SaaS-based telehealth company MedX Health Corp (MedX Health Corp Stock Quote, Chart, News TSXV:MDX) checks all the boxes investors should be asking, according to Beacon Securities analyst Doug Cooper, who launched coverage of the stock on Wednesday with a “Buy” rating and $0.45 target.
Mississauga-based MedX has a front-end medical device, the SIAscope, that can scan suspicious moles and lesions and penetrate two mm below the surface to accurately generate high-quality images which can then be uploaded to its proprietary DermSecure telehealth platform and transmitted to dermatologists for assessment.
The SIAscope has been proven through a proof-of-concept trial in Norway where the device was deployed at 109 Boots pharmacies, capturing 80,000 scans and finding 800 cases of melanoma.
So far, the SIAscope has regulatory approval in 35 countries including the US, Canada, Australia, countries in the EU and, announced last week, Brazil, which recorded over 100,000 new cases of skin cancer between 2016 and 2017 according to the Brazilian Cancer Institute.
On the newest approval, MedX CEO and president Scott Spearn said, “MedX has worked seamlessly with its Brazilian distribution partners, MedX Brasil and Oneway Diagnostica, to ensure we were able to complete this important certification from ANVISA, Brazil’s regulatory authority. We had the support of the Brazilian Dermatological community in this process, and we are very appreciative of the efforts and professionalism of our partners in achieving this milestone,” Spearn said in a press release on March 17.
In his coverage initiation, Cooper said that dermatologists have called images from the SIAscope “the next best thing to being there” in person and, considering the current COVID-19 environment, attested that the device could find an especially receptive audience.
The analyst said the Brazilian market could result in $8 million of hardware sales over the next two years and a run-rate of $14 million of high-margin, recurring platform revenue by the end of fiscal 2021, which, by Cooper’s estimate, would only mean about 0.6 per cent of the Brazilian population that receives annual skin cancer screening.
As a contrast, Cooper said that 1-1.5 per cent is a very possible mark in a population where eight per cent are deemed “high risk.”
“Not only could orders from Brazil be much deeper given the size of the population and the prevalence of skin cancer in the country but we believe MedX has ongoing relationships with other countries with an aggregate population of 580 million that could translate to firm orders over the course of the year,” Cooper wrote.
Cooper said that not only does it seem like investors are unaware of recent positive developments concerning MedX, the company appears well-positioned both fundamentally and from a risk-return value perspective, specifically, relating to four key questions to which MedX answers in the affirmative each time: Does it fill an unmet medical need? Is the Product through the R&D stage with all regulatory approvals? Is there a sales backlog? Does the stock trade below its intrinsic value?
On the final question, Cooper wrote, “With a current market cap of ~$15 million versus recurring platform revenue visibility of $14+ million (not including hardware sales of ~$8 million over the next two years), the stock trades ~1x indicated, high margin, revenue just from Brazil. Such telehealth companies typically trade between 5-10x such revenue.”
“As such, in our opinion, MDX is materially undervalued with its in-hand contract in Brazil. Follow-on Brazil orders plus potential roll-outs in Canada, US and other countries represents a free option to investors,” Cooper wrote.
The analyst is calling for fiscal 2020 revenue and EBITDA of $4.4 million and $0.4 million, respectively, and for fiscal 2021 revenue and EBITDA of $14.9 million and $5.2 million, respectively.
Cooper’s $0.45 target at press time represented a projected 12-month return of 350 per cent.
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