STENOCARE published on November 5th the company’s Q3-report for 2024. The following are some key points that we have chosen to highlight in connection with the report:
- Continued challenging market affected sales
- A decreased cost base to adapt to the slower sales
- Additional funding needed to leverage market potential
Challenging Market Conditions Continued During Q3-24
The gross sales amounted to DKK 1.1m (2.4) in Q3-24, corresponding to a decrease of 53 %. Net sales were affected by returns of expired products amounting to DKK 2m, leading to net sales amounting to DKK -0.9m (0.2). The expired return products is assumed to be primarily attributable to the Danish market, where the company are experiencing increased competition and a special situation with a competing magistral product being supported with 85% patient subsidy from the Danish Medicines Agency, compared to STENOCARE’s 50%. This has led to slower sales than expected as well as expired products being returned to the company. STENOCARE are exploring various avenues to address this situation, including a dialogue with the medicines agency but the situation is unchanged and expected to affect the company throughout the rest of 2024.
Additionally, STENOCARE had products returned from UK and Norway, delivered in Q3-23, due to expiry, indicating that demand has been lower than expected in these countries as well. This is anticipated to be due to that the integration of medical cannabis into clinical practice has not progressed as rapidly as was anticipated a few years ago as well as increased competition.
STENOCARE has long addressed the increasing competition by initiating the development of a new, innovative product, now named Astrum Oil, which has been approved for sale in Australia and Germany. The product is expected to have several benefits compared to the medical cannabis oil available today, including a higher, more uniform, and faster uptake in the blood. With this launch, we see STENOCARE as a first mover in next generation medical cannabis oil products, why we see that the company can gain an advantage against competitors. The product is expected to be available for patients from Q4-24.
In summary, there are several short-term sales challenges, however, given the advantages of the company’s innovative Astrum Oil, STENOCARE is still considered to have strong potential for substantial revenue growth in the longer term.
Additional Cost Savings in a Tough Market
The operational expenses amounted to DKK 3m (4), corresponding in a decrease of 26%. Cost of goods sold is included in the external expenses and due to the lower gross sales in Q3-24 compared to last year, the cost of goods sold has decreased, explaining part of the decrease. Additionally, we believe that STENOCARE has continued to optimize the company’s cost structure to reduce the burn rate, given the lack of sales acceleration so far, which we view positively on.
Plan to Adress the Capital Requirements for Future Growth Expected
STENOCARE’s cash position amounted to DKK 0.1m at the end of Q3-24 and the company stated in the Q3 report that the plan for future funding of the company will be announced soon. During Q3-24 the cash flow from operating activities amounted to DKK -1.9m and was positively affected by DKK 2.2m through change in working capital. The main explanation for the positive effect is the increase in the item “Other payables”, where we could see a similar effect in Q3-23, when STENOCARE also had product returns. The effect was later reversed in Q4-23, why we expect this to have a similar negative effect on the cash flow in the upcoming fourth quarter.
As mentioned in our previous updates regarding STENOCARE, the company will need to secure additional funding to enable future growth initiatives such as the launch of Astrum oil. We consider the most likely option to be a capital raise, however, given the recent weak stock performance, such a capital raise could incur under unfavourable conditions for existing shareholders.
To summarize, STENOCARE continues to experience challenges regarding market conditions through increased competition, higher subsidy on a competing product in Denmark and an overall slower market growth than expected, which has affected sales. We expect these challenges to remain in the short term but consider the company’s Astrum oil as a potential strong sales driver in the longer term given the advantages of the product for industry. STENOCARE continues to optimize the cost base to adapt to the current market but will need additional funding going forward, where we expect a plan regarding the future capital requirements to be announced soon.
We will return with an updated equity research report of STENOCARE.
