COV.V - Back to normal?

Updated: Oct 3


Covalon Technologies Ltd. (COV.V) researches, develops, and commercializes healthcare technologies. Covalon's has a number of patented technologies, products, and services that address the advanced healthcare needs of medical device companies, healthcare providers, and individual consumers.


COV.V's technologies are used to prevent, detect, and manage medical conditions in specialty areas such as infection control, vascular access, surgical procedures, advanced wound care, and medical device coatings.


News releases


Mar. 2 - Announces First Quarter 2020 Results.


Mar. 31 - Announces New Breakthrough Antimicrobial Technology Formulated to Kill The COVID-19 Virus. CovaGuard™, has been formulated to be effective at killing pathogens like the COVID-19 virus on contact with the added benefit of providing persistent protection by trapping and deactivating microbes over an extended period of time.


Mar. 31 - Clarifies Previous Release. At IIROC’s request, the Company retracts the title to its last press release because IIROC has deemed the title overly promotional. The Company clarifies that the testing to date on the CovaGuard technology has been based on industry standard ASTM International and CLSI test methods for antimicrobial testing and was performed on surgical masks in the Company’s ISO 13485:2016 compliant medical labs.


The Company is in the process of working with specialized third-party labs licensed to test CovaGuard on live COVID-19 viruses. All testing was performed in a similar manner to the thousands of antimicrobial tests that the Covalon R&D team has performed over the past 20 years and reviewed under the Company’s extensive quality control system.


The Company is in the process of sourcing raw materials in order to commence manufacturing of these products in its facility in Mississauga, Ontario. The Company intends to fund the initial production of these products derived from the CovaGuard technology with the Company’s current working capital and is not anticipating the need to materially hire additional personnel or acquire additional equipment to commence production. Contemporaneously, the Company is in the process of seeking partnerships with large medical companies and other manufacturers to satisfy demand.


Apr. 3 - Announces Conference Call to Discuss New CovaGuard Antimicrobial Technology.


Apr. 14 - Postpones Annual Meeting of Shareholders Due to COVID-19.


Apr. 23 - Martin Goldfarb, O.C., Joins Covalon’s Board of Directors.


Apr. 27 - Amir Boloor Joins Covalon’s Board of Directors.


May 29 -Delays Filing of Interim Financial Statements Due to to COVID-19 and Provides Business Update:


CovaGuard Technology: The Company has since begun production of a hand sanitizer and antimicrobial spray based on the CovaGuard technology at its facility in Mississauga, Ontario.  The Company is in the process of manufacturing an initial run of approximately 750,000 bottles of product based on inventory presently on hand.


As previously reported, the Company continues to be actively engaged in discussions with potential manufacturing partners, United States distributors, and international distribution networks to increase available product and access market demand. Preliminary sales have begun in the United States and other international jurisdictions.


June 3 - Granted Key Antimicrobial Patents in the United States, Canada, and Europe: Covalon's Antimicrobial Silicone-based Wound Dressing patent has been granted in the United States by the USPTO, in Canada by the CIPO, and in Europe by the EPO. This antimicrobial patent is integral to the Company's CovaClear® platform technology and the Company's IV Clear®, MediClear® PreOp, and SurgiClear® products.


The USPTO also granted the Company a patent for a Method for the Reduction of Microbial Skin Flora, which protects the Company's novel product MediClear PreOp. MediClear PreOp is indicated for use as a pre-operative drape that provides continuous antimicrobial activity to reduce the risk of contamination of the skin prior to a surgical procedure.


MediClear PreOp® is indicated for use as a pre-operative drape that kills, on average, 99.99% of microorganisms in just 30 minutes, while also physically isolating the site from external contaminants, ensuring complete site protection leading up to surgery. SurgiClear® is a post-surgical dressing designed to protect patients during recovery.


June 30 - Provides Business Update: RE Quarter Ending March 31 - The Company expects to file the Documents by the extension date of July 14, 2020 and continues to work diligently to prepare and file the Documents by such date.


CovaGuard Antimicrobial Hand Sanitizer with Benzalkonium Chloride and CovaGuard Mask Antimicrobial Sanitizer with Benzalkonium Chloride are now available for purchase in the United States at covaguard.com. CovalonGuard Antimicrobial Hand Sanitizer with Benzalkonium Chloride is now available for purchase in Canada at covaguard.ca.


The Company is continuing production of an initial run of approximately 750,000 bottles of hand sanitizer and mask spray based on the CovaGuard technology at its facility in Mississauga, Ontario. The Company is in the process of planning a second manufacturing run of approximately 3.5 million bottles at a contract manufacturing facility to meet anticipated demand. HSBC: Management is in continued discussions with HSBC Bank Canada ("HSBC").


July 14 - Announces Second Quarter Fiscal 2020 Results:


Because of COVID-19, medical facilities suspended virtually all elective procedures. A significant number of the Company’s products are consumed during elective and other procedures at hospitals, clinics, and other medical institutions that were materially impacted by quarantine measures undertaken at these facilities. This slow-down in the ordering and usage of certain of the Company’s products is anticipated to continue until hospitals and healthcare facilities are able to resume elective procedures that utilize the Company’s products.


Aug. 24 - Announces Third Quarter Fiscal 2020 Results:


We also amended our banking agreement with HSBC Bank Canada ("HSBC"). The amendment provided relief under certain financial covenants until March 31, 2021 and an additional $1 million facility through the Business Credit Availability Program ("BCAP") with the Business Development Bank of Canada ("BDC").



Summary


Appointments

Covalon made two key appointments to its Board of Directors; Martin Goldfarb and Amir Boloor. Both Mr. Goldfarb and Mr. Boloor are significant investor in the company and bring synergistic capacities to the organization.


Patents

COV.V was granted patents on its Antimicrobial Silicone-based Wound Dressing by the United States Patent and Trademark Office ("USPTO"), the Canadian Intellectual Property Office ("CIPO"), and the European Patent Office ("EPO").


Specifically, the patent are essential to the COV.V's CovaClear® platform technology and its IV Clear®, MediClear® PreOp, and SurgiClear® products.


"This is a major accomplishment to protect the only dual-antimicrobial silicone adhesive technology on the market,"

-Brian Pedlar, Covalon's Chief Executive Officer


Earnings

COV.V started the year off well reporting higher revenue with a lower net loss in Q1 2020 vs Q1 2019. At the time of the report (March 2. 2020), Covid-19 was still in its early days with many jurisdictions were not yet in lock-down mode.


By the time Covalon reported Q2 2020, it was clear that Covid-19 had a material impact on the business. As displayed below, revenue was down drastically from Q1 2020 ($2.6M) and Q2 2019 ($8M) and the net loss compounded to $3.9M.


Because of COVID-19, medical facilities suspended virtually all elective procedures. A significant number of the Company’s products are consumed during elective and other procedures at hospitals, clinics, and other medical institutions that were materially impacted by quarantine measures undertaken at these facilities. This slow-down in the ordering and usage of certain of the Company’s products is anticipated to continue until hospitals and healthcare facilities are able to resume elective procedures that utilize the Company’s products - Covalon's CEO.


Fortunately, revenue bounced back in Q3 2020 ($6.7M) with a positive net income. Key to this, the reduction of expenses:


Operating expenses were $2.5 million compared to $7.3 million last year and included a one-time $1.8 million of COVID-19 related government subsidies which were netted out against the related expenses.  Excluding this one-time offset, operating expenses were down 41% compared to the prior year's third quarter.


At the time of Q3 2020 earnings, Covalon also mention seeing " signs of recovery in July and early August in the US". However, with the "second wave" of Covid-19 emerging across North America, elective surgeries are still in flux.


A recent paper quantifies the losses of delays in elective surgeries to $4 to $5.4B to the hospital systems in the US alone.

Cancellation of elective surgical procedures during the COVID-19 pandemic results in estimated losses of $16.3 to $17.7 billion per month in reimbursement and $4 to $5.4 billion per month in net income to the US hospital system.


CovaGuard

Incidentally in late March, the company introduced CovaGuard; an antimicrobial sanitizing technology platform (patent pending) that can deactivate and kill bacteria and viruses for up to four days. In late May, COV.V reported that it had started production with the intent to generate 75,000 units. In late June, CovaGard became available for sales and the company disclosed the intent in producing 3.5M units with a contract manufacturer.


In Short

COV.V has traded as high as $2.00 and as low as $0.70 cents for the period. From April to mid-August valuation has trended down. The stock recently bounced back from Q3 2020 earning results but Covalon is trailing last year YTD results by at least $7M in revenue which would make it very difficult to close the gap in Q4 2020. However, the patent obtained and the launch of CovaGuard further strengthen the company's product portfolio.


The return to elective surgery will be significant for COV.V. Worldwide, 28 million are expected to be canceled in 2020. Variances will differ across jurisdictions but an average of four months re-scheduling period has been cited, along with an expectations of about 84 weeks in Canada and roughly 18-24 months in the US.


However, there is also the possibility for pent-up demand for medical supplies to occur as many hospitals and health networks may start pulling orders to insure they have the supply on hand when needed. Hence demand can be "lumpy".


For now, the question is when exactly will things get back to normal?


DISCLAIMER: The work included in this article is based on current events, technical charts, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements.

The content of rally is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions - rally cannot take responsibility for your investment decisions.

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