Covalon Technologies Ltd V.COV

RE:Latin America Strong Market

[TheRock07]

Its interesting to review current sales trends and their provenance in relation to future expectations of sales volumes.

• in  2014, The Company announced that it was introducing a new line of products under the name MediClear designed to significantly improve patient compliance with efforts to reduce surgical site infections (SSI).
  
  Included in the MediClearTM line was Covalon's patent- pending MediClearTM PreOp – Antimicrobial Silicone Film Dressing, designed to replace other pre-operative skin preparation products, Covalon's next generation antimicrobial MediClearTM PostOp dressing and MediClearTM Scar.
  
  All three were presented at AORN (Association of Perioperative Registered Nurses) Surgical Conference & Expo held on March 8 to 10, 2014 in Denver, Colorado.

• In early 2015, the Company introduced a new line of advanced wound care products that are sold under the trademarked brand CovaWound.
  
  These products were designed to complement the Company’s proprietary ColActive product line and are often used on the same patient at the same time.

• During 2015 the Company invested in R&D to develop new products, acquired a second facility, and invested funds in marketing and business development aimed at geographic expansion. 

• The Company announced that during the quarter ended March 31, 2015, that it recognized sales on approximately seven new products in addition to our existing advanced wound care offering, bringing total product offering to 16 products at that time.
  
  The new products included initial sales of the Company's SilverCoat antimicrobial Foley catheter, and some early initial sales of six new CovaWound advanced wound care dressings, designed to complement our ColActive Plus wound balancing matrix dressing.
  
  The Company also stated that management expected sales of our new products to grow modestly over the next several quarters to be in a position to contribute more significantly to revenue in fiscal 2016.

• On August 28, 2015, the Company announced that Covalon continues to strengthen its business fundamentals every quarter, including developing new products and technologies, and expanding relationships with large medical companies and distribution networks.
  
  As of June 30, 2015, the Company’s advanced wound care product sales increased over 30% year to date and 56% that quarter compared to last year.
  
  The Company also announced that a major focus for the next several quarters would continue to be expanding distribution of our established and newly released products through existing distribution networks of large multinational medical companies under licensing and distribution relationships.

• On August 28, 2015, the Company announced that investment  in additional sales and marketing resources to support new products launched this year and additional research and development personnel to support our new product development pipeline.
  
  The Company expect to introduce additional new products over the next twelve months that will be distributed through our established networks of distributors in the United States, Middle East, Asia and Latin America.

Enroute to these developments, Covalon has increased its gross margins to 57 % or twice earlier levels.

Sales were $7.5 million in 2015 and should triple to about $20 million in 2016.

2017 should see a major increase in sales, as all of the new distrubution regions ramp up sales.

Why would we expect that ?

OK.

Recent  Middle East sales in the order of $7-8 million in 2015, increasing to at  $15 million in 2016 are from a very small advanced wound management region...approximately $400 million US

Consider.
Advanced wound management market hit $20.5 billion in 2015.

Of this $9.1 billion was from the US, just over $6 billion in Europe and Russia and $5 billion in Latin America and China.

Covalon has not yet set up sales in Europe, but the remainder.....US, Latin America and China accounting for about $14 billion in sales......were set up with distribution partners in 2016.

If you consider gross comparisons..........an average of $10 million  cad sales in an incompletely penetrated Middle market  in 2015-16 from a total ME  market potential of $400 million US or about $500 million cad ( 2 % penetration rate rate ).....and expand that to the covalon's current market potential of $14 billion US....you arrive at extrapolated annual sales in the order of $250 million..

To get to a $1 billion market cap, Covalon needs at least $100 million in annual sales.

The potential is clearly there to reach $100 million within 4 years, as guided by management.

And perhaps more.

But, we will be sold by then.

My call is sales above $45  million in 2017, at which point we will be sold at a price about $500 million...