Diagnos (ADK.V) is in the business of leveraging image recognition technologies for diagnostic purposes. The company is currently targeting diabetic retinopathy - a complication of diabetes that is difficult to detect.
The value proposition is simple. An initial screening can be administered without the need for an ophthalmologist, thereby reducing cost. A screening result with a high likelihood for retinopathy leads to a formal referral, while the absence of it can be documented and stored electronically.
Since we last wrote about the company, a number of events have been reported with regards to financing, insider activity, earnings, and contracts.
ADK.V divested from its mining division thereby receiving $800K from Majescor Resources. The company also closed a private placement of $2.6M at $0.15 with warrants at $0.22 cents on April 27.
On May 12, Dundee renewed 1M warrant - at $0.06 cents. However, Tristam Coffin (a board member) reduced his position significantly (50%) while George Hebert (another board member) seems to be making up the difference.
On June 20, ADK.V shared its year end report (as of March 31, 2017); the company reported a net loss of $5M with about $32M in deficit.
ADK.V was able to secure contracts in several countries - Saudi Arabia, US and Mexico.
On February 22, a contract for an undisclosed amount with AlKanhoor Medical Co. in Saudi Arabia was signed.
Saudi Arabia is estimated to have a over 5M diabetic patient that needs to be monitored for eye related diseases.
On July 5, a 3 year contract for an undisclosed amount with Chaparral Medical Group in Southern California was announced.
On July 17, a contract of $5.26M in value with the Mexican Government was disclosed. This effort followed an extensive pilot project which ADK.V screened over 79,000 patients. The contract was anticipated by shareholders as results from the pilots were public for the last year.
The response to the $5.3M contract by the market was muted and it initially left us perplexed.
However, looking back, there are a few factors that potentially account it:
1. The contract amount - the $5.3M contract is welcomed revenue revenue. However, it falls short of making the company instantly profitable.
For FY2016, ADK.V showed a $5M loss and reported a $32M deficit.
2. Difficult valuation - two of its last three contracts were for undisclosed amounts. In addition, It is well known that the sales cycle for each contract is lengthy because the technology needs to be proven through pilot projects making numerous future announcement less likely.
3. The baseline - from April to late May, the stock traded between 0.11 and 0.145 cents. During that period, 2 days of accumulation with volume of about 4M were observed. This can account for the high amount of selling on July 17; the baseline was much lower than the recent price trend.
Nonetheless, ADK.V owns the data from the screenings it has made to date (>100,000 patients). This is likely to grow in time and add to the valuation. The intrinsic value for potential research, and clinical trials are sizable. As such, we believe the company could become a potential acquisition target. However, key to it's success will be its ability to scale screenings, revenue, and maintain its first mover advantage.
Hence, we are still long on ADK.V. However, we believe that in the near term the stock will be trending down, pending a significant announcement.
The forecast for next week displayed below. We consider accumulation at $0.13 cents or below to be sensible.
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