The market has grown wide and has presented much more opportunity for investment during the last half decade. In fact, in 2010 one of the most notable pharmacy acquisitions took place leaving early investors a major opportunity to capitalize on the space. A precursor to this is that many pharmacies are privately held with the exceptions of larger commercial organizations such as CVS Pharmacy (NYSE:CVS) and those held by companies like Target (NYSE:TGT) so when there is an opportunity to take advantage of this space, risk averse investors have a tendency to react quickly.
Five years ago, H.I.G. Capital, LLC, a leading global private equity firm, announced that an affiliate had closed its previously announced acquisition of Allion Healthcare, Inc. The transaction valued Allion at approximately $278 million where H.I.G. Capital and Allion Healthcare, signed a going private agreement on October 18, 2009. This, in turn, entitled stockholders to receive $6.60 per share in cash.
With over $400 million in revenue at the time of sale, Allion provides critical pharmaceuticals and services to its customers through its network of 17 locations across the country. But this hasn’t been the only major acquisition in a space fragmented with few public companies. Earlier in 2015 CVS acquired Target’s in store pharmacies through a roll-up strategy of its own.
The big box retailer’s pharmacy and clinic business was bought for a purchase price of nearly $2billion. Rumors were also buzzing around a Rite Aid (NYSE:RAD)/ Walgreens (NASDAQ:WBA) acquisition where Walgreens would take over Rite Aid’s locations and late in October 2015 the pharmacy giant announced that it would be buying the smaller company for $9.4 billion in order to widen its footprint in the United States and negotiate for lower drug costs. At the time of this announcement that figure represented a near 50% premium to the price of RiteAid (an update to this deal can be found on the company’s first quarter earnings call).
Obviously larger organizations are willing to pay not only to roll up the industry but to broaden market penetration. In the interim, the case for opportunity with pharmacy and health provider stocks can be made both from the view of a potentially undervalued situation or “getting in early” as some would say; this is in addition to the buyout angle where an investment in a potential buyout candidate during the early stages of development such as what happened with Allion half a decade ago can also be present.
A company that specializes in the service of patients with special needs such as providing HIV medication and therapies can be found in South Florida. Though it is still in earlier phases, Progressive Care Inc (OTCMKTS:RXMD) operating through its wholly owned subsidiary, PharmCo LLC generated more than $1million in revenue per month in 2015 and furthermore the company has been surpassing monthly milestones and quarterly benchmarks on a continuous basis. The company’s mission is to treat these patients with the utmost of care, privacy and respect through increasing access to vital medications and equipment, raising awareness, and providing education and other services to local communities and long term care institution.
For fiscal year 2014, Progressive Care had over $11 M in revenues and in 2015, the Company has not only been able to increase revenues, but also attain positive operating income for the first time since 2010. The Company’s cash flow now supports the operation and has allowed for investments and improvements to PharmCo’s facility and work-flow. As of 09/30/2015 cash on hand was $270,328 and through the first nine months of 2015, PharmCo, LLC has recorded nearly $350,000 in net income.
PharmCo, LLC offers a diverse range of products and services to retail customers, patients with specialty needs, long-term care facilities, rehab centers, doctors’ offices and clinics. These products include general pharmaceuticals and specialty medications, compounded medications, over-the-counter products, and durable medical equipment.
Since June the stock has seen an increase in liquidity and times of significant price movement. I speculate that due to the active 3(a)(10) transaction during the majority of the last 5.5 months, the depressed price and restrictive resistance levels had affected the stock’s ability to increase in value. Following the announcement that the company had in fact completed this debt instrument, shares of Progressive began to realize price appreciation:
Since June 17, 2015 (not including the obvious outliers of June 25/26) the stock has climbed 536.36% as of Wednesday’s (Feb. 17, 2016) closing price of $0.035. The stock has also been on a very consistent uptrend since announcing a positive reception on its first road show as well as the announcement that it had completed its 3(a)(10) transaction.
2015 Operating Performance & Growth
Through the first six months of 2015, general pharmaceuticals and compounds comprised 99% of the company’s revenues, with each representing 85% and 14% respectively. The facility currently fills approximately 50,000 prescriptions per quarter with minimal square footage devoted to compounding and long-term care operations. Due to dramatic increases in demand, PharmCo initiated plans to expand the pharmacy this past year.
In addition to the positive results from the first 6 months, RXMD continued growth through results from the first nine months of 2015 as well. The company reached nearly $10 million in revenues, achieved positive cash flow and operating profitability. Furthermore, in the third quarter of 2015, the company posted a 14% increase in revenue over the same quarter last year at approximately $3.3 million. In the fourth quarter, Progressive saw yet another record quarter with revenues of nearly $4million ($3.9mm) and closing the year with more than $13.5million in net pharmacy revenues; a 24% increase year over year. The company also boasts a healthy mix of new and refill prescriptions with each amounting to close to 50% of monthly sales. Maintaining this mixture has been key to PharmCo’s long-term growth and success.
Unlike other Bulletin Board stocks, Progressive does not hold aged debt as this was eliminated through a 3(a)(10) transaction. Details of the completion and debt extinguishment were announced in late December however, this has not yet been reflected in any financial statements (formal Q4 and Y2015 statements have not yet been posted).
This having been said, the company does not file its statements with the SEC as this is an alternative reporting company according to OTCMarkets.com. Lack of audited financials does inherently hold risk as far as many investors are concerned as it theoretically is impossible to know how accurate unaudited financial statements are.
Let’s also not forget that this being an election year, a lot can change in the healthcare landscape that could ultimately impact the way Pharmco will have to do business. Compounding has been a big focus outside of the normal prescription filling business. Because the FDA doesn’t necessarily have oversight of compounded medications, these drugs can be seen as being risky do the overall efficacy of a certain drug. Realistically, because these drugs are simply created on site at a pharmacy, one mistake could cause serious or even fatal results. To date, however, this has not been the case for Progressive Care.
Whether undervalued growth company or candidate for acquisition, RXMD has stood out among the fragmented and traditionally privately held pharmacy organizations to offer investment potential should the right investor realize it. The company’s continued growth, positive market sentiment, and positive price movement over the last 7 months all weigh on an investment decision. Likewise, no investment comes without risk and these should also be considered. At the end of the day, it’s an investor’s own decision.