Although the last few weeks have been substantial for MediPharm Labs Corp. (LABS.TO) (MEDIF), the recent trend has been to the downside and we believe the market is missing out something significant.
Following the signing of a strategic agreement with Stada and the entering into additional emerging international markets, we believe that MediPharm is reaching an inflection point.
Last week, the leading Canadian cannabis oil company announced major changes to the management team. Although the market did not respond favorably to the announcement, we believe the decision to bring on strategic human capital to lead the operation is related to the advancement of the business on the biotech and the international side of the industry.
A Global Execution Story in the Making
From an operational standpoint, 2020 has been a banner year for MediPharm Labs and we have been surprised with the performance of the stock (down more than 85% so far this year). At current levels, we believe that MediPharm is trading at a considerable discount to its peers and looks attractive on almost every valuation metric.
At current levels, MediPharm’s market cap is approx. $75 million. As of September 30th, the company reported to have more than $35 million of cash on hand. Based on this amount, MediPharm is trading at approx. 2x cash and we believe the market is discounting the growth prospects that are associated with the operation.
We are of the opinion that 2021 will be a period of strong growth for MediPharm Labs and expect to see the international side of the business ramp up in the back half of the year. If we are looking forward, we can easily understand that MediPharm is executing on a growth strategy that is centered around increasing the number of revenue streams that are flowing into the overall business.
Last month, MediPharm Labs plunged lower after it reported third quarter financial results. The numbers showed a significant decline in revenue when compared to the same period last year and the market punished the stock for it. Going forward, we believe the business is well positioned to capitalize on the international cannabis opportunity and are favorable on the early mover advantage that it has in these markets.
From South America to the European Union, from Australia to Southeast Asia, MediPharm is executing on a multi-national expansion strategy. We believe the market is discounting the potential that is associated with the international cannabis opportunity and will be monitoring how this aspect of the business ramps up from here.
A Biotech Execution Story that is Flying Under the Radar
One of the most exciting aspects of the MediPharm story is related to work that it is doing on the biotech side of the industry. In October, MediPharm announced a major milestone and entered into an arrangement with Stada Arzneimittel AG to be the exclusive supply partner for the international generics and consumer health products company. The market had a muted response to the strategic partnership which surprised us due to the significance of it. Through the partnership, MediPharm will benefit for the following reasons
- Stada is a leading European consumer healthcare and generics firm that has a presence in 120 countries
- The relationship should result in the providing of medical cannabis products to the European pharmaceutical sector, starting with Germany
- Stada will provide the relationship with marketing and medical education support while MediPharm provides a broad range of GMP-certified medical cannabis products
A few weeks later, MediPharm initiated a clinical trial to research and evaluate the effectiveness of its proprietary cannabis-derived medical products and formulations on the treatment of end-stage renal disease or chronic kidney disease (CKD). As it relates to the clinical trial, MediPharm partnered with Canadian firm, OTT Healthcare Inc. (OTT) and signed a Master Clinical Studies agreement.
In the coming months, we expect to learn more about the study and MediPharm plans to expand its portfolio of clinical trials in the near future. We believe that the market does not understand the significance of the clinical trial on the treatment of end-stage renal disease or CKD and want to explain the importance of it. By conducting clinical trials on patients with compromised immune systems, we could learn about the impact that MediPharm’s treatment has on other illnesses. CKD patients often suffer from a wide variety of issues and we could learn if MediPharm’s proprietary product is beneficial in the treatment of other serious or rare illnesses.
Expect MediPharm to Announce Strategic New Hires in the Near-Term
We believe the shakeup in the management team is related to the advancement of MediPharm’s business. In the near future, we expect to see the company announce strategic additions to the management team and believe that it is an opportunity that has a compelling valuation.
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Published at Fri, 18 Dec 2020 12:40:52 +0000