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Independent Reviews for Venture Investors

COV.V - Returns.



Covalon Technologies Ltd. (COV.V) is a researcher, developer, manufacturer, and marketer of patent-protected medical products that improve patient outcomes and save lives in the areas of advanced wound care, infection management and surgical procedures. Covalon leverages its patented medical technology platforms and expertise in two ways: (i) by developing products that are sold under Covalon's name; and (ii) by developing and commercializing medical products for other medical companies under development and license contracts.


Coverage was initiated February 2020 with notes on October 2020, June 2021 and February 2022.


News releases


Mar. 1 - Announces First Quarter Fiscal 2022 Results.


Mar. 11 - Changes To The Board of Directors: Dr. Samantha Nutt has been appointed and Martin Goldfarb has retired.


Mar. 11 - Announces Voting Results from Fiscal 2021 Annual and Special Meeting of Shareholders


Mar. 29 - Issuance of Stock Options: 0.5M shares at $2.19 to certain directors, officers, employees, and consultants.


Apr. 26 - Announces New Senior Vice President of Marketing: Ron Hebert as Senior Vice President of Marketing. Mr. Hebert brings nearly 30 years of healthcare sales, marketing, and hospital experience to Covalon. He has extensive experience leading national, international operations within pharmaceutical and medical device entities.


May 19 - Attracts Well-Known Medical Industry Sales Executive: Mark Doolittle as SVP, Commercial Sales.


May 25 - Announces Normal Course Issuer Bid: For its common shares with the TSX Venture Exchange (the "Exchange" or "TSXV"). The NCIB remains subject to regulatory approval.


At the opening of the stock market on today's date, the Company has 25,928,677 common shares issued and outstanding. Under the NCIB, if regulatory approval has been obtained, the Company may acquire up to 1,296,433 common shares over the next 12-month period, representing 5% of the issued and outstanding common shares.


May 30 - Announces Second Quarter Fiscal 2022 Results: Our second quarter revenue was $3.3 million, due primarily to major delays in product shipments from our warehouse in Shanghai. These delays were a result of Chinese government imposed COVID restrictions and negatively affected Covalon and worldwide supply chains.


June 30 - Enters into Automatic Share Purchase Plan: Under the ASPP, the Broker may purchase Shares under the NCIB at times when the Company would ordinarily not be permitted to do so due to blackout periods or such other periods when the Company may be precluded from purchasing Shares. The NCIB commenced as of June 1, 2022. Pursuant to the NCIB, the Company may, if considered advisable, purchase up to a maximum of 1,296,433 Shares for cancellation through the facilities of the TSXV from time to time until the earlier of: (a) May 31, 2023; and (b) the date in which the maximum number of Shares purchasable under the NCIB have been acquired by the Company


Aug. 29 - Third Quarter Fiscal 2022 Results: Targeting Hospital (smaller order monthly) instead of Distributor (quarterly and by bulk shipment). Overall, $1.2M spent on share buy-back with an approximate average price of $2.70.


Sep. 7 - Issuance of Stock Options: A total of 437,500 shares to certain of its employees at an exercise price of $2.50,.


Sep. 8 - Announces Expansion of its United States Pediatric Hospital Customer Base: Grown its pediatric hospital customer base to over 40 pediatric hospitals, which represents more than 17% of United States pediatric hospitals.


All these hospitals have adopted at least one of Covalon's patented infection prevention products to help prevent bloodstream and/or surgical site infections and improve patient outcomes. Becoming standard of care in a significant number of pediatric hospitals provides a strong base for Covalon for further growth.


Sep. 13 - To Introduce New Infection Prevention Products at the APHON Conference: With more than 25 leading children's hospitals currently using or evaluating Covalon's VALGuard product, the world's only FDA-approved vascular access line guard, the need to find a solution to help protect line-to-line connections to reduce central line associated bloodstream infections ("CLABSIs") has never been greater. Bloodstream infections are up 65% in intensive care units, and there is an urgent need to adopt new compassionate care technologies.


With studies indicating up to 71% of catheter-related infections being linked to catheter hub contamination – Covalon's VALGuard product was developed to help prevent these infections. Covalon's patented products include:


VALGuard® - an FDA-approved, transparent, environmental barrier designed to protect catheter hubs and line connections from external contaminants and gross contamination, including body fluids and other secretions.


SurgiClear® - a transparent, breathable, fluid impermeable barrier that isolates the wound site from external contamination while providing dual antimicrobial protection throughout the entire surface of the dressing.


IV Clear® - a vascular access dressing that is completely transparency at and around the insertion site.


Sept. 20 - Covalon's Surgiclear Adopted by Leading US Pediatric Hospital's Congenital Heart Program:


SurgiClear, the only dual antimicrobial postoperative dressing, is now part of the surgical site infection ("SSI") prevention bundle used by Texas Children's Hospital Heart Unit. As part of a quality improvement project, the Heart Unit at Texas Children's Hospital ran a trial to strengthen post operative wound care and infection prevention practices by trialing Covalon's SurgiClear product. During the course of the one-year trial, infection rates steadily declined and outcomes for patients improved. The trial involved the use of SurgiClear post-operatively on a total of 600 patients ranging in age from 2 months to 66 years that had congenital heart surgery.


Since the completion of the trial, the product has been used as a first-line wound dressing on all patients over two months of age being treated by the Congenital Heart Surgery Service at Texas Children's.


Key highlights include: a) Infection rates steadily declined over the course of the project, reaching 0 infections after 1 year; b) The transparency of SurgiClear reduced the number of dressing changes, in turn reducing exposure and manipulation of the healing wound; c) Application of SurgiClear was successful across a wide range of age groups and incision types. There have been no adverse events or cases of compromised skin integrity; d) The low-profile transparent design of the SurgiClear dressing was well received by patients' parents and caregivers, empowering them to monitor for signs of complications; e) Use of SurgiClear conserved nursing time


Sept. 26 - Showcase Infection Prevention Solutions at the Association for Vascular Access Annual Scientific Meeting:


Sept. 28 - To Participate in the 12th International Pediatric Intestinal Failure and Rehabilitation Symposium in Toronto.


Oct. 11 - To Participate in the American Nurses Credentialing Center Magnet Conference in Philadelphia


Nov. 1 - Closing Chronic Wounds with Collagen Powder: Covalon's newest advanced wound care product, ColActive Plus Powder, was showcased in a case study presentation at the Symposium on Advanced Wound Care (SAWC), from October 13 to 16, 2022 in Las Vegas. The study, conducted by Dr. Alton Johnson Jr., at University of Michigan School of Medicine, demonstrates the efficacy of ColActive Plus Powder in treating chronic non-healing wounds: .


Nov. 8 - Launches New "CLABSI Conscious" Campaign to Help Children Heal Without Infections: Ramping up awareness about rising Central Line Associated Blood Stream Infection ("CLABSI") rates across the U.S. with new digital resources designed to bring the standard infection ratio for CLABSI down, specifically in pediatric patients.


Covalon is taking a stand against the significant rise in the standard infection ratio for CLABSI through a new "CLABSI Conscious" campaign geared to minimize human error, maintain safety consistency, and empower frontline healthcare teams with the technology they need to reduce CLABSIs in pediatric patients.


Nov. 21 - SurgiClear Dressing Helps Prevent Surgical Wound Infections at Top Children's Hospital: SurgiClear® dressing played a key part in an infection prevention bundle that significantly reduced surgical wound infections in a two-year quality improvement study recently published by Intermountain Primary Children's Hospital, a not-for-profit children's hospital associated with the University of Utah and part of the Intermountain Healthcare system.


Intermountain Primary Children's Hospital is recognized as one of the top children's hospitals in the United States. Describing the impact of the bundled intervention, published in The Annals of Thoracic Surgery, the authors from Intermountain Healthcare report that the annual rate of total surgical wound infections decreased from 2.83% in 2019 to 1.15% in 2021. The bundled approach included implementation of SurgiClear as a main practice change.



Summary

There has been a number of significant development in the last period.


Appointments

Dr. Samantha Nutt was appointed to the Board of Director while Martin Goldfarb retired (March 2022). Ron Hebert was hired as Senior Vice President of Marketing (April 2022) and Mark Doolittle as SVP, Commercial Sales. (May 2022).


Stock Options

Options were granted in two occasions. 0.5M at $2.19 (March 2022) and 0.4M at $2.50 (August 2022).


Stock Buyback

A Normal Course Issue Bid (NCIB) was announced May 2022 for roughly 5% (1.29M) of the total issued and outstanding common shares. June 2022, Covalon entered Automatic Share Purchase Plan (ASPP) where PI Financial may purchase Shares under the NCIB during blackout periods, when the company is unable to do so. As of Q3 2022. Covalon reported the purchase of 574,500. The NCIB started June 1, 2022 and is schedule to end May 31, 2023.


Insider Purchases

In addition to the NCIB, Insiders have also bought shares at the open market.

Source: CEO.ca


Earnings

Despite a good start in Q1 2022, revenues are lagging in Q2 and Q3 2022. Hence, Year to Date (YTD) 2022 revenue are flat compared to 2021. Also, the loss are much bigger (5.58M) and cash is down to 14M from 22.9M in Q4 2021.


The Q2 2022 performance was attributed to 'major delays in product shipments from our warehouse in Shanghai." In Q3 2022, was explained "simply reflects the timing of orders from our United States collagen distributors".


On the Q3 2022 earning call, Covalon's CEO stated


Yeah. So typically, and whether it's us selling to international distributors, they tend to be by the container, the shipping container or to our distributors within the United States for collagen, we tend to do runs of products that go in large shipments. And so those shipments don't happen every month or in the case of some the distributors not ever - they don't buy every quarter. And so it tends to create a little bit of a lumpy top line, whereas the hospital business is very steady. They all buy in smaller volumes and more frequently. So it's a lot more predictable. So that's a very positive outcome of our growth opportunities within hospitals.


Initiatives

A number of initiatives have been disclosed this period. This is represent a break from prior periods and seems to coincide with the recent hires (i.e. SVP Marketing and Commercial Sales). First, an official announcement on the expansion of its United States Pediatric Hospital Customer Base: As of the date of the release, Covalon reported to be in over 40 pediatric hospitals representing only 17% of United States pediatric hospital (September 2022). Also in the same month, a report on the impact of SurgiClear's adoption by Texas Children Hospital Heart Unit where a one year trial showed positive results.. In addition, a two year quality improvement study conducted at Intermountain Primary Children Hospital also showed positive outcomes with SurgiClear (November 2021).


Finally a CLASBI Conscious Campaign was launched in (November 2011).


Conferences

Covalon also attended some conference where it also made a few announcements. For instance it introduce new infection prevention products at the Association of Pediatric Hematology/Oncology Nurses (APHON) Conference (September 2022). Covalon reported that more than 25 leading children's hospitals currently using or evaluating Covalon's products (VALGuard, SurgiClear and IV Clear). It also showcased IVClear and SurgiClear at the Association for Vascular Access Annual Scientific Meeting (September 2022). Covalon also participated at the 12th International Pediatric Intestinal Failure and Rehabilitation Symposium in Toronto (September 2022) and The American Nurses Credentialing Center Magnet Conference in Philadelphia (October 2022) as well as the Symposium on Advanced Wound Care (SAWC)(November 2022) where it demonstrates its ColActive Plus Powder Chronic Non-Healing Wounds.


Warrants

The company has 2.92M of Warrants to exercise at a weighted average price of $2.14.


In short

The appointments made (i.e. SVP Marketing and Commercial Sales) are having an impact on the visibility of the company. Many of the studies and benefits of Covalon's product have been promoted to different audiences at multiple conferences. This align with the strategic shift towards expanding the usage of the product in US Pediatric Hospital which thus far is at 17% penetration. However, YTD 2022 revenues are flat year over year and the net losses are considerably larger. It may be that this is only a transitional phase but from the sale of AquaGuard® ($38M), the proceeds of $22.9M are now $14M. This means that roughly $8.9M have been spent on re-tooling. At this point, How much more money will be required to double or triple current market penetration?


Covalon continues to think it is undervalued, the stock buy back and insider activity reflects this view. Despite this, valuation has not improved and trading volume continues to be very low. The low volume is explained in part by the fact that 48% of the shares are owned by two large shareholders. However, there still seems to be a weak interest from the market and this is something that may be need to be addressed by the company in due course.


There is no doubt that Covalon's product have a tremendous impact on people lives. The net social good this company provides to the economy definitely cannot be understated. However, it is also an investment to shareholders. As such, going forward the challenge remains, scaling revenues and maximize returns.

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.


It's clear that Covalon continues to think it is undervalued; the stock buy back and insider activity reflects this view. Despite this, valuation has not improved and the trading volume continues to be very low. Part of the reason for the low volume is due to a the fact that 48% of the shares are owned by two large shareholders. However, the trading volume also represent a weak interest from the market and this is something that may be need to be addressed in time.

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