MedX Health distribution partnership with VidaCeuticals sets the groundwork for a broader market roll-out in Canada

When we last looked at MedX Health Corp. (TSXV: MDX) we talked about how the heavy lifting had been done, their product is now scalable and management is focused on getting the product to market. That is exactly what the company has been up to.

As a refresher, MedX is a leading medical device and software company focused on skin health utilizing its patented SIAscopy® on the DermSecure® telemedicine platform. The Company has a cost effective medical device to scan suspicious moles and lesions, using specific light wavelengths to penetrate 2mm below the surface of the skin. The scan is read by a trained physician or dermatologist and a determination is made as to whether the suspicious mole or lesion needs a follow-on appointment, or the patient is deemed clear of follow up. The scans taken by the SIAscopy® along with other relevant patient information can be connected to specialist physicians for remote assessment. In terms that I understand, it’s an easy to use and cost effective tool for the potential early detection of melanoma and should be in every doctor’s office, pharmacy and health care establishment, period, full stop.

During the last three years, MedX has invested in developing its DermSecure™ telemedicine software platform. The Company has now begun a process to build awareness about the benefits of its SIAscopy™ on DermSecure™ telemedicine platform locally and internationally, which should increase revenues going forward. Needless to say marketing of DermSecure® was significantly impacted by COVID-19. All the markets in which the Company has been actively marketing the product were challenged by the difficulty in meeting with potential customers during this period, reaching out to dermatologists, and the regulatory processes in most countries being slowed considerably. However, being an optimist that vaccinations will keep us ahead of the delta variant and hopefully any others that follow, we should begin to see MedX’s marketing efforts turn a corner as witnessed by recent corporate news.

The Company is starting to see progress on numerous fronts. First quarter results showed a 14.8% increase in revenue year over year, and importantly this came from an almost double in revenue from its SIAscopy® products. Revenues from MedX’s therapeutic laser products for the three months ended March 31, 2021 were 8.3% lower than in the first quarter of 2020, although while sales were lower, order flow for the second quarter is stronger. As noted before the therapeutic laser products market is highly competitive, characterized by pricing pressure and multiple competitive products. Thus it is encouraging to see revenue growth from the SIAscopy® side of the business and its increasing importance in the overall revenue picture.

Additionally, MedX just announced a North American distribution partnership with VidaCeuticals Health Products Inc. that will see MedX’s integrated skin assessment teledermatology platform offered at four clinics in Ontario beginning in late June. However, this is only the start of this partnership that envisions plans for a broader market roll-out in Canada and the United States later this year. All of this stems from a focus shift by the Company in Sep/20 when MedX announced management changes to enhance its focus on its dermatological services and products. Initial results from that renewed focus led to a sales agency agreement with the Ziemer Professional Corporation to expand North American clinic sales, a partnership with Netherlands national telehealth leader to roll out DermSecure® and an MoU with Empower Clinics in Ontario to pilot MedX’s leading-edge DermSecure® Screening Platform.

Going back to the Q1 results, the gross margin for the three months ended March 31, 2021 was 44.7% of sales versus 36.7% of sales in the prior year. To me, that sounds reasonable but the Company believes this is lower than expected as the base level of sales is still low (but growing), and many related costs are fixed in nature. This paints an encouraging outlook for MedX as traction for its SIAscopy™ on DermSecure™ telemedicine platform appears to be gaining momentum, which will serve to improve both top-line revenue and margins.

As with a lot of company’s at this stage of their evolution, the MD&A goes on at length about liquidity and capital resources. However, the leverage here is interesting (at least to me). Sequential improvement on revenue and margins will reduce the cash burn rate and improve the ability to raise more capital, if necessary. If MedX’s stock price can get above $0.20/share there are currently 35.8 million warrants that could be exercised at that price generating over $7 million in working capital. With a burn rate of roughly $1 million per quarter that would be plenty of cash for the foreseeable future. The stock price was above that threshold in March of this year, let’s see if they can do it again and let the Company focus on what it does best.