Todos Medical (OTCMKTS: TOMDF) has been on the move northbound in recent weeks on a steady surge of volume easily topping $1 million in dollar volume per day and emerging as a top traded stock in small caps. With recent highs of $0.1047 the stock needs to break north of this price point for confirmation of the next leg up.
TOMDF has many innovations in the testing space. One reason is their medical Advisor, Jorge Leon, who was the mind behind the regulatory strategy at Quest Diagnostics. They also have a breast cancer and an Alzheimer’s disease test. Their COVID-19 strategy was very interesting because they built up capacity preparing for the next wave while all the smaller labs went back to their normal business. As a result they are able to take on bigger clients and have the capacity. Just recently they were awarded a reference contract that brings in 1000 samples daily. This could translate into at least $20 million annually, but if they hit their anticipated surge capacity could be worth much more. Any surge in Omicron could send the existing business into exponential growth. They currently have the capacity to do up to 20,000 tests daily and were considering “the idea of purchasing more equipment to stay ahead of the curve.” The management is extremely bullish on the sector and added testing capacity when most thought the pandemic might be over.
Todos Medical (OTCMKTS: TOMDF) is at the same interim point in their clinical trials that PFE was at 6 weeks ago when the DSMB stopped the clinical trial of the 3CL protease inhibitor skyrocketing the valuation on the news. TOMDF also has a 3CL protease inhibitor, called Tollovir that is made from all natural ingredients and doesn’t have any dose level toxicity. In the coming weeks investors will see if the CEO was correct on his assessment of the drug as he was about the resurgence of COVID-19.
For more on TOMDF read the end of this article now lets look at the sector in general:
As the Omicron variant surges there are many industry uncertainties, but one constant. That constant is that COVID-19 testing will benefit regardless of which strategy policymakers, physicians, and pharma use to combat the new variant. If vaccines still retain some effectiveness, they will need to reassess the population and figure out who is protected and who isn’t so they can quickly bridge the gap until another vaccine is available to specifically combat the Omicron variant. Policymakers might also embrace expanded-use oral antivirals like Pfizer’s Paxlovid or Merck’s molnupiravir which only work early (< 5 days from infection) in the disease so finding these people early is the only way that strategy would be effective. Further, testing is critical for tracking Omicron and potential further variants. Testing is on track to make a huge comeback so investing in these names ahead of the curve could be a very profitable investment thesis.
Dismantling The Testing Network
Many of the pure play testing companies have been under considerable pressure because testing and controlling community spread for all intents and purposes was abandoned once the vaccines started to roll out en masse in Spring 2021. The general thinking was that with such high levels of vaccine protection from infection, it would do little good to keep testing as everyone would be protected regardless. The flaw in this concept was that analysts completely overestimated how good the vaccines were and how long this protection would last. A recent study confirmed that they were half right that surveillance testing would do little good if the vaccines were 95% effective, but were actually considerably useful once that level dropped down to 75% effectiveness.
People who had a shot 5-6 months ago have “almost no neutralizing ability against Omicron, a far cry from the initial 95% reduction in infection a year ago against the wild type virus. While the vaccines do offer some protection against hospitalization and death, it’s clear that the efficacy quickly wanes and those who want to remain protected from vaccines alone will need to be boosted every few months. This is such a short time frame that testing will be required for cases, variants, and immunity—having neutralizing antibodies.
Although there was a factual basis for stopping surveillance testing, once they started seeing breakthrough infections from the Delta variant, the administration was wrong to not ramp up the surveillance testing once again to protect Americans. There is a belief that this was done to mask the waning effect of vaccines so that they could continue their campaign to vaccinate more Americans in their quest for herd immunity. On May 10th the CDC stopped tracking breakthrough infections except those that resulted in hospitalization. Without data tracking all the increased number of breakthrough infections that don’t result in hospitalization, the vaccines were able to maintain a very high perceived efficacy rate until breakthrough infections from Delta pounded the nation and forced a pivot toward booster shots.
With the cat out of the bag, many vaccine-hesitant Americans are feeling as if they were right all along and the government is pushing mass vaccinations including vaccines for kids upon the entire population. Many parents feel the vaccines are unnecessary and also risky for kids since the long-term (years worth) effects of COVID-19 vaccines as well as mRNA technology have not been studied, while kids as a population are not at risk for developing severe COVID-19. The argument is that child vaccinations will slow the spread of COVID but that can effectively be done with testing without subjecting any kids to the potential risks of taking a biopharmaceutical product.
Many may have forgotten, but in the spring of 2021 daily infections dropped to as low as 4000 on June 20th, 2021 so the idea of millions of tests to control such a small number of nationwide cases was not widely supported. Based on the science, an argument can be made that the lack of testing infrastructure led to the widespread community spread of the Delta variant, which the vaccines were less efficacious against, in just a couple of months. The administration seems to have learned from its mistakes on testing, but it’s still too soon to gauge if they are serious about Omicron.
The vaccines were up to 95% effective against the Alpha variant, but what nobody knew was how long that protection would last, and that was ultimately the achilles heel of the vaccine only strategy that was eventually modified by a booster strategy that was modified recently by an additional booster strategy. The sad part is that a testing tool was available at the time to help keep the population’s immunity levels high through the use of boosters, as determined by a neutralizing antibody test. There currently exists an EUA approved cPass test that can be used to determine the level of neutralizing antibodies needed to combat Delta. Then a patient and their doctor can make their own decision based on actual data of whether each patient’s immunity is sufficient
Failed Promises on Testing Front Impacted Testing Stocks
When the new Administration came into office it put together some bold testing initiatives. Democratic Senator Tammy Baldwin introduced the $2.0 billion legislation that targeted 15% surveillance. In February 2021 the testing rate was between 0.3% to 0.5%. At the time, the United Kingdom had a similar goal to sequence about 10% of samples. The current estimate is 5-10% which represents a huge spread compared to the initial estimates measured in tenths of a percent. The large spread seems to be consistent with the lack of transparency surrounding any numbers related to vaccine effectiveness.
Promises were made as part of The America Rescue Plan to increase genomic testing from 7,000 samples weekly to 25,000 weekly. A couple months later, reports surfaced that that the $1.75 billion sequencing boom was inadequate. An article in the MIT Technology Review said
“On its site describing genomic surveillance, the CDC says that sequencing can track whether variants have learned to evade vaccines or treatments. But the agency’s surveillance sequencing program doesn’t connect any of its sequences back to the people they came from, whether they were vaccinated, or how sick they got.”
The article highlights that the mindset of the CDC was to show that the testing was done just to check a box in order to show that the United States was doing its part. However the spirit behind the testing was to try and catch variants early and the spirit of the program was not being honored. Only time will tell if the government is serious about doing everything in its power to combat COVID. The testing business suffered a big blow earlier this year in spite of big promises, but it seems that this go around the testing business is going to ramp up again with or without government backing because all paths forward require testing.
Rapid Tests, PCR Testing, & Neutralizing Antibodies
Abbott Labs is perhaps the best known testing company as it has shipped over a billion tests since the start of the pandemic and brought in billions of COVID-19 testing revenue just last quarter alone. The company has a $237 billion market capitalization and supports 9 different COVID-19 tests, from molecular (like PCR) or antigen to serology (antibody) tests.
Labcorp has a self collection kit for RT-PCR. It’s a nasal swab that is also approved for kids. It’s free if insurance covers it and involves sending the kit FEDEX and then the person can ship it back. They also have collocated with Walgreens locations in 32 states throughout the country. They also have antibody test kits that are semi-quantitative in nature. They also have genomic testing to determine the variant. However much of their business comes from schools, universities, and employers looking to keep their workforce safe. They boast 275k molecular test capacity daily. They had total revenues of $4.1 billion and revenues of over $2.5 billion quarterly in just the testing space. They also have many other tests in oncology and are a major part of much of the testing done in clinical trials. Their total market cap is $27.6 billion. Since vaccine mandates recently failed they may be a beneficiary as larger organizations require additional testing.
Quest Diagnostics is an outsourced solution for hospitals so that they can eliminate the cost of an in house lab. The company also has a number of proprietary testing panels. They have a big exposure in COVID-19 with a direct to consumer push called QuestDirect. They have a huge geographic footprint that includes their own centers but also Walmart locations. This allows them to take online orders and push them to their locations to conduct the tests and get reimbursement from the government. In their third quarter earning call they commented how sales softened during the summer when COVID-19 was approaching its lows. The company’s market capitalization is $20 billion.
Quidel is a rapid diagnostic testing provider generating revenues of $510 million per quarter. They are best known in the market for their QuickVue At-Home OTC Covid-19 test. QuickVue is an anterior nasal swab antigen test. Thankfully, the company has mentioned its antigen test remains accurate for Omicron, as antigen tests are theoretically subject to error if a mutation changes an antigen within the protein being tested for. The company’s market cap is $5.6 billion.
Lumira DX developed a Point of Care (POC) diagnostic that uses nasal swabs and a proprietary compact reader to quickly process samples and distribute results. It has a $2.3 billion market cap. In the latest quarter it reported $109.1 million in revenue and seemed to be averaging $100 million per quarter for the past 3 quarters. An increase in testing in the United States and European markets is sure to have a positive effect on the company. It’s also important to point out to investors that this company was also backed by Bill & Melina Gates.
Small Cap Opportunities
Applied DNA Sciences is very diversified in the COVID-19 testing space. They perform surveillance testing and they have made diagnostic kits with EUA approval. They are also using their kits to monitor the S-gene mutation which appears to be a hallmark of the Omicron variant. In their 4th quarter report they reported testing revenue grew 868% year over year and closed the year with $9.0 million in total revenue. The CEO was very bullish on testing and said
“Momentum in COVID-19 testing client acquisition, especially in the second half of the fiscal year, supported our continued investment in ADCL that is now largely complete…Average weekly testing levels remain in flux but are on an uptrend: new clients are onboarding in FQ1; the key client’s testing needs have increased since Thanksgiving to include the random testing of vaccinated individuals.“
They have a strong intellectual property base of 93 patents which also includes their Linear DNA manufacturing platform. They can also genetically tag cotton for the textile industry, different cannabis strains, fertilizer, and even inkjet codes to ensure their authenticity in the supply chain. They have net equity of $11 million which places their enterprise value at $25 million. Their market cap is only $36 million with lots of upside catalysts.
XpresSpa Group performs COVID-19 testing at 14 major airports. They do onsite tests right at the airport. They charge $75 for a standard PCR test available in a couple of days or $250 for the rapid PCR tests available in 60 minutes. Their core business pre-covid were those massage chairs that you may have seen in the airport terminals. It’s called XpressSpa and they had 43 locations in 21 airports. Many locations did close but are starting to reopen. They have a strong cash position with $109 million which represents over $1.00/share in cash and just turned a profit of $22 million. They have a market cap of $187 million yet their enterprise value is only $90 million. They have huge margins in their business and have one of the best locations where they have a monopoly on the customer. Their footprint may grow as the government agencies vie for more testing at the points of entry. The company is also seeing that testing may be sticky and be here for a while and that is leading them to get spots in the pre security airport space. In a recent fireside chat with Water Tower Research. The CEO said they “were on track to have a record breaking fiscal year.” The risk to reward profile is very high in this name as it is relatively undiscovered.
Co-Diagnostics is a business founded upon a new technology that makes PCR tests more accurate. As such, it became a very popular COVID-19 stock in the early days of the pandemic, with the stock languishing within the last year with the rest of the biotechnology sector, but also due to the lack of focus on testing. The company is guiding for just under $100 million in revenue for the year, and had its Logix Smart™ COVID-19 2-Gene Test recently approved in the UK. The company’s business could be set for major growth as testing comes back into play. The company’ market cap is sitting at $245 million.
TODOS for cPass
Todos Medical actually supports a wide range of tests for having a smaller market capitalization of $65 million. The company provides antibody and PCR testing services as well as a neutralizing antibody test called cPass which is actually the only FDA emergency use authorized (EUA) test to determine a person’s existing immunity through neutralizing antibodies, which are the only antibodies you want to have for protection. cPass was developed by GenScript, and Todos has entered a distribution agreement with Fosun Pharma, a fairly large Chinese pharma company, for the test. Many vaccinated people were unsure if they needed a booster or not because everyone’s immune system is different and it actually not a good idea to poke the immune system unnecessarily. While policy makers were debating the durations of boosters (5 months, 6 months or 8 months) informed doctors were recommending their patients take cPass so they can evaluate their level of protection against the new variants. With the Omicron variant its likely that a very high level is going to be needed to neutralize the variant which means the cPass will be vital should the vaccines afford protection against it. It will be weeks before that data trickles down.
When the virus enters the cell the first thing it does is make 3CL protease. The ratio is 70 protease to 1 spike protein which means that it is a very early indicator of infection. Recent studies have shown that it can detect infection as early as 1-3 days with 100% sensitivity. The current at-home blood antigen tests take 9 days to show infection making it very difficult to capture people at early stage disease where the oral antivirals are most effective. The only issue with the test is that the 3CL protease is common to a number of coronaviruses including the common cold and influenza. While this is a great mass screening tool another test is going to be needed to determine COVID-19. The test can also determine if a person is no longer infectious which would allow people to return to their duties when they are no longer infected instead of a specified quarantine duration of 7- 10 – 14 days depending on the jurisdiction. The presence of the 3CL protease indicates active infection and TOMDF is trying to optimize the test for different point of care (POC) assays including the lateral flow tests that resemble the finger prick blood tests. Once optimized the will perform the necessary studies to submit an EUA. This test alone could really be a very valuable tool in trying to eradicate COVID-19 by allowing us to treat it sooner. Early detection is one of the key strategies in combating cancer and those lessons learned can be easily applied to COVID-19.
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Todos Medical (OTCMKTS: TOMDF) has many innovations in the testing space. One reason is their medical Advisor, Jorge Leon, who was the mind behind the regulatory strategy at Quest Diagnostics. They also have a breast cancer and an Alzheimer’s disease test. Their COVID-19 strategy was very interesting because they built up capacity preparing for the next wave while all the smaller labs went back to their normal business. As a result they are able to take on bigger clients and have the capacity. Just recently they were awarded a reference contract that brings in 1000 samples daily. This could translate into at least $20 million annually, but if they hit their anticipated surge capacity could be worth $100 million. Any surge in Omicron could send the existing business into exponential growth. They currently have the capacity to do up to 20,000 tests daily and were considering “the idea of purchasing more equipment to stay ahead of the curve.” The management is extremely bullish on the sector and added testing capacity when most thought the pandemic might be over.
The CEO is very knowledgeable and articulate and has written a number of articles on COVID-19 and has made a number of TV appearances including FOX Business. What investors need to realize is that TOMDF is much more than a testing company because it has a very big biotech component. They have a binary event in the coming weeks as they are expecting a readout on their Phase 2 clinical trial of Tollovir in hospitalized patients. There were quite a few tells in a Benzinga video interview the results are expected to be excellent. The CEO stopped short of taking pot shots at both the Pfizer and Merck drugs saying that “we have a significant competitive advantage.”
This pharmaceutical component might be very attractive to biotech investors but it also represents risk. The company has a definitive deal to close their acquisition of the biotech NLC pharma and that could represent a burden with respect to dilution. The company is also working on uplisting to the NASDAQ and has a plan in place to clean up the legacy debt and fund expansion going forward.
The company is at the same interim point in their clinical trials that PFE was at 6 weeks ago when the DSMB stopped the clinical trial of Pfizer’s 3CL protease inhibitor skyrocketing the valuation on the news. TOMDF also has a 3CL protease inhibitor, called Tollovir that is made from all natural ingredients and doesn’t have any dose level toxicity. In the coming weeks investors will see if the CEO was correct on his assessment of the drug as he was about the resurgence of COVID-19.
The company also has a nutraceutical line called Tollovid that is gaining traction and just saw a $1.1 million licensing agreement but then also messaged that they were talking to others. The company indicated that sales were upticking as people started to connect the dots that the 3CL protease was the same target in Paxlovid.
TOMDF has 914 million shares outstanding and very little in the way of cash as it is tied up in receivables in the testing business. It’s reasonable to suspect the company will do another round of financing unless their revenues in the testing business overwhelm them in the near term. They have messaged the market they are waiting for a value inflection point to raise additional funds. If they have good results with their oral antiviral Tollovir it could allow them to raise money on very favorable terms in the near future which would be a tremendous catalyst for the stock.
For investors that believe that Omicron is going to surge throughout the world it’s very clear that increased testing is going to be a key part of the narrative. Many of the big names in testing are highly correlated and a safe bet for price appreciation. The biggest unknown in the testing business is which type of test is going to see the highest levels of adoption. That is going to be primarily driven by policy and it’s too soon to handicap which way the wind is going to blow and if the government is going to continue to subsidize testing the way they have in the past. The government seems to be pushing insurance providers to reimburse their customers for at-home COVID-19 diagnostic tests. Details from Biden’s new initiatives are still emerging, but it’s hard to imagine incentives that would reduce testing. Big names like ABT, LH, and DGX are already moving higher.
Investors interested in taking on a larger risk for potential higher reward should be interested in the smaller companies rather than the gargantuan. Small and microcap companies such as CODX or TOMDF are going to see much greater relative increases in business as they rapidly increase their testing volumes.
Todos Medical is arguably the better bet as its market cap is well below that of Co-Diagnostics’ and it is due to release phase 2 results from its 3CL protease inhibitor, Tollovir, which is expected to rival the fantastic results of Paxlovid, the big pharma’s COVID-19 antiviral that beat efficacy expectations by a wide margin. Investors have multiple shots on goal with Todos—multiple types of tests and testing business, the antiviral, and their nutraceutical.
Disclosure: we hold no position in TOMDF APDN XSPA or CODX either long or short and we have not been compensated for this article.