Stockhouse Ticker Trax is equity specific research (Canadian listed and market cap < $300 million) published every Monday to paid subscribers. Our free Friday column may feature companies previously featured to paid subscribers (with a minimum one month delay) or discuss topics of interest to the general investment community and relevant to overall portfolio management.
LED Medical Diagnostics (TSX: V.LMD, Stock Forum; 35 cents)
In the world of micro caps (penny stocks), corporation communication (also referred to as IR or promotion) is critically important. Some companies are good at it, some are terrible, and some are great. On the surface it appears LMD may emerge at the top of its class. This is still early stage because these deals were just cut and need to be approved by the Exchange.
If all the pieces of this puzzle come together, it will be very interesting to track the progress of this company in 2013. Fundamentally they look good, but it has been a while since I saw something (from a promotional perspective) so well organized.
Mark Komonoski from Calgary is a corporate communications specialist who joined LMD in 2012, and has taken months putting this team together. Many small public companies could use LMD as a blueprint for their own corporate communication programs (and how to structure them). Time will tell if this translates into buying and price appreciation but from the 30-cent range I suspect this is very attractive risk (given what I know of the groups involved).
Here is an excerpt from their news release on the 23rd followed by a review of the company’s fundamentals – a strong IR program is useless without a strong underlying story.
To support its public market communications program for 2013, LED Medical has performed the following:
Retained Byron Capital Markets Ltd. to advise on future capital markets transactions and capital raising activities within the Canadian marketplace and investment community. Byron Capital is a full-service institutional investment dealer with a team comprising a group of experienced finance and capital markets professionals focused on providing service to institutional investors and corporate clients throughout the life cycle of their businesses. Byron Capital serves clients in Canada and around the world including Europe and Australia. Visit Byron Capital Markets' website;
Retained Brean Capital LLC to act as LED Medical's principal American liaison (PAL) to the U.S. public markets. Brean Capital is a research-driven investment bank and asset management firm, dedicated to small- and mid-cap growth companies and their investors. Visit Brean Murray's website;
Retained the investor relations services of Deutsche Investor-Relations GmbH (DIRG) for Europe. DIRG is a Berlin-based investor relations firm that provides a multitude of investor relations services to publically-traded companies looking to establish support in German-speaking Europe. DIRG will be paid 2,500 Euros per month to provide a multifaceted investor relations program for an initial period of six months. LED Medical has sold VELscope Vx systems in 23 countries globally, including several European countries to date, and plans further international penetration via its distribution partnership with DenMat. Visit DIRG's website;
Retained the communications services of Fifth Gear Marketing. Principal Marc Hoelscher is a recognized expert at strategic market development, and will oversee all communications and public relations activities for LED Medical;
Retained Hart Partners LLP, a boutique consulting firm dedicated to creating sustainable market valuations for publicly-traded companies. Jeffrey S. Hart, founder and principal is a 15-year veteran of Wall Street with brokerage, investment banking, private equity and buy-side experience. Mr. Hart will introduce LED Medical to prospective institutional and individual investors. The company will have an initial engagement period of 90 days starting Feb. 21 for a fee of $19,500 (U.S.), as well as 100,000 stock options at an exercise price of 40 cents. Visit Hart Partners' website;
Retained the social media marketing and social media optimization services of Emerging Growth Inc. (EGI). EGI will market LED Medical's corporate materials across multiple social media platforms and throughout its network of social media outlets. Visit Emerging Growth's website.
All engagements are for one year unless otherwise specified. All option grants are subject to both board and regulatory approval.
LMD corporate overview
Leading the Way in Oral Cancer Diagnostics – Leveraging Patented Technology into Other Cancer Detection/Removal Applications
- Founded: 2003 | Public on TSX.V: 2011
- Share price close 01/23/2013 – 35 cents
- Shares outstanding: 41 million/Market cap: $14 million
Headquartered in Burnaby, British Columbia, Canada, LED Medical Diagnostics Inc. (“LED Medical”) is the pioneer and global leader in LED-based tissue visualization technologies for the medical industry.
Through its wholly-owned subsidiary, LED Dental Inc., the company manufactures the VELscope Vx Enhanced Oral Assessment System, the first system in the world to apply tissue fluorescence visualization technology to the oral cavity. VELscope Vx devices are now used worldwide to conduct more screenings for oral cancer and other oral diseases than any other adjunctive device. To date, there have been more than 12,000 VELscope Vx systems sold in 23 countries and they have been used to perform more than 25 million exams. For more information, visit www.leddental.com.
To-date, the tissue fluorescence visualization technology utilized by LED Medical has benefitted from over $50 million in research funded by the National Institutes of Health and other foundations and institutions both in the US and Canada. The British Columbia Cancer Agency (“BCCA”) was a partner with LED Medical in developing a means of applying this technology to the oral cavity; the agency now receives a royalty on VELscope Vx sales revenues. An additional, $20MM plus was invested into the company prior to it going public in November 2011, via reverse takeover, at prices between 65 cents to $2.00 a share. Approximately $2MM was raised as part of the RTO, which had a vend-in price of 75 cents.
Major inroads into the dental industry
At the time of its listing on the TSX.V, LED Medical also signed a two-year exclusive distribution agreement with Henry Schein (www.henryschein.com), a Fortune 500 worldwide supplier to the dental industry. Through Schein, revenues from LED Medical’s dental vertical grew from $1.6 million in F2010 to $7.1 million in F2011 and there was an equally substantial improvement in gross margin (24.4% vs. 54.9%).
After three quarters in F2012, LED Medical has realized $5,185,000 in revenue, improved margins (currently at 60% plus) and reduced loses - nearing breakeven. The slowdown in growth during F2012 is primarily attributed by the company to a breakdown in the partnership with Schein and a transition to a new dental distribution partner, Den-Mat Holdings Inc. (www.denmat.com). Initial results of the new relationship are promising: through Den-Mat, Q3 F2012 revenues increased to $1,564,000 from $556,000 for the same period in 2011, an increase of 181%. In addition, a significant portion of the sales and marketing costs related to the dental vertical have been transferred to Den-Mat, enabling LED Medical to reduce its operating costs by 19% over the same period.
New focus on corporate communications
LED Medical considers 2013 a break out year in the company’s evolution. The company believes it is taking all the necessary steps to fully leverage its success within the dental vertical. It has a new distribution model in place and there are a number of new product enhancements and extensions in research and development that should keep the product line fresh for the next two to three years.
Perhaps more importantly, LED Medical has identified a number of promising opportunities to leverage its proprietary tissue visualization technology for diagnosis/removal applications outside of the oral cavity and into other areas of medicine. According to LED Medical’s founder and CEO, Peter Whitehead, “it is now very important that we execute a communications strategy to expand the global investment market’s understanding of the significant milestones we’ve reached in the dental industry, as well as to present our technology roadmap and the important initiatives we have underway to fully capitalize on the market opportunities before us.”
New communications team
The communication team is being led by Mark Komonoski, a seasoned IR person with 23 years of industry experience and winner of “Best IR for a TSX Venture Listing 2004,” and who has helped raise over $250m for early stage technology companies. Marc Hoelscher, a recognized expert at strategic market development, will oversee all communications and public relations activities for LED Medical.
Byron Capital in Canada will act as LED Medical’s market advisor based on its deep knowledge and experience in Biotechnology & Pharmaceuticals as well as Healthcare. Byron Capital’s participation will be led by Douglas W. Loe, Ph.D. MBA, a well respect analyst in Canada (ranked #3 by Brendan Wood International in 2011 - Biotechnology & Pharmaceuticals, Healthcare). Mr. Loe has initiated non-priced research on the company.
Deutsche Investor-Relations GmbH ("DIRG") for Europe. DIRG is a Berlin-based investor relations firm that provides a multitude of investor relations services to publically-traded companies looking to establish support in German-speaking Europe. DIRG team said German dentists are using and excited about the technology so their thought is the European investors will be receptive to a new non-resource story like LED Medical. LED has sold its VELscope Vx systems in 23 countries globally, including several European countries to date, and plans further international penetration via its distribution partnership with DenMat.
Brean Capital LLC (“Brean Capital”) has been added as U.S. Principal American Liaison (“PAL”) to act as LED Medical’s U.S. market advisor. This indicates to me they are heading in the direction of some sort of listing or capital raise in the U.S., or both. They have not specifically mentioned any such listing yet; however, it could be assumed the route to market there is the OTCQX or other small-cap exchange listing. There has been more talk about the OTCQX lately, which is a relatively inexpensive route to have a U.S. quotation, like an ADR, which many foreign companies like to have.
Either way the U.S. team and support will be augmented by the team additions of Hart Partner’s and Emerging Growth. Jeffrey Hart appears to be a season IR professional based in NYC (also works with Lippert Heilshorn IR, www.lhai.com in NYC, a major Wall Street IR firm as a Director of Market Intelligence. In addition, Emerging Growth looks to be a high profile robust social media marketing and media optimization services group. They deliver information across multiple social media platforms and throughout its network of social media outlets.
When asked how they were able to retain such entities at this stage, management said it is a combination of previous relationships and a belief in LED Medical’s story and potential. They believe they will get better exposure, reception and possible valuation in the U.S. market, as it is larger and has less of a resource-centric investment focus.
The company’s plan, starting in January 2013, is to create consistent and steady news flow. LED Medical offers a story with a “feel good component” to it about saving lives, outstanding economics (especially recent average gross margins in the 62% range) and incredible blue sky potential across a wide range of medical applications. In the dental industry alone, there are numerous testimonials and validation are already on the Internet and YouTube, as well as several important clinical trials validating the technology. The company’s VELscope Vx has even been featured on the popular daytime television show, Doctor Oz.
The company has a wide user base - more than 8000 dentists are using the product today – and has received rave reviews from the industry. In 2013, it plans to leverage this user base - throughout North America and abroad - as potential shareholders.
- FDA, Canada Health, and CE Mark all approved for global sales.
- Recognized by The World Health Organization.
- 12,000+ devices already sold with 25,000,000+ screenings.
- Growth in recurring dental revenues from consumables.
- Revenue growth in 2011 to $7.1 million from $1.6 million in 2010.
- In the nine months of 2012, margins improved to 60% while maintaining 2011 revenue despite a change of distributors.
- Expanding into laboratory services and other cancer detection devices through deep product pipeline.
- Over $50 million in R&D
Disclosure: Danny Deadlock does not own shares of LED Medical Diagnostics (TSX: V.LMD).
In addition to this weekend column and the bottom fishing research sent to paid Ticker Trax subscribers on Monday, I also provide free MicroCap alerts throughout the week. These are based upon News or Abnormal Price/Volume Activity on the several hundred stocks we track from our own research, brokerage analysts, or third-party newsletter writers.