$COSM Eurozone ExpansionThe 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 Fundamentals
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.
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 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.
