Co-Diagnostics Inc (CODX)

[Opti Mist]

Update from H.C. Wainwright

U.S. COVID-19 spikes and testing backlog suggest growing testing demand ahead. The first wave of infections in the U.S. is still trending around the highest levels seen to date. Last Friday, the U.S. broke prior single-day COVID-19 record by registering over 66,000 new cases, according to a Johns Hopkins University tracker. California, Texas, and Florida saw record daily coronavirus spikes during the last week and are now the country’s largest COVID-19 hotspots. Specifically, the Florida Department of Health reported 15,299 new cases yesterday, the highest number of new cases reported in a single day by any state since the COVID-19 pandemic began. The U.S. now has roughly 3.3M accumulative cases and over 135K COVID-19 patients have died. It is not clear at this juncture when the first wave might end or—as economic activities resume and schools reopen in the coming months—whether there could be a second wave or if the first wave simply extends into the coming fall-winter season. What is clear now is that testing demand has been steadily increasing and is likely to continue to remain at a substantial level in the coming quarters, in our view. In fact, as reported in the Wall Street Journal yesterday, the COVID-19 testing system is reaching the brink in the U.S. as growing demand surpasses what the nation’s labs can handle, resulting in supply shortages and backlogs. Outside the U.S., Brazil, India, and South Africa are registering the greatest rises in COVID-19 cases, according to the United Nations (UN) health agency. Therefore, we believe Co-Diagnostics should continue to ship a high volume of its Logix Smart™ COVID-19 test kits, with an increasing volume shipped to U.S. customers. In addition, the India market is serviced by the company’s joint venture, CoSara, with manufacturing facilities located in India. As a reminder, the company had approximately $100M worth of tests in mid-May that are slated to be shipped. In the wake of the accelerating COVID-19 spread, we reiterate our Buy rating and $35 price target.

Logix Smart COVID-19 test’s high accuracy independently validated by multiple institutions. The company’s COVID-19 test has been independently validated by PathWest Laboratories in Australia, the Indian National Institute of Pathology, and the Mexican Department of Epidemiology. This qualitative real-time reverse transcription PCR (RT-PCR) test has a limit of detection at 4.29 copies/µL, 99.52% sensitivity and 100.00% specificity. Time to detection is 63-90 minutes. PCR (molecular) testing is the gold standard to detect active COVID-19 infections, based on FDA guidelines. Of note, CoSara’s Saragene™ COVID-19 test, which uses the same reagents as in Logix Smart COVID-19, has been approved for sale in India.

Valuation and risks. Our 12-month price target is based on an enterprise value-to-sales (EV/Sales) multiple of 9x and projected sales of $3.93 per share for the next 12 months ($108M sales from 2Q20 to 1Q21, and 27.5M shares outstanding). Sales of CoSara have yet to be integrated into the company’s top-line revenue. Risks include, but are not limited to: (1) lower-than-projected product uptake; (2) inability to maintain regulatory compliance; (3) inability to develop additional products targeting segments beyond infectious disease in developing markets; and (4) potential dilution risk.

Full Report can be found at: http://codiagnostics.com/wp-content/uploads/2020/07/HCW-13JUL20-Update.pdf

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