Zomedica (NYSEAMERICAN:ZOM) looks like it will be a winner once its veterinarian office lab testing product launches on March 30. ZOM stock is already up 850% so far this year. In fact, it peaked at $2.70 in early February in anticipation of this product launch.
Moreover, the company has very smart about taking advantage of its huge price spike. On Feb. 8, it raised another $185.4 million. In fact, as of Feb. 26, Zomedica had an astounding $277.5 million in cash on its balance sheet, based on an 8-K filing.
Compare this to its balance sheet a year ago at the end of 2019 when it had just $510,000 in cash. In fact, even as recently as Sept. 30, it had just $52 million in cash. The company has very smartly taken advantage of the runup in its price and issued shares at close to its peak.
Zomedica also indicated on Feb. 26 that it now has close to 1 billion outstanding shares (947.3 million). That gives it a market capitalization of $1.77 billion. As a result, the $277.5 million in cash represents 29.3 cents per share in liquidity. It also represents 15.6% of the total market value of Zomedica.
Moreover, the company said that just $90 million would be sufficient to fund operations at least through 2023. At that point, Zomedica feels that it will be free cash flow positive.
This is for a company with no revenue and only prospects of this happening. That is when Zomedica launches Truforma, its new pet diagnostic in-house lab for veterinarians on March 30.
Prospects for Truforma
Now that the company has plenty of cash, it can step up its launch and marketing efforts in relation to the launch of Truforma in the U.S. That should help it have a successful kick-off.
Truforma is a lab testing product that veterinarians can use in their offices as opposed to sending it out to a lab for testing. It is only for dogs and cats that have issues with their stomachs or glands.
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, Zomedica announced that it signed a distribution deal with Miller Veterinary Supply. Miller will represent Zomedica from Texas to Maine. This will allow Zomedica to get Truforma out to a large number of veterinary practices fairly quickly.
Zomedica says it will implement a controlled release of Truforma in 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
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.
Zomedica refers to an article in its most recent 10-K (page 1) that the animal diagnostics market is projected to reach $2.8 billion by 2024 from $1.7 billion in 2019. They also refer to an IHS Markit reference that the global veterinary immunodiagnostic market will be $2.1 billion by 2022.
Let’s assume that the U.S. is probably about half of that market or $1.05 billion by 2022. Next, assume that Truforma captures 10% to 15% of that market, or $101 million to $157.5 million annually. Eventually, it will expand overseas.
Therefore at 10x sales, Zomedica is worth say $1.57 billion. Add in the cash balance of $277.5 million, and its total value is $1.85 billion.
At the time of this writing, ZOM stock was worth $1.96 per share with 947.298 million shares outstanding.
On the high side, with a 10% of the global market share ($210 million annually) and a 15x sales multiple, the value is $3.15 billion. Adding in the $277.5 million in cash, it is worth $3,427.5 million, or $3.61 per share.
Therefore, ZOM stock is worth between $1.96 and $3.61, depending on its sales spike. This represents a potential gain of as much as 64% from today’s price of $2.20.
On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
