Medizone Intl. (fka MZEIQ)

[Whatisvalue]

Shareholders are still frustrated by the issues that have plagued MZEI for years.

Dr. Shannon has done a good job of taking a concept and making a piece of equipment. From all indications, AS is superior in effect and relative to competition. I have little doubt that a suitor with materially more resources can enhance AS further.

Yet, the company has and continues to fall short of commercialization. Part of this condition has and continues to be due to 1) its small size; 2) lack of capital; and likely most important 3) lack of experience in management and scientists relative to commercialization.

When Ed references various complex EPA requirements, the translation is that neither he nor Mike knew what or how to process the EPA application. See: http://www2.epa.gov/sites/production/files/2014-04/documents/pr2013-2.pdf
The need to use EPA approved peroxy compounds has been clearly set forth since 2009, this isn’t some new EPA requirement. The staff at MZEI, once they concluded EPA approval was needed, didn’t experientially know about how to execute the regulatory process. They hired a consultant who likewise didn’t appear to be very helpful. The new attorney/consultant hired last Summer/Fall, clearly didn’t know about the requirement or wasn’t tasked to evaluate that aspect of MZEI’s submission.

In the December Chairman’s Letter, Ed essentially played the blame game with the EPA (just as he did with KSA in the latest letter). Sure, it sounds like the EPA has not been particularly professional and has changed some things up, but what’s new with a governmental body of that nature? For MZEI to expect the EPA to sit at a table and give them a roadmap telling them every step to take to achieve EPA approval is naïve. We have heard several times now that MZEI has met with the EPA and their belief has been that it has responded to all requirements set forth, and perhaps is has. But, have they met all submission standards, both those discussed in dialog with the EPA and those simply set forth in the code? Obviously not. Shareholders’ frustration is in believing that MZEI and its consultants have a handle on all relevant requirements and that the hoped for “final” submission is just that. That frustration is magnified by the awareness of MZEI appearing to run out of capital runway in the not too distant future, only exacerbated by the falling share price and hence, the accelerated use of remaining share authorization. If MZEI can make a sale in Canada, they “buy” about a month of operating capital for each of the 6 AS units in inventory. I know, we’ve gone from statements of MZEI expecting the selling 40 units by year-end (successive 10Qs over a few years), to expressions of interest by prospective customers. My sense is that lack of sales in Canada has had less to do with AS’ effectiveness and more to do with hospital administrators lack of willingness to embrace a new technology offered by a resource-strapped company.

My sense is that the matters remaining to be resolved with the EPA are not efficacy related, but matters of dotting the I and crossing the T in reference to labeling and related matters. With proper guidance, MZEI should be able to clean up the paperwork. Ed expressed optimism (I know, what’s new) when he wrote, “We expect this issue to be resolved to the satisfaction of the agency in the very near future, whereupon we can proceed with what is believed to be a final and complete formal submission.” In my opinion, Ed should communicate with shareholders when there is a meeting of the minds with the EPA regarding what is required to resolve the issues, what steps and amount of time will be required to satisfy the agreed to requirements (when does MZEI expect to submit the final application), and whether the EPA has the typical 90 day period to respond to the submission or some other amount of time. If on the other hand, we get more of the ‘silent treatment’, the SP will likely steadily decline.

The regulatory-based investment risk associated with owning MZEI has always been with us, irrespective of the share price being $0.07 or $0.35. The difference in the share price has little to do with AS’s effectiveness (albeit modest in scope relative to testing, that is even stronger today), but it has everything to do with management’s processing of the commercial aspects of the technology and the belief they can get the job done. Even with EPA approval (which I anticipate or would not be invested), the issues of size, capital and experience don’t go away. For this reason, I hope the BOD sells MZEI to a suitor shortly following EPA approval. As I’ve written before, I don’t think a suitor will particularly care how many units MZEI can sell following EPA approval as MZEI’s lack of resources will likely be the factor limiting sales, not the capabilities of the science. They will bid on MZEI based upon what they think they can do with the technology.

None of us know what MZEI’s technology is worth. We do know that a unit of JNJ paid nearly $1B for a technology thought to be effective dealing with HAIs, which at the time had limited European sales and no regulatory authorization in the US. Arguably, AS is more effective and has additional indicated applications. As such, I frame my expectations for a suitor buyout with that data in mind. The suitors no doubt can see the stress on and capabilities of MZEI and absent the prospect for competitive bids, they will be incented to seek a low price (particularly from panicked shareholders willing to ‘settle’). For this reason, I hope the BOD has already shared all the relevant scientific and related MZEI data with a cadre of prospective suitors, and materially all that remains to be done is the gaining of the regulatory approval and pulling the trigger on the ‘bidding process’.