Covira Surgical

Covira Surgical is valued at $9.99 million. Though the valuation is reasonable when compared to other early stage startups, the company is still pre-revenue. Globally, the average revenue multiple for healthcare companies is 3x-to-6x. Once Covira Surgical begins to take in revenue, this will be an important benchmark to keep in mind. For now, Covira Surgical receives a slightly below average price rating.

According to Mordor Intelligence, the incidence of surgical site infections in the United States “ranges from 160,000 to 300,000, and the estimated annual cost ranges from USD 3.5 billion to USD 10 billion.” In 2021, the surgical site infection control market is estimated to be around $4.7 billion. These numbers assume 2%-to-5% of all surgeries result in infection, which is in line with several other sources. Annually, the surgical site infection control market is growing at around 6%. It should be noted, however, that this market includes products such as surgical gloves, scrubs, and disinfectants. Covira Surgical will be targeting a smaller niche within this already limited market. As a result, the company’s market score is around average.

At the helm of Covira Surgical is CEO Peter Farmakis. Farmakis has spent around 20 years working in management roles at medtech or pharmaceutical companies, including Johnson & Johnson and Abbott Laboratories. Particularly notable from that time is that he was part of two successful pharmaceutical startup exits. Farmakis brings ample managerial experience as well as successful entrepreneurial expertise. This combination makes him very qualified to lead Covira Surgical.

The other key individual at Covira Surgical is founder and Chief Scientific Officer Doctor John Alverdy. Alverdy is an accomplished surgeon and a world leader in surgical infection research. His focus has been on the molecular basis of surgical infections and the gut microbiome. Throughout his career, he has been published more than 200 times in peer-reviewed journals and other sources. He is also a professor of surgery and the executive vice chair of surgery at the University of Chicago. However, it does not seem that Alverdy has strong business experience to balance out his medical expertise.

Farmakis and Alverdy make a strong pairing. Between the two of them, medical knowledge, managerial skills, and entrepreneurial experience are all represented. Due to this, Covira Sugical’s team score is above average.

There does not appear to be any other company that offers precisely the same solution as Covira Surgical at this time. There are antibiotics that can be used to treat the same problems. However, many of them appear to be focused on treating existing infections and not on serving as preventative medicine. There’s also evidence that other solutions can work, but those lack the ease of use that something like Pi-PEG offers. 3M Company, for example, offers DuraPrep, a surgical solution to lower infection rates. This technically falls into the same market and is preventative, but it is a much different approach than that of Covira Surgical. Covira Surgical also exists in a highly regulated field and is patented, making for a massive defensibility moat.

In all, Covira Surgical receives a very strong differentiators score. Contributing to this score was the high quality differentiation of the product offering, as well as the patent protection and overall high barriers to entry.

Covira Surgicalhas been awarded one patent and has two others pending. The science seems to make sense, but the firm has a long way to go before it can commercialize its product. The current estimate is that it will take 14 months for the company to prepare and file its application with the FDA and another five months to engage in Phase 1 testing. 

In the meantime, the business is generating no revenue but still incurring expenses. In 2019, the company generated a loss of $52,678, while in 2020, its loss came out to $38,932. Additionally, Covira has had very little prior funding. Collectively, this resulted in a low performance score for the company.

Covira Surgical offers an average risk profile. The two main areas of concern are funding and time. Medical technology and pharmaceutical products require high capital commitments in order to develop products. Covira Surgical has not received much outside funding prior to this round, and the company will likely not start generating revenue for a year or more. All of these factors could lead the business to require further funding after this round.

From a timing perspective, Covira is still in the development phase. It must receive FDA approval before entering the market, and that process is very time intensive. Even with approval, Covira will likely be selling its product directly to hospitals. Business-to-business transactions like that create a long sales cycle, further extending the period before the company can begin generating revenue. All in all, there is a long road ahead of Covira which adds risk to this investment opportunity.

Investors should consider that the valuation that management has placed on Covira Surgical looks to be rather high. The market opportunity for the company is small and growing at a slow pace. Financial performance has been discouraging, though that is common for an early stage pharmaceutical startup. In particular, investors should be willing to wait for Covira to finish development, attain FDA approval, and begin to secure customers — a process that will likely take a year or more to complete. 

On the positive side, the Covira Surgical offers an innovative solution that already has one patent approved. It is a low-cost measure that can help save both money and lives in the long run. No other company is offering a preventative for surgical infections that is similar to Covira, putting the company at an advantage in the market. In addition, a strong team is leading the enterprise, particularly the top two executives. While an investment in Covira Surgical comes with a long-term commitment, the company is well-positioned to provide life-saving medical technology to the healthcare industry.

Covira Surgical has developed a product called Pi-PEG that can be used to prevent infections associated with surgery and save lives. Covira will need to attain FDA approval before it can fully bring its product to market and begin generating revenue. However, there are many strong signs that investors should consider. First, the product is highly differentiated from current competition, and it also has defensibility due to a patent. Hospitals are likely to see the value in Covira’s solution as it will help them save lives and money. In addition, the team is led by a strong founder and CEO with decades of industry expertise. Due to these factors, Covira Surgical is a Deal to Watch at this time. 

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Analysis written by Daniel Jones.