Mark Roberts, Senior Editor at Traders News Source Interviews Larry Heaton, CEO of Zomedica Corp. (NYSE American: ZOM)
Larry Heaton, CEO Zomedica Corp.
Thank you giving us your time to answer some questions. Can you give us a brief overview of your company’s business model and revenue streams?
We market diagnostic and therapeutic products that enable Veterinarians to improve the quality of care for their pet patients, that also benefit the pet parents and the Vet practice itself by improving work flow, cash flow and profitability.
Currently we are marketing in two fields – diagnostics and therapeutics.
Our diagnostic platform is the TRUFORMA system that can provide an in-clinic result within about 20 minutes. We offer the instrument to the clinic with no capital outlay required through our “Customer Appreciation Program”, and they purchase the individual assay cartridges to run the tests. We currently offer four assays, including the only feline optimized test for thyroid stimulated hormone (TSH) available anywhere, and the only eACTH assay available at the point of care. We also continue to work with our development partner to bring additional assays to market, many of which will be unique to the TRUFORMA platform.
On the therapeutic side, we recently acquired PulseVet which is the worldwide market leader in shock wave therapy for equine patients. The treatment promotes rapid post-surgical healing, and addresses lameness, soreness, tendon injuries and osteoarthritis.
With the 2021 launch of an accessory product that makes the treatment applicable to the small animal market without the need for sedation, we trained the Zomedica sales force early in the first quarter and they have been busy rolling this out to small animal clinics. Our first quarter results were outstanding in that the team generated 30 sales to these customers.
Since the system comprises a consumable component which must be repurchased after every 50 treatments, these sales didn’t just generate ~$30K per clinic capital sale, but also established a revenue stream going forward. In fact, about half of PulseVet revenue currently is from the sale of the consumables at $2,000 per handpiece!
As we look to the future, PulseVet’s revenues have come primarily from the equine market, and we expect those sales to continue to grow, but we are very excited about the small animal market which is 15-20 times the size of the equine market given the number of small animal clinics in the U.S.
Can you talk about horse/pet health insurance, which carriers offer it and how common is it amongst animal owners?
I am by no means an authority on pet insurance, but my understanding is that there are about 4.5 million pets covered by pet insurance, representing about 2 ½ per ent of pets in the U.S., and that this has been growing steadily over the past few years. Insurance coverage ranges from accident & injury to full wellness coverage and is available from a variety of carriers.
We do see that PulseVet shock wave treatments are covered by many if not most of these policies, and we believe this is due to the fact that the treatment provides clinical benefits documented by multiple clinical studies that can decrease other costs through avoidance of surgery and/or reducing if not eliminating ongoing drug therapy.
Pet owners without insurance realize the same cost benefits when they opt for shock wave therapy, so we don’t see pet insurance coverage as a major factor in decisions to treat with shock wave.
Were the TRUFORMA revenues reported in Q421 generated by assay products or for instruments sold to veterinarians?
We offer the instrument to the clinic with no capital outlay required through our “Customer Appreciation Program”, and they purchase the individual assay cartridges to run the tests, so all TRUFORMA revenue is from the sales of assays.
The revenues reported for PulseVet were up 66% YoY in the fourth quarter. Do you expect that level of growth to continue and what are your thoughts regarding PulseVet’s growth?
PulseVet is the worldwide market leader in shock wave therapy for equine patients. The treatment promotes rapid post-surgical healing, and addresses lameness, soreness, tendon injuries and osteoarthritis.
With the 2021 launch of an accessory product that makes the treatment applicable to the small animal market without the need for sedation, we trained the Zomedica sales force early in the first quarter and began rolling it out to small animal clinics. Our first quarter results were gratifying in that the team generated sales of 30 systems to these customers, reflecting a 500% increase over PulseVet’s 1Q2021 sales as a standalone company.
Since the PulseVet system comprises a consumable component which must be repurchased after every 50 treatments, these sales didn’t just result in capital sales, but also established an ongoing revenue stream. In fact, about half of PulseVet revenue currently is from the sale of the consumables.
As we look to the future, PulseVet’s revenues have come primarily from the equine market, and we expect those sales to continue to grow, but we are very excited about the small animal market which is 15-20 times the size of the equine market given the number of small animal clinics in the U.S.
How many veterinary clinics/veterinarians are using either TRUFORMA or PulseVet products?
When we acquired PulseVet in 2021, we reported approximately 1,500 systems installed worldwide, with approximately 1,200 of those systems in the United States, and these have grown since last October. For strategic competitive reasons we do not disclose the size of our TRUFORMA installed base.
You closed FYE2021 with a cash hoard of $195M. How does that impact your company any do you have any acquisition plans for this year, or a dividend?
Since we have a very solid balance sheet with substantial cash on hand – about $192 million – we have plenty of resources to invest both in our core diagnostic business, by building the installed base and providing the clinical education and marketing support to build traction and utilization, and also our therapeutic shock wave business as we penetrate the small animal market.
Having said that, we are planning for further acquisitions of additional product lines or companies that add to our portfolio of products that benefit Vets, their patients, and their pet parents too, and a substantial portion of our available capital is earmarked for that effort.
Is there a possibility of a reverse stock split to raise the company share price in the near term?
While a reverse stock split would raise the share price, we believe that the timing of such a split should be after the Company reaches profitability when in our opinion it would be more likely to sustain the price and grow it from there.
We believe the best way to see long term share price growth is to build the value of the Company through increasing revenues and margins of our existing product lines and to develop and/or acquire complementary products to add incrementally to revenues and profitability.
Have you projected when Zomedica could generate a net profit and if so, when?
One answer is that we are working to increase revenue and grow margins organically, and that path has a certain timeline associated with it. Since we are also seeking acquisitions which can affect the timing significantly, I prefer not to speculate as to when we will cross the threshold of profitability.
Can you tell our readers when they can expect you Q12022 earnings report?
We released Q12022 earnings on May 10th and expect to issue our Q22022 earnings report in early August.
Would you describe your vision of growth for your company both in the near term and long term?
Our focus is on developing and/or acquiring products that positively impact practice workflow and cashflow, while improving the quality of care for pet patients, their parents and of course providing a benefit to the Veterinarians caring for them.
Since we have substantial cash on hand we have resources to invest both in our core diagnostic business, by building the installed base and providing the clinical education and marketing support to build traction and utilization, and also our therapeutic shock wave business as we penetrate the small animal market.
Having said that, our sights are set on further acquisitions of additional product lines or companies that add to our portfolio of products that benefit Vets, their patients, and their pet parents too, and a substantial portion of our available capital is earmarked for that effort. To this end we’ve built a strong management team to be able to identify, acquire, integrate, and grow new business lines.
So for us, the drivers of growth of the Company and shareholder value are:
- Continued growth of the installed base of TRUFORMA diagnostic instruments
- Development and launch of additional TRUFORMA assays
- Penetration of the small animal market with PulseVet shock wave systems
- Strategic acquisition of additional product lines and/or companies with complementary products
- Achievement of Profitability
Can you tell our readers why you think an investment in your company is a good idea?
While the price of our stock is determined by the market, I believe that the value of the Company is a function of our assets and our opportunities to grow shareholder value in the future.
As for assets, we had $192.3 million in cash as of March 31, 2022, $194.3 million when you add Working Capital, and we burned only $2.6 million in cash in the first quarter, so clearly we have significant cash runway to capitalize on growth opportunities.
One of those opportunities that is now an asset is PulseVet which we purchased on October 1, 2021 for $71 million. Since our acquisition, their revenue has grown significantly; for the last six months their revenues are up 51% versus their performance as a standalone company in the same period in 2020/2021. ($7.7 million versus $5.1 million). So we believe it is a well performing asset!
We have a substantial war chest of cash available to continue to pursue M&A opportunities; we have built the management team to integrate acquisitions and we have the sales force to grow the business post-acquisition.
In this context of assets and opportunities, I note that the stock is currently trading at a share price ($0.22 per share on 5/16/2022) that reflects a market cap that is not much more than cash on hand, and certainly less than cash plus the value of our core diagnostic business and the recently acquired PulseVet asset, so my belief is that an investment in ZOM today is a good idea!
Interview by Mark Roberts, Senior Editor at Traders News Source
The Traders News Group
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