Starlifter, I think the DSI issue only points to 1) reactionary business practice; 2) lack of good managerial assessment. Clearly, Ebola wasn’t part of the scientific or commercial paradigm prior to the flare up. Do I find fault with MZEI management trying to be opportunistic? No. But there was an obvious miscalculation that pursuing DSI/Ebola was preferential to other activity. This follows the long pattern of chasing the potential commercial “opportunity of the day,” be that bed bugs, locker rooms, vet clinics, food processing, bio-hazard, you name it. I think if you ask John if MZEI has a formal, written agreement with DSI, the answer will be ‘no.’ In that respect, future opportunity to work with DSI is likely the same as with any other party willing to place an order. By going through the DSI process it can be said that MZEI likely gained some additional recognition in the international medical community.
In my mind, KSA is another opportunity of the day. This ‘opportunity’ has been kicking around since last Spring. While I hope that MZEI does get over to SA and demonstrate the technology, the longer the time that lapses, it appears less likely to happen. (if a deal does come together, I think you’ll know by virtue of larger volume on a price uptick). At some point the deal comes together or management needs to recognize that there isn’t MOH interest, or if there is interest, the people they are working with are not capable of concluding a deal and need to be replaced, or you simply focus efforts elsewhere.
There has been a fair amount of board banter re: Ed’s performance, share dilution and funding. I formerly expressed similar concerns on these topics, but I really don’t think those issues matter all that much anymore. Yes, doubling the share count over recent years has hurt one’s upside opportunity if MZEI is ever sold. That milk is spilled. With only about 10% more authorization available, future dilution would appear to be limited, in a relative sense. Funding would appear to be harder to come by as the discount to market price use to be about 25% (Mammoth) and recently the discount has been in the 50-60% area. Nonetheless, the bills need to be paid. If one subscribes to the following scenario, bringing in new management likely isn’t needed.
To me, EPA approval will be determinative of shareholders making any money. Testing is ongoing and EPA consideration continues. It’s clear that the prior “regulatory team” wasn’t getting the job done and new people were brought on board – you can infer at whose recommendation. The EPA has had over two years to say “no” and yet they haven’t. At each turn, the science has prevailed. We can only hope that will continue and the new attorneys can influence a more than historical expedited process and decision.
Assuming a favorable determination (my guess is in the April – June quarter), the question is “then what?” Management hasn’t been building growth infrastructure. Longitudinal efficacy tests haven’t been started – leading to an inability to develop a firm commercial strategy (sales v. service models, etc.). Likewise, the lack of test data precludes customers from knowing how many units they need. As such, I would expect that after EPA approval, sales to any given hospital chain would be of modest size, until such time as they evaluate the product and how to best use it to achieve desired results. I do think that sales will come from Canada where the company has continued to conduct demonstrations and I would expect that Caponi would be somewhat effective in influencing some US sales. Apart from a potential KSA transaction, I wouldn’t think MZEI could sell 100s of units in the year following EPA approval, but something more modest.
If the sales are indeed more modest, what is the point in trying to make MZEI into an operating company for several years, boost sales a few hundred units more, year by year (using Xenex’s sales history as a guide), all the while burning the patent calendar? In my mind, a suitor won’t particularly have an interest in MZEI’s business model. They will have interest in the patents, the regulatory approval(s), some modest sales (real world effectiveness) and perhaps for a time, Dr. Shannon. I don’t think the suitor(s) will have a particular interest in MZEI building a slowly-paced commercial operation with all manner of tentacles. Suitors won’t price a bid on the basis of MZEI’s income statement, they’ll price it on the basis of how the technology fits within their businesses and what they model they can make. Apart from the ability to show market acceptance (in this respect, a good order from KSA would likely enhance the valuation and may lead to more substantial firms taking an interest in MZEI), I don’t think suitors will particularly care what MZEI does.
Who on the management team or BOD has M&A experience? Who has contacts in the industry? I think we can all see that the two new guys have vastly more experience than Ed in this respect. I’m not suggesting that Ed will be marginalized, but IMO our fate is not in his hands any longer. The best Esposito and Caponi can do is bring suitors attention to alternative markets they may not have considered and develop enough suitors to instill some competition for MZEI. I anticipate that MZEI will be sold within a year of EPA approval (due to limited operational history, suitor(s) due diligence time will be much less than a typical transaction). If there is any reality in this, it likely matters little that MZEI’s communication with shareholders is pathetic, that there is no ‘street’ communications, or that any number of the long-harped factors persist.
AI
