talked it about by the researchers and inventors for the last two years, presenting papers
at the scientific meetings, there is a already a lot of interest. So, I think
weve got some a pent up demand in particular for the Stacked ABR product. Also,
through our education initiative for the healthcare professionals we are planting the
seeds for current and future sales as well as improving the standards of care utilizing
these new technologies.
In closing, what would you say to a potential investor?
Mr. Johnson: As a micro cap stock our main advantage is
how we run the company for profitability and growth. Weve built up a very
strong balance sheet for a company this size, having no debt, and $10 million dollars in
the bank. We are trying to keep the growth going with relatively high expenditures
in R&D. I dont know if we are in the category that people would say is a
ten banger but I do believe Bio-logic is a very solid company that compares
extremely well to others that are in the medical technology field.
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