Risk-Reward Ratio of Zomedica Stock Looks Unfavorable

With Zomedica’s  (NYSE:ZOM) new Truforma diagnostic tool possibly facing a great deal of entrenched competition, the outlook of ZOM stock is, at best, difficult to determine. Meanwhile, the shares have a very high valuation.

A diagnostic product meant to be used by veterinarians, Truforma measures the amount of T4 and TSH hormones in animals’ blood. When the amount of these hormones deviates from normal ranges, pets may have thyroid problems.

There are indications that Truforma, first launched in March, faces tough, entrenched competition.

ZOM Stock and Competition

According to Seeking Alpha columnist Bashar Issa, Korea’s Bionote, Catalyst One and Catalyst Dx from IDEXX (NASDAQ:IDXX), and Abaxis Vetscan VS2 all measure T4 levels in pets. Meanwhile,  Wondfo’s Finecare Vet product tests TSH levels.

Supporting the idea that Zomedica is facing difficult competition is a statement by veterinary technician April Varetto on Quora.

Those who have a bullish position on ZOM stock or are considering acquiring such a position should definitely read what Varetto wrote on Jan. 21, in response to the question: ” Is Truforma’s diagnostic machine by Zomedica really a ground breaking product as a veterinarian?”

Here is a portion of her answer:

“I’m not a veterinarian, although I am very familiar with in-house lab machines and what they can do as a vet tech… Honestly, I’m not so sure uptake of [Truforma] is going to be great. We already have IDEXX machines that can run Total T4 in-house. Abaxis also makes analyzers that can run Total T4 readings. There are almost certainly others… TSH is generally a send-out test that comes back from the lab in under 24 hours. And as it’s usually a confirmatory test following a questionable Total T4 reading, it’s not generally a big deal to have to wait until the next morning for results.”

Varetto also said that Truforma does not measure cortisol and ACTH in cats, reducing its appeal. She believes the diagnostics performed by Truforma “are too limited for a lot of clinics to buy another lab machine at the moment.”

Why Truforma Could Be Successful

On the other hand, Varetto said once Zomedica fulfills its promise of adding more diagnostic capabilities to Truforma, the machine “might become a viable additional option for clinics looking to buy in-house analyzers.”

Meanwhile Dr. Jason Berg, who owns a veterinary hospital in New York and was identified by Zomedica in March as the initial “official” purchaser of Trumforma, was quoted as saying that the device would enable him:

“to go above and beyond the current standard of care to provide cutting-edge and novel testing to pet owners and veterinarians in seven surrounding counties across two states.  The ability to reliably and accurately measure cortisol on-site in our emergency service at Guardian Veterinary Specialists has the potential to save lives. Offering complete thyroid testing on-site for both dogs and cats will allow our internal medicine service to provide timely answers to anxious pet owners.”

For its part, Zomedica says that Truforma’s feline-optimized TSH assay “will help veterinarians more readily differentiate between hyperthyroidism and euthyroid sick syndrome.” And, it says the device’s canine eACTH assay “eliminates the risk of sample transport error and aids in the diagnosis of adrenal disease.”

Zomedica also touts the “bulk acoustic wave technology” utilized by Truforma. The technology is “used in aerospace and telecommunications,” the company says.

Questions Remain for Investors

So is Truforma very useful to veterinarians as Truforma and Dr. Berg say? Or, is it not that useful as Varetto, the vet tech, and Issa, the Seeking Alpha columnist, suggest?

Honestly, it’s probably very hard to tell, except for those who work in the veterinary industry and animal health experts. I suspect that the amount of revenue generated by Truforma could depend on a couple of factors. First, whether vets can convince the owners of their patients to pay significantly more for Truforma’s capabilities. And perhaps whether vets believe that they will be able to do so.

But there are two indications that, so far, the sales of Truforma may not be very impressive. One is that, on April 15,  almost exactly a month after the device was formally  launched, Zomedica announced that it would hire more sales professionals “while phasing out its distributor-based sales efforts.”

In a statement, Zomedica CEO Robert Cohen said that the company had always intended to sellTruforma directly. Zomedica decided to make the shift earlier because of “anticipated changes at [Zomedica’s] current distributor that we believe have impacted its ability to market our products effectively,” he stated.

The Bottom Line on ZOM Stock

Reading between the lines, Zomedica was disappointed by the number of the devices that its distributor sold.

Also, the company does not appear to have released sales data for the product since announcing the  sale to Berg.

Finally, over the 12 months that ended in March, Zomedica generated just $14,000 of revenue, yet ZOM stock has a market capitalization of $879 million.

Given these points, Zomedica’s risk-reward ratio seems very unfavorable, and I urge investors to sell its shares.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015.  Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.