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Co-Diagnostics Coronavirus Test Is Likely Ineffective - $1 Price Target

Feb. 18, 2020 10:00 AM ETCo-Diagnostics, Inc. (CODX)NNVC98 Comments
White Diamond Research profile picture
White Diamond Research


  • We’re skeptical that Co-Diagnostics (CODX) new coronavirus test works, as news came out that the CDC’s test may be flawed.
  • There is nowhere for CODX to test the coronavirus COVID-19 strain except China or a government lab in the US.
  • There is no committed institutional ownership of CODX and a major holder recently liquidated its entire position.
  • CODX' enterprise value to sales ratio is an eye-watering 608, making it one of the most overvalued medtech companies that we have ever seen.
  • CODX traded at below $1 before the coronavirus hype happened. We predict it will sell-off towards that level as coronvirus news fades.

When news started hitting the headlines that the coronavirus was rapidly spreading in China, Co-Diagnostics (NASDAQ:CODX) was one of the first healthcare companies to issue a PR about it. However, our research found that there isn’t very much substance behind the company, and their technology isn’t useful compared to the competition. CODX has only sold two of their diagnostic machines for the Zika virus over the past year since it has been available in the US and EU.

Its coronavirus test is currently sold on a RUO (research use only) basis, and CODX hasn’t released any data whatsoever that suggests the test works or is an improvement to what’s already available. Larger, more established diagnostic companies than CODX and government research organizations are distributing coronavirus tests.

The Centers for Disease Control and Prevention (CDC) has created testing kits for the coronavirus. They have access to the COVID-19 strain in Atlanta in order to do tests. And even then, they still have reported problems with the test. CODX doesn’t have access to the COVID-19 strain to do testing on it which is necessary to create an effective test. As far as we know, they aren’t getting access to it in the US, and they aren’t going to China either to test the virus. Those are the only places to find it.

While CODX may sell a token amount of its diagnostic tests of the coronavirus for research purposes, enough for a press release ("PR"), we don’t believe it will be anything material that would increase the fundamental value of the company.

Once the coronavirus is contained and disappears, most of the stocks that got a boost from the panic will return to close to their share values before the coronavirus headlines started. We saw this phenomenon happen with many other temporary hyped-up sectors

This article was written by

White Diamond Research profile picture
We provide deep research and valuable information on small cap stocks to hedge funds and high net worth individuals. We specialize in the technology and healthcare sectors. We have an over 80% success rate, see our reports at whitediamondresearch.com. See the 3rd party verified return on each of our bearish reports over the last 24 months at: https://breakoutpoint.com/as-summary/white-diamond-gvmtg/To inquire about becoming a premium subscriber, send a PM here or email us at research@whitediamondresearch.com.Follow us on twitter @whiteresearch.

Analyst’s Disclosure: I am/we are short CODX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (87)

This article definitely has not aged well.
This article did not age well.
@AndrewThomas88 well, they got ALL their facts wrong... but CODX was over $13 on Feb 1 2020, and now it's $8....
@telomerase that is due to market manipulation. Earlier this year, short interest was almost 20% and it is currently 6%. They are growing their revenue and just pulled off the hat trick this quarter beating on earnings, revenue, and raising guidance. This stock should easily be $16 per share. Once the Eikon device is approved by the FDA and European equivalent, this stock will easily be at $16, but end of Q2 next year. Up Up and Away!!!
@AndrewThomas88 no, it's not reptile aliens, nobody gives away free shares to "hold the price down" ;)

No one knew whether CODX could keep the earnings coming after the big companies got their sales forces going and after coronavirus dies down. But they HAVE kept earnings coming, and with S&P multiple at 29, I agree that CODX should be 16+. ;)
jaildog55 profile picture
Seriously check out this "research" firms web site, ALL hit pieces on small biotech firms. 100%, that's quite a track record. I am sure once they have shorted the stock price down to nothing they buy in. Never mind the fact companies they trash are doing life saving work.
jaildog55 profile picture
I have yet to read a positive review from White Diamond on any biotech companies. What BS!! Who the hell is White Diamond, I mean who...... like say an actual PERSON stands behind this "Research." What a joke. I don't even own this stock, I just don't douche bags. Google White Diamond, total smoke and mirrors.
Roche just announced approval by the EUA for their diagnostic test: Looks like a very crowded marketplace with an estimated 30 different testing companies anticipating EUA filing.

Article: Roche on Friday announced it received FDA's emergency use authorization (EUA) for a swab sample test for the novel coronavirus. The Swiss pharma and diagnostics company expects to make "millions of tests a month" available in response to the pandemic.

The product, which runs on Roche's cobas 6800/8800 high-throughput molecular testing systems, can deliver results in three and a half hours, the company said. In total, there are currently 827 of the systems distributed worldwide, over a hundred of which are in the U.S. A Roche spokesperson said the company has collaborated with CDC and is targeting its "limited supply" to large, national reference labs, along with some regional hospitals "in the most highly impacted areas." The company will "continually assess this strategy as the situation develops," the spokesperson said.

Roche is the first commercial test developer to achieve EUA status for a diagnostic test for SARS-CoV-2. In an update Friday, FDA Center for Devices and Radiological Health Director Jeff Shuren said more than 60 developers have worked with the agency on potential EUA submissions, and more than 30 labs have said they plan to begin testing under a recent FDA coronavirus policy allowing use of pre-EUA lab developed tests.
CR144 Research profile picture
CODX now is at a reasonable price level. (today -30%). I initiated a small long position.
I don't think they'll make much from C-19... virus will die out like SARS. And there are a couple dozen other kit companies.

But the co-primer system is interesting, and they DO have enough cash now from the offerings.
wwmeinc profile picture
@telomerase ...Understatement of the day so far!!!...in regards to the cash just 'raised' on....dare I say hype! Still waiting for the CDC to give them the EUA to sell their product in the US. Taking a very long time...might be some issues around their PCR results and what the CDC would like to see....GLTA
CR144 Research profile picture
CODX will skyrocket on US approval ..
kazt.md.phd profile picture
Yikes, this article could not be more wrong. 1. CDC failed. 2. CODX raised 4.2million from institutional investors at $9/share. 3. CODX is the first to have their test verified and given the CE-mark. 4. CODX have begun selling their test to China first, then now Europe for testing clinical samples. 5. This white diamond research author doesn't understand that when someone says 'high specificity and high sensitivity,' that is a good thing! So many wrongs in this article. Christ Almighty, it needs to be retracted completely.
No, it's important to archive bad calls and bad reasoning. Track records are important.
streetgainer profile picture
Whew!, this aged well.
When a 'research firm' dedicated to equity analysis states that something like a molecular test is "ineffective", the first question one should ask is - are you kidding me? Clearly they were way beyond their core competency to say such a thing. Anyway, I have a perspective that only comes with experience that tells me there is a reason for the move.
Honestly this research firm has lost all the credibility in the market place!!
It appears the author was incorrect about CODX. The CODX test has been certified as correct, fast and even meets the European requirements. The price jump implies the test will be SOLD OUT, even with expanded manufacturing capabilities. AND the USA CORONA-V HOT-SPOTS have not begun to show up, YET.
Sold most at $17+, targeting $21-25 and may raise that target, to $40+, if any USA HOT-SPOTS begin to show up very soon.
CR144 Research profile picture
THe author was shorting it below $3. That must hurt.
I am now shorting it at $13 ..
It's like watching an Ash vs. Evil Dead scene where he's drunk... "don't go in that room, Ash! Don't short that stock!"
CR144 Research profile picture
Co-Diagnostics Announces $4.2 Million Registered Direct Offering Priced At-the-Market

Co-Diagnostics, Inc. (Nasdaq: CODX), a molecular diagnostics company with a unique, patented platform for the development of molecular diagnostic tests, today announced that it has entered into definitive agreements with institutional investors for the purchase of 470,000 shares of its common stock, at a purchase price of $9.00 per share, in a registered direct offering priced at-the-marked under the Nasdaq rules. The closing of the offering is expected to occur on or about March 2, 2020, subject to the satisfaction of customary closing conditions.

H.C. Wainwright & Co. is acting as the exclusive lead placement agent for the offering. Maxim Group LLC is acting as co-placement agent.

The gross proceeds to the Company, before deducting placement agent fees and other offering expenses, are expected to be approximately $4.2 million. Co-Diagnostics intends to use the net proceeds from this offering for acquisition of PCR (polymerase chain reaction) equipment and raw materials to be used in connection with sale of tests used to diagnose infectious disease, including strains and mutations of coronavirus, as well as research and development costs associated with test development for additional pathogens and test menu expansion, and for working capital and other general corporate purposes.

The shares of common stock are being offered by Co-Diagnostics pursuant to a "shelf" registration statement on Form S-3 that was originally filed on August 14, 2018 and declared effective by the Securities and Exchange Commission ("SEC") on September 7, 2018, and the base prospectus contained therein (File No. 333-226835). The offering of the shares of common stock will be made only by means of a prospectus supplement that forms a part of the registration statement.

A final prospectus supplement and accompanying base prospectus relating to the shares of common stock being offered will be filed with the SEC. Electronic copies of the final prospectus supplement and accompanying base prospectus may be obtained, when available, on the SEC's website at http://www.sec.gov or by contacting H.C. Wainwright & Co., LLC at 430 Park Avenue, 3rd Floor, New York, NY 10022, by phone at 646-975-6996 or e-mail at placements@hcwco.com.

This press release shall not constitute an offer to sell, or the solicitation of an offer to buy any of the securities described herein, nor shall there be any sale of these securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.
CR144 Research profile picture
Is CODX a good short now ?
Current price: $11.90 (Extended hours)
CR144 Research profile picture
Still going up: $12.75 ..
CR144 Research profile picture
It's not a good short until all the shorts have covered.

I wouldn't buy it at this price either... no telling where it will go short-term. The technology looks good, keep an eye on it.
Someone should tell this author about the $10.00+ price today.
I imagine his broker has mentioned it.
Seems that the short thesis was largely ineffective ;)
Looking at the PR today....so, how long are you going to hold this short position to get to $1? Might take awhile. What was your borrowing rate?
24 Feb. 2020
so they have a Zeka test that is working and what happens if they get the Corona test working also ? The world economy is falling apart and the virus is spreading like fire
They just got a CE mark for their C-19 test.

They already have a dengue and a chik test, too.

Anyone who went short based on this article has been destroyed.
24 Feb. 2020
just a little update - it was an embarrasing article but what is the target now - after they received their license ..
Between this and China's exponential increase in coal use over the past 25 years(global warming) they are the pariah of the modern world.
How many wealthy Chinese will leave the country after this?
You still have time to cover:

Mukticat profile picture
Yeah we saw the knee-jerk response spiking to 3.30 before it sold off again to 3.05.

Notice how short this PR spike was? Just a few hours. It's like Pavlov's dog; every time you repeat the same stimulus over without presenting the original reward the dog pays less attention.

Next PR will barely move this 200% inflated stock away from it's gravitational pull back down to 1.00.
PRs mean nothing, but PCR accuracy does.

Aaron Cope profile picture
At what price did you start shorting $CODX for full disclosure?

Disclosure: I am/we are short CODX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Mukticat profile picture
I'm curious, how would the shorting ave of the author affect the validity of his argument? How is this tradeable information? Do you also ask the same question to each author espousing a long position?
Aaron Cope profile picture
Given your claims, this seems worthy of a lawsuit against CODX.
"Correlation does not imply causation" - CDC with a larger budget Test Kits fail so anyone else with a lesser budget is doomed to fail? Microcap Medical/Bio generally have rough financials and low intuition investing(due to cap size/share pricing). You conveniently failed to mention their PR Feb 6 - FDA EUA application and CE with EU and Feb 10 on international sales. This article is nothing more than cherry picked random Internet knowledge snippets carefully crafted to say the "sky is falling". I'm skeptical of your own credibility with a history of multiple short calls and mixed successes.
Mukticat profile picture
If you ignore correlation in trading you will be doomed to buying the news and selling the rumor. You have to actually use your brain to try to assess the probabilities.

It's a game of risk and percentages. If company A has a long track record of success and therefore an enormous research budget, and miniscule Co B has a long record of failure, a history of dilutive capital raises, promotional PR's for every new epidemic, and barely a dime in the coffers, yes while it is possible that the little one will win the race, and I am very glad that there are people willing to take that side of these absurd bets.

Thank you for your participation!
Hondaxl250 profile picture
I'm in for a thousand shares at 3.5 I am willing roll the dice on this one.
Shorts are one of the reasons that we miss a lot of medical advances because they choke small biotech companies out of existence.
Mukticat profile picture
I'm always impressed at how investors will rationalize the countless way these tiny no-account biotech companies screw their shareholders who nonetheless loudly proclaim, 'But we like it!' LOL
Value Digger profile picture
Coronavirus vaccine could take 12 to 18 months to develop and test, WHO officials say:

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