Trxade Group Inc. (NASDAQ: MEDS) Q3 2020 Research Summary

Ticker	MEDS
Exchange	NASDAQ
Founded	2013
Headquarters	Florida
Industry	Technology
Market Cap	$49 million

Trxade Group (NASDAQ: MEDS) operates a web-based purchasing platform that brings together independent pharmacies to enable them to compete with larger pharma retail chains and to facilitate same-day delivery of drugs.

The company has established presence in all 50 states and has over 11,700 pharmacies as part of its network, representing over 50% of the US market size. Interestingly, the company has been consistently adding over 300 new independent pharmacies to its network over the past few quarters.

Products

• Bonum Health (Telemedicine app)
• Community Speciality Rx (Pharmacy)
• DelivMeds (Drug delivery app)
• Integra Pharma Solutions (Virtual wholesaler)
• Trxade Marketplace(pharmaceutical marketplace)

At the end of the first quarter of 2020, Trxade Marketplace was the company’s biggest unit, contributing close to 70% of its overall revenues. However, the revenue dynamics changed in the second quarter driven by the higher demand for PPE products and the global pandemic. Sales at Trxade’s wholesale unit, Integra Pharma, catapulted in Q2 to become the largest division with a revenue share of over 56%.

However, lower margins from the PPE products weighed on the bottomline in Q2, pushing the company into a loss. This was mostly a one-off case as gross margin remains strong on the tech side at around 75%. Overall margins should, therefore, see a meaningful boost once the revenue load from PPE is cut down post the pandemic.

Another promising unit from Trxade is DelivMeds, a mobile application through which patients can order drugs online and get them delivered on the same day. The product is not yet fully matured and is currently undergoing fine-tuning of AI so that it can reroute the scripts to pharmacies within a 3-mile radius of the patient. 

Second quarter earnings

The Tampa, Florida-based firm reported second-quarter revenues that more-than-tripled to $6.6 million, primarily driven by higher sales of personal protective equipment (PPE) through its Integra Pharma unit. The top-line was way ahead of the average Wall Street consensus of $2.15 million in revenues. The revenue beat had sent the stock soaring 35% immediately after the announcement.

Meanwhile, the company swung to a loss of $0.07 per share, from a profit of $0.01 per share a year ago, as lower margins on the pandemic-driven products weighed on the bottom-line results. Analysts, were on average, expecting a profit of 1 cent per share.   

In the second quarter, Trxade added 325 new independent pharmacies to its network, taking the total number of registered members to 11,725.

Industry outlook

As of 2019, three major chains – CVS Health Corporation (NYSE: CVS), Walgreens Boots Alliance (NASDAQ: WBA) and Cigna (NYSE: CI) – accounted for over half of the retail pharma market in terms of prescription drugs. Trxade Group comes into play at a point in time when independent pharmacies are visibly struggling to keep up with the resources and technological capabilities of these larger retail chains.

Interestingly, the industry is currently at a juncture where users are rapidly adopting the click and collect model for prescription drugs. This model is likely to double over the next four to five years, underlining the future potential of the Trxade’s business model. 

Companies are also adopting artificial intelligence to streamline the transfer of information between healthcare professionals and the patients as well as to offer improved services to customers. Walgreens has recently inked partnerships with Microsoft (NASDAQ: MSFT) and Adobe (NASDAQ: ADBE) to develop new outreach tools and client analytics, leveraging AI. Similarly, Merck (NYSE: MRK) had last year partnered with AI startup Aera to integrate the technology into its supply chain. More such consolidations are to be expected from the industry in the future.  

Competition

Trxade competes directly with a few private players including Script Health, Medstoreland and Benzer Pharmacy. The company also faces a bigger threat from public listed healthcare mammoths such as CVS, Walgreens, UnitedHealth Group (NYSE: UNH), Rite Aid Corporation (NYSE: RAD) and even Walmart (NYSE: WMT). Massive cash balances and resources help these companies expand quickly and offer superior services to customers. CVS’s revenue growth rate of 31% in fiscal 2019 underlines the growth potential in the industry, as well as the shift towards online mode for drug purchases.

Perhaps the biggest competition that Trxade is likely to witness is from Amazon (NASDAQ: AMZN), which has entered the online pharmacy business with the acquisition of PillPack in 2018. PillPack’s pharmaceutical license in all 50 states is likely to help Amazon gain a headspace in the $312-billion market.

Recent developments

Last month, the company launched a one-of-its-kind platform that brings together various services such as COVID-19 risk assessment, PPE shopping, and telehealth for its corporate customers. 

The mobile dashboard, christened Bonum+, is part of Trxade’s Bonum Health unit and allows companies to streamline PPE purchases, besides keeping a track on employee risk profiles. The platform also leverages artificial intelligence capabilities to connect employees with certified physicians.

Bonum Health President Ashton Maaraba said,  “This platform resolves a fundamental trust problem impacting employer’s safety and security policies, allowing companies to more effectively combat COVID-19 concerns in the workplace.”

In the bourses

As on Sept 17, the company had a market cap of $49 million, falling into the micro-cap territory. MEDS, which was uplisted to Nasdaq in February 2020, has gained 17% in the past six months, though trading happened mostly sideways.

During this volatile period that included the COVID-sell off window, the stock has consistently found resistance at $8 and support at $5.50. The stock has hit the resistance level twice during the past two months, but its inability to produce a breakout has been a concerning factor for investors.

The stock currently has a 12-month average price target of $11.25, which is at a 146% upside from the last closing price.  

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