Loe says partnership change could help LED Medical better market VELscope

LED Medical’s VELscope was featured on the Dr. Oz TV show, September 14th, 2010.Yesterday, Vancouver-based LED Medical Diagnostics (TSXV:LMD)announced it had signed an agreement with Denmat holdings in which the California-based dental products distributor will help market VELscope Vx, LED’s early stage oral cancer detection device.

The announcement comes just days after the company said it would wind down its exclusive distribution agreement with Henry Schein Inc.

LED founder and CEO Peter Whitehead said the deal with Denmat will allow his company to expand its other offerings: “This alliance between LED Medical and DenMat will create the most visible and influential oral cancer screening group in the world,” he said, adding: “DenMat’s sales and marketing team has the size, experience and leverage to raise the VELscope Vx to an entirely new level of name-brand recognition. Aligning ourselves with a proven sales and marketing organization is intended to push sales significantly and maximize the VELscope’s global presence. As an additional benefit, this alliance will provide LED Medical Diagnostics with more time and resources to focus on the development of additional product offerings.”

Byron Capital analyst Douglas Loe says the move is not without its risks. He points out that under Henry Scheins’s tenure, sales of VELscope Vx grew from just $1.6 million in 2010 to $7.1-million the next year. He says that although Henry Schein is is a highly diversified global medical products distributor, the company’s wheelhouse is dental products, where it derived 56% of its (US) $8.5-billion in revenue last year.

Loe says he would have preferred to have Henry Schein stay on board as a non-exclusive distributor of VelScope Vx, but concedes that because the deal was exclusive it limited LED’s strategic flexibility. The Byron analyst, who does not yet have a price target or rating on LED Medical Diagnostics, says ultimately, the bold shift in strategy could be a long term positive to VelScope VX’s profitability. He says he is pleased that DenMat, which markets and distributes a broad range of dentistry products in more than 68 countries, sees value in VelScope. Loe expects a softer Q3, but that the partnership will begin to have impact in the fouth quarter of this year.

At press time, shares of LED Medical Diagnostics were up 20% to $.30 cents.

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