ODI Pharma is a supplier of a wide range of medical cannabis products, based on dried flowers and consisting of different levels of THC and CBD. The Company sources the products from one of the largest suppliers in the world, Canadian Tilray. The products are then sold to ODI Pharma’s distributor Synoptis, part of the market leading pharmaceutical company in Poland, NEUCA, initially to the Polish market, who market and distribute products to pharmacies. The products are utilized for the treatment of conditions such as multiple sclerosis, chronic pain, and chemotherapy. ODI Pharma has been listed on the Spotlight Stock Market since 2020.
Press releases
Continued Strong Momentum
ODI Pharma AB (”ODI Pharma” or the ”Company”) delivered another strong quarter during Q4-23/24 (broken fiscal year), further proving the collaboration with Synoptis as a game changer in terms of commercializing the Company’s products. For the upcoming fiscal year 2024/2025, where the collaboration agreement will be active for the full year, we estimate sales of SEK 69.1m, while reaching an EBIT margin of 9%, which makes ODI Pharma one of few companies in the cannabis sector delivering profitability. With estimated net sales of SEK 127m by 2025/2026, and with an applied P/S multiple of 2.6x, a potential present value per share of SEK 17.4 (17.4) is derived in a Base scenario.
- Continued Growth
ODI Pharma delivered another strong quarter regarding sales, amounting to SEK 7.5m, 9% above our estimates of SEK 6.9m. The reported sales is expected to be primarily attributable to sales in the Polish market via the collaboration agreement with Synoptis Pharma, further validating the anticipated strong sales growth because of the agreement. We expect Synoptis strong market position in Poland, and other Eastern European countries, to continue to fuel growth over the upcoming fiscal year as the contract will be active for the full year.
- Stable Cost Base
Adjusted for a one-off cost of SEK 0.35m related to the sale of the Kandol brand which occurred in December 2023, the operating expenses amounted to SEK 2.3m, corresponding to an increase of 25%. The increased cost base is assumed to be attributable to shipping costs for the products sold, however Analyst Group reiterates the view of ODI Pharma’s scalable business model, where operating costs can be kept low even with a rapid increase in sales. For the upcoming fiscal year 2024/2025, we estimate an EBIT margin of 9%.
- Enters the Swiss Market
ODI Pharma has announced that the Company has completed a first small delivery of products to the Swiss market, which is a newly addressed geographical market. Analyst Group sees this as a strategic market entry since it is the first delivery of products outside the collaboration agreement with Synoptis, validating that ODI Pharma can expand to new markets outside of Eastern Europe for increased revenue diversification. Going forward, we see opportunities for ODI Pharma to enter additional new markets in Western Europe.
- Small Changes in our Valuation Range
As the report was largely in line with our expectations, we have only made minor adjustments in our financial forecasts. Taking these adjustments into account and considering a general multiple contraction among peers, we have made slight adjustments to our Bear and Bull scenarios while maintaining the derived valuation in the Base scenario.
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Value drives
4
Historical profitability
7
Management & Board of Directors
6
Risk profile
All analyses of companies from 2020 onwards are rated based on a new rating system - Value Driver, Historical Profitability and Management & Board ranges from 1 to 10, where 10 is the highest rating. The risk profile ranges from 1 to 10, where 10 is to be considered the highest risk. Stock analyses of companies published before 2020 have been rated based on a different model.
Starting 2024 with Significant Growth and Profitability
The third quarter was a breakthrough quarter for ODI Pharma AB (”ODI Pharma” or the ”Company”), with net sales amounting to SEK 13.9m and an EBIT margin of 11%, proving the significance of the collaboration with Synoptis Pharma and the scalable business model. ODI Pharma’s unique business model has resulted in the Company being, and expected to remain, one of the very few profitable companies in the cannabis industry. According to Analyst Group, this presents an attractive investment opportunity. With estimated net sales of SEK 127m by 2025/2026, and with an applied P/S multiple of 2.8x, a potential present value per share of SEK 17.4 (10.7) is derived in a Base scenario.
- A Breakthrough Quarter
ODI Pharma delivered a breakthrough quarter in Q3-23/24 as net sales amounted to SEK 13.9m (0.0), the first significant sales in the Company’s history. The figures is a result of several successful deliveries of medical cannabis products to the partner Synoptis, a market leading pharmaceutical brand, which is also expected to drive continued sales growth.
- Proof of the Scalable Business Model
Despite the strong sales during the quarter, the cost base remained stable. ODI Pharma’s cost base is largely fixed, with shipping costs expected to be the largest variable cost. Given the remained low cost base during Q3 however, shipping costs are not expected to be significant. As a result of the stable cost base in combination with strong sales, ODI Pharma delivered an EBIT margin of 11% during the quarter, and we expect the Company to deliver strong cash flows going forward.
- A Profitable Medical Cannabis Company Creates a Unique Investment Opportunity
The medical cannabis industry is characterized by high investments required both to navigate the heavily regulated market and to invest in cultivation. Consequently, several companies in the industry struggle to demonstrate profitability. Within the applied peer group, only one company is profitable in terms of net results, highlighting the profitability challenges in the industry. ODI Pharma, however, has a different business model that does not involve investments in cultivation, thus creating a unique investment opportunity in medical cannabis as a profitable company.
- We Raise our Valuation Range
With the Q3-report presented, we have obtained evidence that the collaboration agreement with Synoptis Pharma is a game changer for ODI Pharma, as demonstrated by the strong sales. Additionally, the cost base remained low even during this scale-up, proving the scalability of the business model, according to Analyst Group. As a result, we believe that a revaluation of ODI Pharma is justified, and we have accordingly raised our valuation range in all scenarios.
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Value drives
3
Historical profitability
7
Management & Board of Directors
6
Risk profile
All analyses of companies from 2020 onwards are rated based on a new rating system - Value Driver, Historical Profitability and Management & Board ranges from 1 to 10, where 10 is the highest rating. The risk profile ranges from 1 to 10, where 10 is to be considered the highest risk. Stock analyses of companies published before 2020 have been rated based on a different model.
Ready to Become a Profitable Medical Cannabis Company
ODI Pharma AB (”ODI Pharma” or the ”Company”), a supplier of a wide range of medical cannabis products, has signed an exclusive agreement with Synoptis Pharma, part of the NEUCA group, a market leading pharmaceutical company in Eastern Europe, under which ODI Pharma is the exclusive supplier of medical cannabis products to Synoptis in 23 countries. The first product shipments have been completed and given a slim organization and scalable business model, ODI Pharma is expected to deliver profitable growth. With estimated net sales of SEK 127m by 2025/2026, and with an applied P/S multiple of 1.7x, a potential present value per share of SEK 10.7 is derived in a Base scenario.
- Sales have Begun
ODI Pharma have signed an exclusive collaboration agreement with Synoptis Pharma, part of the NEUCA group, which is a market leader in the wholesale distribution of pharmaceutical products in Eastern Europe. The agreement states that ODI Pharma becomes the exclusive supply partner for medical cannabis products to Synoptis in 23 countries. We expect Synoptis to label the products with their own brand in the future, as doctors are expected to choose to prescribe a well-known local brand ahead of other international brands, which is estimated to drive growth for ODI Pharma. Initial figures indicate revenues of SEK 13.5m in Q3-23/24, and we estimate total sales of SEK 20.1m in the full year 2023/2024.
- Scalable Business Model
In the agreement with Synoptis, ODI Pharma acts as an intermediary between the cultivator Tilray and the distributor Synoptis. Thus, ODI Pharma has no costs for the cultivation or production, nor any sales or marketing costs. This business model allows the organization to remain small and efficient while scaling, creating a scalable business model that paves the way for increasing margins at higher sales volumes.
- Early and Untapped Market
The Polish medical cannabis market has been held back historically as a result of lack of supply. As more product has been approved for sales, supply has been able to better meet the demand where 2023 was a breakout year regarding sales of medical cannabis as 4,600 kg of medical cannabis was sold in the country, compared to approximately 1,200 kg in 2022. Still, it is expected that many potential patients are not being treated with medical cannabis, paving the way for continued strong growth going forward.
- The European Market is Highly Regulated
The medical cannabis market is highly regulated, and it is difficult to get products approved for sales. Although ODI Pharma does not engage in any cultivation of medical cannabis, the Company is ultimately responsible for supplying Synoptis with the products and ensuring that they comply with the regulations in place in each market.
7
Value drives
2
Historical profitability
7
Management & Board of Directors
6
Risk profile
All analyses of companies from 2020 onwards are rated based on a new rating system - Value Driver, Historical Profitability and Management & Board ranges from 1 to 10, where 10 is the highest rating. The risk profile ranges from 1 to 10, where 10 is to be considered the highest risk. Stock analyses of companies published before 2020 have been rated based on a different model.
Analyst Comments
Comment on ODI Pharma’s Strategic Market Entry to Switzerland
2024-06-26
ODI Pharma announced on June 25th that the company has completed a first delivery of products to the Swiss market, a new market for ODI Pharma. The delivery will be made to the leading medical cannabis provider in Switzerland and will be facilitated through ODI Pharma’s Swiss subsidiary.
The delivery is the first one outside of the collaboration agreement with Synoptis Pharma, which includes 23 countries in Eastern Europe, why it marks an important strategic milestone for ODI Pharma and in line with the company’s goal to widen the company’s market footprint and adapt to changing market dynamics. This first order to the Swiss market is a first step towards a wider market engagement, even though it is less significant in terms of order value.
The Swiss Medical Cannabis Market
Switzerland has one of the oldest medical cannabis schemes and most developed CBD industries, but patient numbers have remained low as access has been limited and costs has remained high. However, from august 2022 cannabis for medical purposes, classed as containing more than 1% THC, was reclassified from a ‘prohibited narcotic’ to a ‘controlled substance’. Before the change, patients were required to apply to the government for an exceptional license to get access to medical cannabis. With the reclassification, any physician with the correct operating license can prescribe medical cannabis and permits from the government are no longer required. After the change, the Swiss market has returned to growth after several years of a declining number of patients, and Statista estimates that sales of medical cannabis will grow by approximately 8.3% in 2024, reaching USD 24.6m.
Analyst Group’s View of the Market Entry
In our equity research report on ODI Pharma, we stated that the company is dependent of the collaboration agreement with Synoptis, which poses a risk in the event that the agreement is terminated for any reason. Additionally, ODI Pharma can expand to new markets, such as Western Europe, on their own, which is expected to be a long term strategic objective for the company. The entry on the Swiss market marks a first step in this direction to increase revenue diversification and hence the reliance on the agreement with Synoptis. Moreover, the Swiss market is expected to grow and is also seen by industry experts as a candidate to be the next European country to legalize cannabis for recreational use. Although this is not a market addressed by ODI Pharma, it is expected that such a development could increase the general acceptance of cannabis, which could, in turn, benefit the medical market and sales of ODI Pharma’s products.
Since the delivery is made to the leading medical cannabis provider in Switzerland, we expect the business model to be similar to the collaboration with Synoptis Pharma, i.e., that ODI Pharma acts as an intermediary between the supplier and the distributor, while also outsourcing costs such as product shipping. This means that the costs associated with the Swiss expansion are expected to be low and that ODI Pharma is estimated to be able to keep a low cost base going forward, paving the way for improved profitability as the company scales up in various markets. Although the Swiss market is not initially expected to contribute significantly financially, we see potential for higher sales volumes going forward.
How Analyst Group sees ODI Pharma as an investment
The third quarter was a breakthrough quarter for ODI Pharma, with net sales amounting to SEK 13.9m and an EBIT margin of 11% during the company’s broken fiscal year, proving the significance of the collaboration with Synoptis Pharma and the scalable business model. ODI Pharma’s unique business model has resulted in the company being, and expected to remain, one of the very few profitable companies in the cannabis industry. According to Analyst Group, this presents an attractive investment opportunity. With estimated net sales of SEK 127m by 2025/2026, and with an applied P/S multiple of 2.8x, a potential present value per share of SEK 17.4 is derived in a Base scenario.
Maj
Interview with ODI Pharma’s Chairman of the Board Volker Wiederrich
Share price
5.15
Valuation Range
2024-09-05
Bear
3.8 SEKBase
17.4 SEKBull
20.7 SEKDevelopment
Principal shareholder
2024-03-26
Comment on ODI Pharma’s Quarterly Report
2024-08-29
ODI Pharma published on August 29th the company’s Q4-report for 2023/2024, which showed a continued strong momentum. The following are some key points that we have chosen to highlight in connection with the report:
Continued Strong Momentum
The Q4-report marked another strong quarter for ODI Pharma where the net sales amounted to SEK 7.5m (0.0) in Q4-23/24, 9% above Analyst Group’s estimates of SEK 6.9m. The increased sales are assumed to be mainly attributable to, like in the previous quarter, the collaboration agreement with Synoptis Pharma and sales on the polish market. Moreover, ODI Pharma are actively seeking more European markets to diversify the geographical footprint. The collaboration agreement with Synoptis Pharma includes 23 countries in Eastern Europe, why Analyst Group believes that there are still strong growth opportunities within the framework of the collaboration. Additionally, ODI Pharma completed a first product delivery to the Swiss market at the end of the fourth quarter, which is considered a strategically important milestone. Therefore, Analyst Group believes there is still ample room for growth, both through increased sales in the Polish market and through geographic expansion. The company’s competitive advantage is assumed to be Synoptis strong brand in Eastern Europe, where we expect Synoptis to sell the products under its own brand. Doctors and patients in Poland are anticipated to prioritize a well-known local brand over other international brands, especially as the pricing for the products is expected to be similar.
The gross margin, adjusted for other operating income, amounted to 20.1%, in line with our expectations of 20.5%. The operating expenses, excluding depreciation, amounted to SEK 2.7m (1.9), corresponding to an increase of 44%. The operating expenses was affected by a one-off cost of SEK 0.35m related to the sale of the Kandol brand which occurred in December 2023. Adjusted for this one-off cost, the operating expenses amounted to SEK 2.3m, corresponding to an increase of 25%. The increased cost base is assumed to be attributable to shipping costs for the products sold. Nevertheless, Analyst Group reiterates the view of ODI Pharma’s scalable business model, where operating costs can be kept low even with a rapid increase in sales. Moreover, the business model is asset light with limited or no investments needed, which is expected to lead to a good cash conversion ratio.
Adjusted for the one-off cost of SEK 0.35m, the EBIT result amounted to amounted to SEK -0.6m. With the scalable business model, we expect the estimated sales growth to lead to improved and positive results going forward, in combination with a good cash conversion ratio. Below is a summary of the quarterly results and a comparison with our estimates.
Stable Financial Position
The cash position at the end of the quarter amounted to SEK 2.6m, compared to SEK 5.9m at the end of the previous quarter. The cash flow during Q4-23/24 was affected by a negative development in net working capital of SEK 4.2m. Given that we estimate a positive result and cash flow in the upcoming fiscal year, in combination with the asset light business model with no estimated investments needed, we see ODI Pharma’s financial position as solid. Additionally, the company has no long-term debt on the balance sheet, which allows for financing through loans if needed.
New Strategic Market Entry to Switzerland
At the end of the quarter, ODI Pharma announced that the company has completed a first delivery of products to the Swiss market, a new market for ODI Pharma. The delivery is the first one outside of the collaboration agreement with Synoptis Pharma, which includes 23 countries in Eastern Europe, why it marks an important strategic milestone for ODI Pharma and in line with the company’s goal to widen the company’s market footprint and adapt to changing market dynamics. Analyst Group views positively on the entry to the Swiss market which marks a first step in this direction to increase revenue diversification and hence the reliance on the agreement with Synoptis.
To summarize, Analyst Group sees the results as further proof of concept regarding the collaboration with Synoptis as a game changer for ODI Pharma in terms of scaling up sales and commercializing the company’s products. We expect the scale up to continue throughout the upcoming fiscal year, thus resulting in substantial growth, further supported by geographical expansion, with a positive result and cash flow because of the scalable and asset light business model.
We will return with an updated equity research report of ODI Pharma.