Is It Time to Buy EDAP TMS S.A.?

It's largely been forgotten since the stock peaked in December - traders have had other things on their minds for much of this year so far. Slowly but surely though since March though, EDAP TMS S.A. (NASDAQ:EDAP) has been working on a rebound. And, the slow brewing of buying momentum may be close to being unleashed, as the company's potential falls back into the limelight again.

In simplest terms, France-based EDAP TMS makes medical devices, specifically for urological diseases. The layman's terms for this equipment? Ultrasound devices. This is hardly your run-of-the-mill ultrasound machine though. EDAP's technology can be used to fight cancerous tumors as well as it can be used to treat kidney stones.

The company's not profitable on a trialing basis, and hasn't been since 2008 (and that was an accounting-only profit)... an allowance the market usually only gives to biotech companies in the middle of R&D. In a sense though, EDAP TMS is more like a biotech and less like a device maker, in that it's treating prostate cancer, and more recently has waded into the waters of drug delivery through its ultrasound technology.

In collaboration with Norway's Epitarget AS and France's INSERM laboratory, the company will begin work on applying the technology that will allow a nanocarrier to transport a drug directly to a tumor using an ultrasound device. If the early tests using this liposome carrier against breast cancer work, the process could be replicated for a variety of cancers and cancer treating drugs.

The potential numbers make sense. The drug delivery market is worth more than $100 billion annually. The total cancer market is worth about $50 billion per year on a global basis, with some obvious overlap. Though EDAP's High Intensity Focused Ultrasound technology has only focused on prostate of tumors so far, the prostate cancer market alone is worth more than $2 billion per year. Plus, with the looming tests on breast tumors though - about a $10 billion market annually - one has to start wondering what the limits are on this tumor-fighting technology, and what that could ultimately mean for investors if it can fight most types of tumors.... which account for more than half of all cancer cases.

Oh, and the kidney stone/ultrasound machine market itself is a $1 billion per year business.

In comparison, EDAP TMS S.A. boasts a market cap of $51 million, with last year's sales at $31 million.

The upside is clear - there's a ton of room for growth. The downside is equally clear - if the company can't profitable penetrate the existing ultrasound market any more than it has, can investors expect better traction on the cancer front?

It's a tight-rope to be sure, but all things considered, this may be a case where newcomers look at the company through biotech glasses rather than medical device glasses.

The hand-held and kidney stone ultrasound market is pretty well saturated, which may crimp growth, but at least offers cash flow to support its cancer-treatment work. And on that front, there's nothing else out there quite like it. If the breast cancer treatment works as well as the prostate cancer treatment seems to, the stock could see the heat turned up quite nicely.... even before commercialization, and well before other tumor types are added to the mix. Welcome to biotech, where an idea and a little hope are all you need.

That being said, it looks like the rest of the market is starting to see and agree. Though the stock's been getting squeezed into a wedge shape since February, there's a growing degree of bullish pressure building up in there. A minor move above the upper resistance line at $4.16 (see below) could ignite the bigger brewing buying effort.

A little good news on the R&D front would go a long way too; the potential for that is certainly in place.

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