Diagnos (ADK.V) is in the business of leveraging image recognition technologies for diagnostic purposes. The company's core products are CARA and the FLAIRE. We initiated coverage on January 30th, with a subsequent note on July 23rd. Since our last update, a number of releases were issued.
Aug. 15 - Granted stock options: 3M at $0.13 cents. Dr. Hadi Chakor appointed Chief Medical Officer.
Aug. 22 - Announces two screening clinics with Al Kahhal Medical Complex in the Kingdom of Saudi Arabia.
Saudi Arabia ranks seventh in the world with a 17.65% prevalence of diabetes in adults.
Sept. 19 - Provides timelines on cardiovascular disease prevention test development and commercialization. 6-12 months ahead of schedule. Calibration taking places in 4 countries (Algeria, Canada, Mexico and United States) with at least 1,000 patients per country and 22 cardiologists.
Sept. 20 -Dundee acquired 3.3M shares at $0.06 cents from June -Sept 2017.
Oct. 7 - Insider (Tristan Coffin) purchased 10K at $0.11 cents.
Oct. 16 - Private placement at $0.115 with warrants at $0.16 and some at $0.22 cents. Two directors subscribed respectively for $0.3M and $0.2M.
Proceeds will be used to purchase ophthalmic equipment for ISSSTE in Mexico and to fund operating and product development expenses.
Oct. 17 -New Partner in Cambodia, Garuda Health Services (GHS). Royal Phnom Penh Hospital will be the first customers.
The service is scheduled to be launched in late fall 2017 and should cover 22,400 patients.
It has been speculated that Nov0 Nordisk may be the company in question.
Nov. 9 - Announces New Project with Cardiology Department in Alger, Algeria. Project is to take place at the Centre National de Medecine du Sport (C.N.M.S Hospital). The objective is to improve the triage and provide better management of patient population.
Nov. 22 - Cardio Contract with a Multi-National Pharma Company. Objective is to monitor 500 hypertensive patients under treatment.
“We will provide state-of-the-art medical support and patient attention to detect and prevent blindness caused by diabetic retinopathy along with the analysis of cardiovascular risks using the same retina photograph”. Also announced is the resignation of Dr. Netan Choudhry.
Nov. 28 - Q2 Earning (End. Sept. 30): Revenue $269K, Loss $1.1M Working Capital $181K. Lag in revenue (Mexico) is related to payment terms.
ADK.V is paid once the test is performed. Testing in Mexico has been reported to have started Mid-September 2017.
Nov. 29 - Hires IR firm: Arrowhead Business and Investment Decisions LLC. The objective is to raise DIAGNOS profile among targeted U.S. institutional and private investors. Fees are $38,000 USD per six-month periods + 1M Stock options at $0.13 cents.
Dec. 6 - Export Development Canada (EDC) $0.5M bond for the ISSSTE Mexico Contract. This was a requirement of the contract.
Jan. 10 - Alliance with Novo Nordisk to monitor diabetes patients - Nuevo Yo program in Mexico.
Jan. 17 - CARA Artificial Intelligence Platform will rely on Blockchain Technology for Security Control of Medical Records.
Jan. 25- Coverage initiated by Arrowhead. Target $0.63 to $0.72 cents.
ADK.V has had very good momentum. In the last six months, six new initiatives were announced in at least four different countries (Saudi Arabia, Cambodia, Algeria, Mexico). We speculate that there could be one or two more notably in the US and/or Canada. Out of the six initiatives, two are Cardio related. The fact that ADK.V secured these before the actual product launch is impressive.
Why did ADK.V not gain valuation? a) Most of the new initiatives did not have a monetary value associated with them. We attribute this to the fact that the company is still in the "development phase" in many jurisdictions, b) by granting stock option at ($0.13) and completing a private placement ($0.115), ADK.V has negatively set market expectations for valuation.
In fact, the stock has traded between $0.105 and $0.13 cents for most of the charted period, until the recently. We were confused by the blockchain release as little details were provided. Was this a client requirement? Will ADK.V build the solution itself or use a vendor? Either way the incremental cost and the net impact on value is not clear to us. In fact, it rather comes across as an attempt to raise valuation.
The coverage from Arrowhead is also questionable. Arrowhead is a paid vendor of ADK.V ( $38,000 USD per six-month periods + 1M Stock options at $0.13 cents). While some of the information provided was helpful (i.e. page 9 referring to contracted pilot), the target price cited ($0.62 - $0.73) is academic.
Then why the sell-off? Arrowhead is not a brokerage firm and typically "equity research" is conducted by these entities. Also note that the last round of private placement (October 16, 2017) did not mention a brokerage firm but the one before did (April 27, 2017). Back then, Echelon Wealth Partners (18), Leede Jones Gable (68), Industrial Alliance Securities (76), and Raymond James (89) acted as finders. The recent trading activity (Feb 2-7) reveals that TD is the main seller; 8M share or 69% of the total selling volume and 6.5M or 55% of net sales! On the buy side (% Buy), Anonymous (1) which could be in part (Echelon) picked up 33% of the share, while Raymond James (5%) and Leede (5%)... Note that Echelon(18) is not recorded in the recent activity.
Some believe that the recent activity is a possible insider sale, while others believe that ADK.V need to raise more funds. The last earnings from the company were weak and excluded the bulk of the renewed Mexico contract's revenue. In addition, because ADK.V is involved in numerous countries and is in the midst of developing a new product (Cardio). the need for additional funds through an upcoming private placement is a strong possibility.
Regardless, we continue to maintain a long position in ADK.V. and re-iterate that the company is a possible acquisition target.
In any event, we believe that ADK.V represent an opportunity at the current price despite what the market says.
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