Comment on ODI Pharma’s Quarterly Report

ODI Pharma published on May 30 the company’s Q3-report for 2023/2024, which showed a strong financial development. The following are some key points that we have chosen to highlight in connection with the report:

• Reported net sales of SEK 13.9m (0,0) – significantly higher than any other previous quarter
• Proof of a scalable business model – the EBIT margin amounted to 11%
• Stable financial position

A Breakthrough Quarter

The Q3-report showed a breakthrough quarter for ODI Pharma as the net sales amounted to SEK 13.9m (0,0), the first significant sales figures in the company’s history. The sales growth is attributable to the exclusive collaboration agreement with Synoptis Pharma, under which ODI Pharma is the exclusive supply partner for Synoptis in 23 countries. As a market leading pharmaceutical brand in Poland as well as all over eastern Europe, Analyst Group expects Synoptis Pharma to have an ambitious growth plan in these countries regarding medical cannabis, which we expect ODI Pharma to continue to capitalize on by being the exclusive supply partner. Moreover, as we currently are two months into Q4-23/24, we expect that the strong momentum has continued into the current quarter, leading to a robust start of the last quarter in ODI Pharma’s fiscal year.

Given that the orders for ODI Pharma are expected to have significant individual value, the revenue may vary between upcoming quarters. In other words, sales could be affected in a particular quarter depending on whether a major sale occurs in the last week of that quarter or in the following week, thus being recorded in the next quarter. Following the breakthrough quarter in Q3-23/24, we anticipate somewhat lower revenue in the upcoming fourth quarter, albeit with significantly higher sales compared to previous quarters. However, in the long term, we foresee continued sustainable and stable growth, with quarterly fluctuations diminishing as ODI Pharma continues to expand.

Proof of the Asset-Light Scalable Business Model

Despite the large ramp-up in sales during the quarter, the cost base remained stable, demonstrating scalability. The total operating expenses during the quarter amounted to SEK 1.2m, which was a decrease from the previous quarter where the operating costs amounted to SEK 1.8m. However, the cost base increased by 26% Y-Y. Nevertheless, we view this development as evidence of ODI Pharma’s scalable business model, where operating costs can be kept low even with a rapid increase in sales. With a reported gross margin of 20% and with a stable cost base, ODI Pharma managed to report an EBIT margin of 11% in the quarter as well as a profit margin of 9%. Once again, we see this as evidence of a functioning business model where ODI Pharma operates as an intermediary between the producer and the distributor, Synoptis Pharma. According to Analyst Group, this positioning creates the conditions necessary to deliver continued profitability in the future.

The cash position amounted to SEK 5.9m at the end of Q1-24 compared to SEK 6.5m at the end of Q4-23. The cash position was affected by a negative development in net working capital as well as paid interest, regardless ODI Pharma had trade receivables amounting to SEK 7,4m at the end of the quarter, which is expected to be converted to cash. We expect ODI Pharma to repay an outstanding loan of EUR 350,000 over the coming quarters to reduce interest expenses and strengthen the balance sheet, which is anticipated to be achieved through organically generated cash flow.

To summarize, Analyst Group sees the results of the report as proof of that the collaboration agreement with Synoptis is a game changer for ODI Pharma in terms of scaling up sales and commercialize the company’s products. Moreover, the stable cost base in the quarter is seen as a proof of concept of the scalable business model, where ODI Pharma is expected to be able to keep the cost base low while creating a rapid scaling up of sales.

We will return with an updated equity research report of ODI Pharma.