Zomedica (NYSEAMERICAN:ZOM) looks like it will be a winner once its veterinarian office lab testing product launches on March 31. ZOM stock is already up 291% so far this year to 91 cents in anticipation of this product launch.
Moreover, the new CEO, Robert Cohen, wrote a letter to shareholders on Jan. 18 where he announced some really good news. He reported that the company had raised $40 million as of Jan. 15. This was solely from the effect of the stock rising and people exercising their warrants to buy ZOM stock.
For example, when ZOM stock rises, warrant holders want to exercise their warrants by paying for shares at their lower warrant exercise prices. In other words, the warrants are like options, except that all warrant holders have to send money to the company to exercise their rights to buy ZOM stock.
Now, as a result, Zomedica says that it has over $90 million, net of all capital and operating expenditures from the fourth quarter.
Moreover, the company said that this will be sufficient to fund operations at least through the calendar year 2023. At that point, Zomedica feels that it will be free cash flow positive.
What Zomedica Does
Zomedica is coming out with a lab testing product that veterinarians can use in their offices as opposed to sending it out to a lab for testing. The in-house testing device, called TruForma, is only for dogs and cats that have issues with their stomachs or glands.
TruForma will launch on March 30 throughout the U.S. The company does not presently produce any revenue.
Recently a veterinarian wrote an article in Seeking Alpha explaining the significance of this TruForma device, if successful, for veterinarian practices. As a diagnostic tool, it will allow pet owners to get an immediate course of treatment for their pets.
This is going to be very popular with these owners and will generate large amounts of goodwill and of course revenue streams for the veterinarian practices.
Moreover, the company just announced that it had signed a distribution deal with Miller Veterinary Supply. Miller will represent Zomedica from Texas to Maine, concentrated in the eastern and mideastern portion of the U.S. This should allow the company to get its product out to a large number of veterinary practices fairly quickly.
What Analysts Expect for Zomedica
Analysts expect sales of $3.7 million in 2021. However, the company expects sales will be robust over the next several years as it tries to create a TruForma instrument installed base.
They intend to implement a controlled release phase wherein we slowly begin the sale of the TruForma instrument and at least three “assays” in a limited geographic area in order to test its distribution system
Over time it will cover five different assay tests for dogs and cats with gastro emergency issues. However, following that, the company plans on expanding its ability to issue a family of other assays to test other emergency type conditions.
What To Do With ZOM Stock
ZOM stock has skyrocketed, especially with the news that it will have more cash as insiders keep on exercising their in-the-money warrants.
In a sense, this has almost been a self-fulfilling prophecy. The stock went up because of the higher cash coming to the company from the warrants, which was a result of the stock rising so much. So which came first?
Robinhood investors came first. That’s what sparked the initial jump in ZOM stock. It has been one of the top 100 most-traded stocks in the Robinhood universe. This, in turn, allowed the company to get more cash from warrants, which, fed into the good news in the shareholder letter.
However, the Seeking Alpha article from the veterinarian points out one huge risk. There is no data yet whether the TruForma instrument will provide statistically significant results that work.
Nevertheless, it will be the first point-of-care instrument that can test the pancreas and proximal and distal small intestine for dogs and cats that are in distress.
Watch for the company to produce positive results over the next several quarters. Zomedica’s 2019 10-K states on page 1 that the veterinary market was $19 billion in 2019, of which 18% was spent on diagnostics. That works out to $3.42 billion.
If Zomedica can eventually capture a 10% market share, recurring revenue would be $342 million. Its present $793 million market capitalization is only 2x that.
Therefore, ZOM stock could double to $2 per share if Zomedica can raise its sales to this level.
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Mark Hake writes articles on personal investing at mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
