The manufacturing and distribution of COVID-19 test kits has been a major factor in the market decline costing the US stock market an unprecedented $5.0 trillion in losses. Kit makers like Roche Holdings (OTCMKTS: RHHBY), Thermo Fisher Scientific Inc.(NYSE: TMO) Becton Dickinson (NYSE: BDX), Co-Diagnostis (NASDAQ: CODX), AYTU Bioscience (NASDAQ: AYTU) and Todos Medical Ltd. (OTCMKTS: TOMDF) are all doing their best to ramp up supply but the brutal reality is that it’s a land grab and the first to market are going to be well positioned in the future. The lack of tests and accurate diagnosis has forced the United States to take draconian measures to curb the spread of the virus. Vice President Biden announced “this is like a war” and we are at war with this virus. In fighting any war you need to know where the enemy is located and without the proper testing and access to testing we are fighting an invisible foe. The FDA made a policy change on February 29, 2020 allowing certain laboratories to develop diagnostic tests for coronavirus in order to expedite the availability of diagnostics. This allows CLIA labs to use validated COVID-19 diagnostics before the FDA completes its review of the Emergency Use Authorization.
FDA Approval Log Jam Breaking
Under the FDA Emergency Use Authorization, Roche was granted approval for its coronavirus test. Yesterday it began its first shipment of 400,000 COVID-19 test to laboratories across the USA. Thermo Fisher was the 2nd commercial COVID-19 test. CODX has a test called CE-IVD Logix Smart COVID-19 test kit. CODX share price benefited the most from the testing announcement, but their lead is slipping as they have failed to secure the FDA approval necessary. They are primarily a diagnostics company, but in order to keep their $226 million market capitalization they are going to need to deliver. In their last filing they recorded only $41,000 in sales. They did however raise $10.2 million in a registered direct offering at $3.08 per share. Then a couple weeks later they raised $4.2 million in a registered direct offering $9.00 per share. Their current burn rate is approximately $6.0 million annually. This recent funding should bring them to an approvable endpoint before they need to raise additional funds.
New Kit on the Block
Before today, the wall street kit maker darling has been AYTU which went up close to 700% after its announcement to distribute the test. AYTU has ordered 100,000 test kits and hopes to be the first to distribute them but competitor TOMDF announced today that it entered into an agreement to distribute the kits and start the 4 week validation process. Their supplier has up to 500,000 test kits ready to ship upon completion of validation in a CLIA lab. Their supplier can manufacture 300,000 daily making TOMDF a major player in the kit space overnight and possibly surpassing AYTU’s stated capacity. It VERY IMPORTANT to not that both are doing rapid tests, but TOMDF has a sensitivity of 90.4% vs AYTU’s 90%. These are not the nasal swab tests although initially this will be needed to conduct the validation as a comparison. It will be interesting to see how the market reacts to this because TOMDF has a market cap of $8.8 mill versus AYTU’s $33.8 million market cap. If TOMDF has the best of breed test with its 90.4% sensitivity and can somehow manage an approval it might be able to beat AYTU to the punch line.
AYTU has gotten a lot of media exposure on FOX and NBC but will it live up to expectations. AYTU is more of a therapeutics company with over 8 therapeutics and only has 1 diagnostic test for THE MiOXSYS SYSTEM which is a rapid diagnostic for diagnosing male infertility. The company has a nice therapeutics business that as of last quarter did slightly over $3.0 million in sales. The company had $5.2 million in cash at then end of 2019 but since then has done 2 at the market financings of $9.0 million and $20 million. The company is probably sitting on close to $35 million in cash. The companies share count at the end of the year was 20.7 million but the latest two financing brings the share count to 44.5 million which diluted the company over half. The cash value per share is $.79 but the company is burning close to $5.0 million quarterly. The latest financings eliminate any going concern letter and squarely position themselves for growth or potential acquisition.
Todos Medical is definitely more of a diagnostics company. They are developing cancer screening tests that are fast, simple, low cost, and are highly accurate using blood. The company has an infrared spectrometer that measures biochemical changes in the blood. The software is able to discriminate between healthy, benign, and cancerous cells. They have two primary cancer tests in the pipeline. Their breast cancer test has a 93% sensitivity and 87% specificity which is quite good when compared to digital mammograms which have a 85% sensitivity and 90% specificity. Their other product is a colon cancer test. The company plans to move beyond cancer into tests for Alzheimer’s Disease and other neurodegenerative disorders. The company is also aligned with Provista Diagnostics which is a privately held company developing blood-based proteomic diagnostics in womens cancer. Provista also has its own Clinical Laboratory Improvement Amendments (CLIA) lab which could be the deciding factor in the approval of the COVID-19 test as they conduct their trial.
COVID-19 testing has gotten some real media exposure lately. Even Jack Ma founder of AliBaba (NASDAQ: BABA) was frustrated with the American response and is in the process of shipping 500,000 COVID-19 test kits to the United States. The country needs tests and they need them now and diagnostic developers like AYTU and TOMDF are a real testament to free market capitalism and the fact that the private sector can do things more efficiently than the government. This race for an FDA approved rapid diagnostic test is too close to call at this point, but it’s clear that these market caps have room to expand if the fear of the virus persists. TOMDF with its 98% sensitivity could become a serious competitive issue for AYTU if Todos Medical is able to generate sales and outmaneuver a better funded more entrenched player. This might make for an interesting pair trade by buying TOMDF and selling short AYTU if you believe the sector is falling out of favor. However if either of these innovators can get approval for their rapid test, acceptance could mushroom out of control and benefit both companies.
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Disclosure: Insider Financial and its owners do not have a position in the stocks posted and have posted this article for free without editorial input. This article was written by a guest contributor and solely reflects his opinions.