The recent acquisition of pharmaceutical laboratories CANA S.A. (CANA) by Cosmos Health Inc. (NASDAQ: COSM) could be seen as a bullish indicator regarding the company’s long-term prosperity. As a result of this development, the company now controls a 54 thousand square ft. manufacturing facility in Athens and multiple functioning product lines that will assist in its vertical integration efforts. In this way, the company would be able to improve its profitability prospects due to potential cost reductions since the company manufactures its products with a 3rd party. For this reason, COSM stock could be a worthy long-term investment given that it now controls a drug manufacturer, wholesale pharmacies, and retail pharmacies.
COSM Stock News
After adding Docpharm to its portfolio of subsidiaries, COSM now controls 4 subsidiaries within Europe where 2 subsidiaries are based in Greece – Skypharm and Cosmopharm, DHS in the UK, and finally Docpharm in Germany. All of these subsidiaries play a critical role in COSM’s growth since they extend its reach throughout the entirety of Europe.
At the same time, Docpharm’s addition has a substantial strategic benefit for COSM since Germany has the largest pharmaceutical market in Europe. With this in mind, the German market accounts for a 5.9% share of the global pharmaceutical market. If COSM is able to gain a fraction of this market, it could account for a major increase in revenue.
Europe’s pharmaceutical market is unique in that it is governed by a supranational institution that regulates drug approval throughout the continent which means that COSM’s subsidiaries are not shackled by border restrictions. In this way, Docpharm and the Greek wholesalers can freely trade with pharmacies in neighboring countries. That said, the Greek wholesalers provide COSM with access to the Balkans while Docpharm provides access to Western Europe.
Through these subsidiaries, COSM has a solid grip on the European pharmaceutical market which was worth $282.5 billion in 2020 and is expected to grow at a CAGR of 5.4% through 2028. As these subsidiaries develop they are likely to grow their reach and envelope more of Europe’s gargantuan pharmaceutical market. For this reason, COSM stock could be a bargain at its current PPS.
*Updated July 18th, 2023
Vertical Integration
After a long string of acquisitions, COSM took a huge step towards vertical integration by purchasing CANA which is a Greek drug manufacturer. Thanks to this purchase, COSM could now boost the performance of its other subsidiaries by integrating CANA with other retail and distribution-oriented subsidiaries like Docpharm, Skypharm, and Cosmopharm.
COSM acquired CANA at a bargain price of $1.67 million in cash and stock which could be extremely cheap taking into consideration that CANA is not a run-of-the-mill pharmaceutical company. Additionally, members of CANA’s old management team accepted COSM shares at a price of $17.25 per share – indicating that they believe the COSM stock price should increase as a result of this transaction.
One of the potential upsides of this acquisition is the possibility of obtaining lucrative contracts with multinational institutions as a result of COSM’s new manufacturing capabilities. This possibility is likely given CANA’s reputation and previous partnerships with well-established players like AstraZeneca, Janssen, P&G, and Nestle. These partnerships indicate that these multinational giants trusted CANA’s capabilities which in turn means that the quality of CANA’s work is enough to satisfy these industry leaders.
Meanwhile, the true value of this acquisition could only be grasped when taking into consideration the incorporation of CANA with COSM’s other subsidiaries. Normally, pharmaceutical manufacturers would sell their drugs to a pharmaceutical wholesaler which would then sell the drugs to pharmaceutical retailers after bumping up the price to make a profit. That said, in a vertically integrated system like COSM’s, the manufacturer and retailer serve a single entity which means that the wholesaler could sell their drugs directly to the retailer without a wholesaler present.
On that note, CANA already has a portfolio of owned brands including pharmaceuticals, dermocosmetics such as Eleon Cosmetics, antiseptics such as C-Sept, food supplements, as well as an infant care organic product line, Biobebe. In this way, COSM may offer these products at its wholesale and retail pharmacies at a competitive price due to vertical integration which may allow these products to gain market share as they could be cheaper than their competitors.
Since CANA has an ISO certification and a European Good Manufacturing Practices (GMP), license it is capable of trading effortlessly in the Eurozone. This means that CANA could supply Docpharm with drugs at a discounted price via vertical integration and COSM would still reap substantial revenues due to the lack of an intermediary trader. If COSM utilizes this potential partnership to its fullest potential, Docpharm could provide the German market, which is already extremely competitive, with OTC drugs at a lower rate than most retailers resulting in an increase in demand and greater revenue.
Additionally, COSM’s wholesalers Cosmopharm and Decahedron may benefit from CANA’s acquisition by having specialized production lines that offer high-demand products. It is also worth noting that discounted prices for COSM’s wholesalers is also a possibility since both parties fall under the COSM banner.
That said, an additional positive outcome that is likely is that this partnership could lead to cost reduction due to the termination or reduction of outsourcing production. Currently, COSM is in an agreement with Doc Pharmae for the development and manufacturing of pharmaceutical products and nutritional supplements. Following the acquisition of CANA, COSM could now start producing SkyPharm’s Sky Premium Life products at CANA’s facility which might result in cost savings. Having said that, there is no publicly available data to calculate the expected cost reductions.
COSM Stock Financials
COSM’s balance sheet is extremely promising. According to its Q1 report its assets remained at $68 million QoQ, which said its cash, and cash equivalents decreased from $20.7 million to $12 million. This might seem like a significant loss if not for COSM’s stark drop in liabilities as current liabilities dropped from $21.7 million to $18.5 million, and total liabilities decreased from $28.3 million to $23.6 million.
COSM revenues decreased slightly YoY from $13 million to $12.3 million. That said, its operating expenses jumped from $1.6 million to $3.6 million. In this way, COSM reported a net loss of $459.8 thousand compared to a net income of $203.3 thousand in Q1 2022.
Media Sentiment
@benedetto_frank is bullish on COSM stock’s upside.
@marel_corp is bullish on COSM’s prospects following its recent moves.
Technical Analysis
COSM stock is in a neutral trend and is trading in a sideways channel between its support at $2.98 and its resistance at $3.65. Looking at the indicators, the stock is trading below the 200, 50, and 21 MAs which is a bearish indication. Meanwhile, the RSI is neutral at 38 and the MACD is approaching a bullish crossover.
Despite the bearish indicators, COSM’s fundamentals may be solid following the recent acquisition of CANA since it could boost revenue and reduce costs due to vertical integration. Given that the stock has a strong support at $2.98, bullish investors could find retests of this support an opportunity to go long on the stock in anticipation of more details regarding vertical integration which may start showing in the company’s 2023 annual report.
COSM Stock Forecast
With the acquisition of CANA, COSM’s subsidiaries have the potential to thrive through vertical integration which is extremely promising for the stock. This is mainly due to the potential revenue growth as a result of gaining market share thanks to lower prices and the possible cost savings since the company is currently outsourcing production of SkyPharm’s Sky Premium Life products. While the impacts of this acquisition may not show before the company’s 2023 annual report, COSM stock could be a bargain at current levels as it is trading near a strong support.
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