Todos Medical’s (TOMDF) NLC Acquisition Adjusts for Huge Valuation Gap

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  • Hundreds of millions of assets for $2.2 million cash & $1.0 million in stock

  • Extremely undervalued assets

  • Formation of 3CL Sciences for potential IPO

  • Cleanup of convertible notes complete or nearing completion

  • Nutraceutical sales soaring due to Omicron

  • Major interim clinical trial readout in the coming weeks

Todos Medical (OTCMKTS: TOMDF) just announced the acquisition of NLC Pharma in a cash and stock transaction.  NLC Pharma is going to move its Phase 2 assets into Todos Medicals subsidiary 3CL sciences.  3CL Sciences is a majority-owned subsidiary with a 60/40 ownership and single-digit net royalties going to existing NLC shareholders.  TOMDF literally picked up hundreds of millions of dollars in assets for the cool hard price of $2.2 million in cash over the course of 18 months and approximately $1.0 million in stock. The terms of the deal are very shareholder friendly, and it almost fits in the too good to be true category.  So there has got to be a catch and the catch seems to be the method in which NLC pharma exits out of their 40%. 

NLC Pharma’s Valuation Metric

The new company 3CL Sciences is expected to raise $10 million within 6 months of closing in addition to the $2.2 million it received with the seed investment. TOMDF also committed to facilitating a “Go Public” transaction via IPO, SPAC, or reverse merger.  The idea behind this strategy is to separate out the asset to achieve a purer/higher valuation metric.  Investors can think of the NLC Pharma ownership as convertible stock that only gets converted if the value proposition meets mutually agreeable criteria.  There is no valuation level discussed except to say that Todos and NLC shareholders have the option to buy the 40% in shares of TOMDF common “upon mutual agreement.”   This means that the value generated in TOMDF will need to be higher than the valuations they are looking for in the upcoming IPO which could be measured in the hundreds of millions to billions. Typically in these mutually agreeable transactions, a professional valuation appraisal report is done to assess the true worth of the assets.  The absence of public disclosure of the existence of one could mean that management is cognizant that big pharma players are swimming in the waters waiting for the data readout and prevents big pharma from using it as a lever to lowball an offer. Once the definitive agreement is disclosed after December 15th shareholders might get a better read on what a professional appraisal report values the assets at.

History of Massive Convertible Overhang – Finally Extinguished

When CEO Gerald Commissiong took over in January 2020 he had a daunting task to close the Videssa acquisition, clean up what appeared to be an insurmountable mountain of debt ($3.4 million convertible notes) and get a NASDAQ listing.   In 2019 TOMDF ended the year with 92 million shares outstanding. COVID-19 was not a positive development for the core testing business but Commissiong was able to pivot and create a new revenue stream with test kits and supplies. At the same time he started consolidating, extending, and locking up the convertible debt into the proposed uplisting. The collaborations with NLC Pharma started in June 2020 and increased business activity in the COVID-19 testing space which left little capital for an uplisting let alone pay back noteholders.  Conversions ensued despite attempts at a lock up and the shares outstanding expanded to 376 million at the end of 2020.  In January 2021 things began to turn as Todos Medical’s strategic investor the Yozema Group Korea consolidated all $3.4 million convertible debt at a fixed price of $.0599.  Testing business exploded then quickly burst as the testing infrastructure was dismantled after the vaccine rollout. Todos also started its Phase 2 trial of Tollovid as infections plummeted to their lowest point of the pandemic in the spring. It also began heavily investing in testing automation in anticipation of another surge.  Investments earlier in the year started paying off as the company began selling its nutraceutical, Tollvid, and the emergence of new COVID-19 testing business. During this transition the noteholders were clearly a headwind for TOMDF shares, and they ballooned the share count to 914 million with an onslaught of shares deposited in Q3. It’s been at this constant level for about 2 months after they signed a lockup agreement effective until December 15, 2021.  

Price Discovery Phase

It’s pretty safe to say given the recent price action that the shares converted during the summer have finally been cleared from a structured seller’s hands into retail investors hands who have a much better sense of value. But with the selling fizzled out, the question remains how high can the shares go? The shares hit a low of $0.02 in August this year, but even with the recent price spike this morning to $0.105, shares are still well within their last 2-3 years’ trading range. The question in investors’ minds should be “what is the intrinsic value of TOMDF?” Recent price action plus the artificially high selling due to noteholders ending suggests that that value and share price can now be achieved.

Valuation Gap

There is a huge valuation gap at TOMDF due to structural issues plaguing price appreciation.  Now that the seller is gone, new market participants are joining in the price discovery, both traders interested in riding the move upwards, and value investors looking for one of the best bargains in biotech. The price no longer has an artificial ceiling.  Investors are now able to look at valuation with a different lens because TOMDF now owns 60% of assets that are worth well over $250 million, and investors don’t have to be afraid of how many shares outstanding there will be after notes are converted.   The best comparable is Atea Pharmaceuticals (NASDAQ: AVIR) with a market cap of $675 million and a failed phase 3 compound.  AVIR was worth multiple billions but lost its partner Roche Holdings (OTCMKTS: RHHBY) after announcing its phase 3 results in hospitalized patients.  CytoDyn (OTCMKTS: CYDY) had a positive phase 3 reading with their drug leronlimab in severe to critical patients and their market cap is $785 million. Ampio Pharmaceuticals (NASDAQ: AMPE) has a phase 2 asset in COVID-19 in the severe and critical indication and their market cap is $235 million. Using AMPE as the lowest comparable, the stock has at least a triple left in the tank as investors compensate for this definitive deal by December 15, 2021. Investors that want to be extremely conservative and factor in only 60% ownership would still be left with a doubling in value from Fridays close to $150 million and a corresponding stock price of $0.16.  Really what investors are missing is that Big Pharma companies market capitalizations are moving upwards of $10 billion on good COVID-19 oral antiviral data, suggesting that COVID-19 oral antivirals are worth ten digits in USD. But even the ultra conservative investors can use a pseudo failure like AVIR or an under-appreciated therapeutic company like AMPE to estimate the value of TOMDF’s assets.

Potential December 15th Catalyst

There are a lot of moving parts at TOMDF, but there seems to be one singular constant of December 15th.  The lockup ends on this date and the deal is set to close on that day as well. It’s also possible that interim results could be released around this date.  Given the strong stock price appreciation institutional investors may be very active in the crossover funding.  This means that money could be shoring up the company’s balance sheet and eventually lead to the extinguishment of all remnants of convertible debt.  This clean and strong balance sheet could lead to an expedited NASDAQ uplisting.  Investors like to buy into major binary catalysts but this interim read out catalyst could have an impact on world markets.  If ever there was a catalyst to buy this one has excellent odds.  .  

Not a Pre-Revenue Biotech

One of the most hated aspects of biotech investing is the long road to an approved product and commercialization. For companies solely developing drugs, investors get worn out with volatile stock prices, waiting for binary events such as clinical trial readouts, and constantly getting diluted from equity raises. Even after an FDA approval, commercial teams usually take a few years to get a product to the point at which it is self-sufficient and brings in positive net income. This whole process can take over a decade and hundreds of millions of dollars, if not over a billion dollars, to complete. It varies based on the product, indication and GMP manufacturing required, but it’s exhausting to many investors. Todos Medical is different, though. They are already bringing in revenues from testing as well as selling their all natural immune support 3CL protease inhibitor nutraceutical, Tollovid. THEY SOLD OUT OF STOCK ON AMAZON THIS WEEKEND. It was mentioned on twitter.  Their direct to consumer store still seems to have stock and selling on www.mytollovid.com

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As part of this strategy where consumers can get the active ingredient in Tollovir, Todos’ drug in clinical trials, Todos has inked a collaboration with T-Cell Protect to supply the nutraceutical. This included an 18 month agreement for 500,000 Tollovid bottles expected to meet demand for 11,000 stores, and a 50,000 bottle initial purchase order. With the bottles selling on Amazon for $99 (Tollovid Daily) and $239 (Tollovid Maximum Protection), it isn’t difficult to see how wholesale prices to supply the product to their partner could result in many millions in revenue to Todos. Todos could have the hottest product on the market in the coming weeks after Pfizer succeeds in getting approval for its 3CL protease inhibitor Paxlovid.  Paxlovid’s approval would also set a precedent or regulatory pathway for approval of Tollovir.  Consumers are easily connecting the dots between the drug Tollovir and the brand Tollovid.  Investors should keep in mind that any positive PFE announcement reflects even better on TOMDF since it’s essentially the only pure play on 3CL protease inhibitors.  

 

Investment Summary

Having the Intellectual Property of the biotech asset sitting in the corporate name of 3CL Sciences dramatically changes the risk dynamic of the company.  The acquisition was a smart move at a great value for shareholders.  A license, joint venture, or buyout with big pharma is much easier to pursue when it’s easy to find the assets and characterize them.  For the moment dilution seems to be on pause or on the cusp of being extinguished.  The clinical trial results are on the cusp of a phase 3 in the most conservative sense, but might have good enough data to file for an EUA. The overhang is gone and the story is resonating with retail investors who recognize that the drug could be superior to Pfizer’s Paxlovid.  The company’s core technology is related to testing, testing equipment, and testing supplies.  All testing metrics appear to show growth.  The Tollovid nutraceutical brand stands to benefit regardless of the approval status of Pfizer’s drug. The Omicron variant has raised the awareness level for therapeutics that work today versus tomorrow.  Social media seems very active and organically expanding the audience which eventually leads to additional media exposure.  The valuation gap is going to close quickly with the scheduled Conference Call on December 2nd and close even more as the December 15th catalysts approach.  

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