Cancer treatment continues to be a growth industry. The World Health Organization is forecasting a 50% increase in the incidence of cancer between 2000 and 2020, while the cost for treating cancer has ballooned at an average annual rate of more than 12% since 1980.

Every major drug company is funding research into cancer-treatment drugs and procedures. Biotech giants Amgen (NASDAQ:AMGN) and Genentech (NYSE:DNA) are jockeying for position to further tap into the estimated $16.8 billion cancer therapy market. The major pharmas also want to make sure they have their slice of the pie. For example, GlaxoSmithKline (NYSE:GSK) and Johnson & Johnson (NYSE:JNJ) already have a presence in the field, while Eisai, Japan's fourth-largest pharmaceutical company, recently bought a portfolio of cancer drugs from Ligand Pharmaceuticals (NASDAQ:LGND) to jump-start its oncology efforts.

Of course, there are also a lot of small operations that populate the Pink Sheets, some of which are trying to make the leap to respectability by getting listed on the AMEX. Some of their therapies might have potential; others are probably akin to fly ointment, and their operations are suspect. BSD Medical (AMEX:BSM) seems to teeter between both extremes.

On the one hand, BSD owns the technology to an FDA-approved treatment for surface cancers through the use of focused radio frequency and microwave energy. The BSD 500 bakes the cancer cells in a treatment known as hyperthermia, and the company is awaiting FDA approval for the latest technological iteration, the BSD 2000. With just $3 million in revenues over the past four quarters, there appears to be room to grow for this company valued at just $150 million, no?

No. As fellow Foolish contributor Rich Smith noted with appropriate skepticism, BSD Medical has never recorded an operating profit in the past 10 years. It generated most of its money "primarily from payments received for the sale of the company's holdings in TherMatrx, Inc."

OK, a developmental company just getting its feet wet might have some issues. But there seem to be some other problems, too -- ones that that hardly justify the stock doubling over the past six months, not to mention becoming the darling of the investor community. A little closer scrutiny is in order.

First is the relationship between BSM and one of its directors, Dr. Gerhard Sennewald (who is also essentially a controlling shareowner, with a 35% stake). Sales to a German company owned by Dr. Sennewald account for a large portion of BSM's revenues. In the just-reported second quarter, the $483,000 in sales to Sennewald's Medizin-Technik GmbH amounted to an astounding 73% of BSD's $661,000 total sales.

If revenues were increasing all across the board, that might not be so bad, but where related-party transactions jumped 145% year over year, sales to non-related parties dropped by 27%.

What may not be so sweet is BSD's hyperbole regarding the benefits -- and endorsement -- of hyperthermia as an approved treatment. The National Comprehensive Cancer Network (NCCN) has said doctors can "consider" adding hyperthermia as a cancer treatment, because even though prospective clinical trials have shown "heterogeneity" of results, there was an increase in tumor response when the treatment was added to radiation therapy. For those reasons, NCCN conferred a category 3 rating on the treatment, which signifies that there is a "major NCCN disagreement that the recommendation is appropriate." That's a far cry from BSD's claim that the NCCN has bestowed recognition on hyperthermia which "significantly supports the progressive emergence of hyperthermia therapy as a mainline therapy in the treatment of cancer."

And speaking of BSD's claims: While it has issued 14 press releases so far this year, it doesn't deem it all that important to issue quarterly earnings releases. Instead, it's operating like so many penny stocks that seek to boost their share prices on the basis of promotional fluff.

While BSD Medical may in fact be on to something with its hyperthermia treatment, the rest of the business is out of control. There are few outside customers, and those that do purchase don't seem to want to pay their bills. Accounts receivable from unrelated parties are simply outlandish, and the company's cash conversion cycle is a gaudy 306 days.

The fact is, the stock's valuation is ridiculous. Its price-to-sales ratio in excess of 47 (and let's recall where virtually all of those sales are going) means investors have bid up this stock without considering the faulty business model underlying the shares. Convincing doctors, particularly oncologists, to accept a new form of treatment is a long, arduous task. Since BSD's treatment comes with the stigma of a category 3 rating from NCCN, it looks to this Fool as if the company may have an even harder time convincing doctors to make the switch. The stock looks poised to undergo a bit of hyperthermia itself.

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Fool contributor Rich Duprey owns shares of Eisai but of no other company mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.