step by step

I note a number of people wanting to get a handle on the current and projected revenue streams of ADO with respect to the sale of its Mix&Go product.

As I mentioned previously, I was fortunate enough to meet with the CEO Dr Geoff Cumming. My primary reason for catching up with Geoff was to obtain a greater understanding of ADO's Mix&Go product and the Company's target market.

For those newbies to ADO take a look at this BRR interview with Geoff. For those who have been around for a while take another look.
http://www.brr.com.au/event/63835

Now play it again and read it in conjunction with the Company presentation released at the same time http://www.biolayercorp.com/pdf/EGM%20Presentation%20100122.pdf

If you look at slides 16 and 17 you will see a representation of the diagnostics markets to which Mix&Go is being targeted.

Slide 16 attempts to outline the relationship between the market segments and Slide 17 attempts to give an indication of the size of the market revenue pie that ADO is competing for if the market was to operate on those %figures used.

'The Complexity in target market'

If you listen to Geoff carefully you will here him talk about the Company's strategy to target specific level players within each category.

If the market were constrained to the same arrangements then signing up customers would not be a matter of concern for ADO. However a greater complexity would appear to be the diligent approach needed to ensuring the Company captures the greatest slice of the pie by strategically targeting customers from within each Diagnostic field.

For an example in order to maximize its Royalty interests in the IVD-Pathology Supplier market the Company may need to avoid an early agreement with a Bead Manufacturer to ensure it is not locked out of a revenue segment within that particular market due to the lack of exclusivity.

In other words by taking its time in signing up Customer ?A? the Company may achieve a greater outcome as a consequence of doing a royalty deal with Customer ?B? who is a downstream customer of Customer ?A?.

As the Company has mentioned. It is in discussions with a number of parties. I would suggest to you that some very important strategizing is going on in ADO headquarters.


'Getting a handle on revenue projections'

This is not the Apple market. If it were then Mix&Go would be like a newly discover super juicy, long lasting, 5 days from seed to fruit variety.

My point is, when you come up with something ADO like to refer to as 'Disruptive Technology' which is not only superior in detection rates but has many economical benefits associated with it the market has to find a new matrix by which to cost and sell the product at. This will invariably be a combination of profit profit and profit at each step along the way whilst not denting market share.

If you look at the revenue pie estimates on page 17 of the presentation you will see there are variations in royalty percentages within each category. You will note in his BRR interview he refers to the BANGS contract as being a double digit royalty deal which means the first contract has been delivered at the higher end if not greater than that.

The truth is with each contract signing we will not realy know what the new playing field is going to be until each contract gets some time date behind it. Wether that be 6mths or a year who knows. Up to that point one would expect to see the revenues slowly pick up on a lag basis.

So how do we view the potential in the interim.

Well I've decided to be a BEARISH BULL and play the down side of a mid point revenue scenario.

Once again if you refer to slide 17 of the presentation and move to the bottom of the page you will see estimated pie sizes.

If I were to take the mid point of each of those numbers and add them together I get a pie of around $210million. I have done this purely from the point of view of having no idea what the impact of costs savings and price points has on the market. I would assume that each player in the market would be chasing a slice of the savings into their pockets and would be prepared to pay more for the royalty's. But as that is my assumption I can't use it.

Anyway back to the pie.

For each 10% of market that ADO achieved it would pocket around $21million per year.

So if it were to achieve a 25% market share it should achieve revenues of around $51million per year.

Pick whatever figure you like for times earnings by if you used 5times that gives the Company a market cap of around $250million, 10times $500million

Now if I use the upper end of the threshold on page 17 the for each 10% of market share ADO would generate approximately $40million revenue per year which would translate to $100million annualy for 25% etc etc.

The truth is though, the picture will only become clearer well after each contract is signed and we begin to understand the true magnitude of Mix&Go's market penetration.

If ADO does break open the market and become the new dominant product then it is conceivable that a multi billion dollar may have been born.

ADO's current share price is probably factoring in revenues of approximately $7-9million annualy based on a diluted 5times valuation.

BLUE SKY

You will also note at the end of his interview Geoff talks about the Blue Sky market for ADO's products, which could rival the current Primary targeted market.

When you put that into context I will leave it up to you to determine wether the information released to date is encouraging or not.

I would suggest the P&D as people call it when the Bangs agreement was announced was merely a product of the market running out of clarity on what the real revenue potential was at that stage.


IMO
DYOR