MediPharms Labs’ new deal is historic, says ATB Capital

ATB Capital Markets analyst David Kideckel is calling a new deal announced by cannabis extraction company MediPharm Labs (MediPharm Labs Stock Quote, Chart, News TSX:LABS) an historic and transformative landmark agreement.

In an update to clients on Monday, Kideckel reaffirmed his “Sector Perform” rating and $2.00 target price for LABS, which at press time represented a projected 12-month return of 138 per cent.

MediPharm Labs, which produces pharmaceutical-grade cannabis oil and concentrates, on Monday announced signing an exclusive supply agreement with pharma giant STADA Arzneimittel, a European consumer healthcare and generics company, which is among the top five generic companies in Europe, sells products in approximately 120 countries worldwide, employs over 12,400 people and had 2019 sales of €2.6 billion.

The deal will see MediPharm supply GMP certified medical cannabis products to STADA as well as manufacturing, logistics and regulatory support, while STADA will be responsible for commercializing the cannabis products, with an initial focus on the German market, currently Europe’s largest. Initial shipments are expected in early 2021.

MediPharm CEO Pat McCutcheon called the agreement a validation of the company’s strategy to deliver GMP certified cannabis products for the international marketplace.

“This mandate has meaningful revenue potential for MediPharm Labs and we couldn’t be more excited to partner with a company that has the reputation and resources that STADA commands. As a powerhouse in sales and distribution of pharmaceuticals and non-prescription consumer health products, STADA has the ability to become a transformative force in European medical cannabis markets and we are thrilled to be their exclusive partner,” McCutcheon said in a press release.

On the deal, Kideckel wrote, “We view the agreement as highly positive and the most significant pharmaceutical-cannabis deal to ever be executed in the industry. We believe that the agreement with
STADA reinforces LABS’ pharma-quality production capabilities and is a decisive step to explore the European medical cannabis market, one of the largest in the world. As we have noted before, we believe that LABS’ pharma-focused global platform is a differentiator for the Company and will drive its long-term growth. At the present time, any significant revenue generated from the agreement with STADA would be upside to our estimates,” Kideckel said.

Kideckel pointed to LABS’ current roster of 13 international supply agreements and noted the company’s first sales over the second quarter 2020 from its MadiPharm Labs Australia operation of $0.6 million.

“We note that LABS has built a global platform with GMP-certified facilities in Canada and Australia, and has a management team with deep experience in the pharmaceutical space,” Kideckel said. “Over the mid-to-long- term, as the international medical cannabis industry evolves, we expect LABS to close deals with global pharmaceutical companies and increase international sales.”

Currently, Kideckel has forecasted LABS to generate 2020 revenue and EBITDA of $52.8 million and negative $27.8 million, respectively, and 2021 revenue and EBITDA of $106.3 million and $15.5 million, respectively.

MediPharm’s share price is down 75 per cent year-to-date.

Founded in Germany in 1895, Stada Arzneimittel AG is a pharmaceutical company that specializes in the production of generic and over-the-counter drugs. The company’s revenue in 2018 posted revenue of €2.33 billion. The company’s product line includes its own Stada-brand acetaminophen and lactulose, cold medicine and sun protection products.

The news on the deal with Stada comes on the heels of the announcement that MediPharm Labs would enter the Brazilian market, striking a deal to supply formulated cannabis oil to XLR8 BRAZIL a Rio de Janeiro based distributor that services the Latin American medical cannabis market. The arrangement is the second that LABS has made in the Latin American market.

“By virtue of its large population, forward-thinking legislative eco-system and economic strength, Brazil is one of the world’s most promising medical cannabis markets and the natural next port of call for our international expansion and growth strategy,” said Pat McCutcheon, CEO of MediPharm Labs of the deal. “Given Brazil’s potential as one of our key target markets, we have chosen to partner with XLR8 because of their focus on quality and compliance, their extensive relationships with local healthcare professionals and dedicated focus on the advancement of medical cannabis scientific validation and education. They are the perfect complement to and outlet for our pharma-quality production.”

MediPharm’s new partner is more than bullish on the partnership, arguing that Brazil has worldwide prominence in the medical cannabis space.

“In our view, Brazil is destined to be a global powerhouse in medical cannabis,” said Thiago Callado, Founder and CEO of XLR8. “To make this exciting future a reality, Brazilians need reliable access to formulations that are constructed using proven methodologies that meet the most rigorous international standards of care. By aligning with MediPharm Labs, a company that has GMP certification, the veritable gold seal in pharma-grade production, XLR8 can now begin to fulfill our mission of market leadership.”

On Monday, shares of MediPharm Labs closed up $0.13 to $0.97.