Investment Memo: BOD Australia (ASX:BOD)
What we want to see from our investment in BOD over the next 12 months
20 May 2022
What does BOD Australia do?
BOD Australia is a cannabidiol (CBD) wellness and medical cannabis company.
BOD’s CBD wellness arm makes up the bulk of its revenues and is backed by the innovation arm of Health & Happiness International (owners of the Swisse brand), New H2 Ltd.
BOD’s medical cannabis arm is building a suite of IP for future medical cannabis product commercialisation and licensing deals via clinical trials.
Over the next 12 months the company is progressing two clinical trials for new CBD-based treatments for insomnia and long-Covid.
What is the macro theme behind BOD?
Globally, regulatory shifts towards cannabis reclassification are providing opportunities for new, legal products and treatments. According to market research from BDSA, legal global cannabis sales hit $21 billion last year and are expected to grow at 16% CAGR to surpass $61 billion in 2026.
In Australia, the Therapeutic Goods Administration (TGA) decision to down-schedule low dosage CBD products to Schedule 3 medicines means that these products will be available over the counter without requiring a prescription, paving the way to broader consumer reach.
Why do we continue to hold in 2022?
- Clinical trial results could lead to a re-rate
Biotech and healthcare stocks can deliver large re-rates following successful clinical trials for new products/treatments. This is due to the value of the IP being generated.
BOD is progressing two clinical trials over the next 12 months and we are holding to see what value can be created here.
- Ongoing R&D work has potential to bolster commercial opportunities
BOD is conducting additional R&D and collaboration work with multiple leading medical institutions in Australia. This work is supported by leading medical researchers and an advisory board with expertise in genetics, extraction, and product development.
We are looking out for BOD to deliver new product commercialisation and licensing deals over the long term.
- Major shareholder support
BOD is the exclusive CBD partner for global healthcare giant H&H, enjoying its strong distribution footprint across the globe and capacity to fast-track products to several international markets. This level of support is lacking from many of BOD’s peers, removing a key distribution hurdle for BOD. H&H is the major shareholder of BOD through its innovation arm, NewH2, holding a 14% stake in the company.
- Medical cannabis sector could swing back into favour
The medical cannabis sector has been out of vogue for a prolonged period of time (over 12 months). Our experience tells us that this is a cyclical shift which could reverse in the coming 12 months. The catalyst for this could be regulatory reform, further legalisation or changes in consumer preferences. We think BOD stands to benefit in this market environment.
What we expect the company to deliver in next 12 months
Objective #1: Complete UK open-label “Proof of Concept” clinical trial for MediCabilis treatment for Long-Covid to expand prescription numbers
🔄 Patient recruitment for 26 weeks programme
🔲 Completion of trial (Q4 – Q1, 2023)
🔲 Results of trial (Q4 – Q1, 2023)
🔲 Registration of MediCabilis as treatment for Long-Covid (Q4 – Q1, 2023)
Objective #2: Complete Australian Phase IIb clinical trial and make low-dosage CBD treatment for insomnia available without a prescription
🔄 Patient recruitment for 12 weeks programme (Q2-Q3)
🔲 Completion of trials (Q4)
🔲 Results of trial (Q4 – Q1, 2023)
🔲 TGA submission (Q4- Q1, 2023)
Objective #3: Schedule 3 CBD product registration in Australia to allow sale in pharmacies in Australia
🔲 Sales agreement with potential distributors (Q4 – Q1, 2023)
🔲 TGA approval (late Q2 2023?)
🔲 Product launch (late Q2 2023?)
Objective #4 – Develop and launch rival Epidiolex product
🔲 Commence Pharmacokinetic study
🔲 Complete Pharmacokinetic study
🔲 Launch Investigational New Drug (IND) application
🔲 FDA meetings
🔲 Submission for FDA approval via new drug application pathway
🔲 Potential FDA approval
🔲 Utilise the novel delivery format to launch competitor products to Epidiolex via Pharma-coequivalence study in the US
Objective #5 – Complete Acqua Phase integration
🔲 Finalise Aqua Phase testin
🔲 Complete Aqua Phase acquisition
🔲 Launch GMP product that can be sold in Aus market
🔲 Inclusion of Aqua Phase in Schedule 3 dossier offering
🔲 Licensing agreement 1
What could go wrong?
Technical failure: BOD’s two clinical trials are designed to determine the safety and effectiveness of CBD products/ treatments on patients, as well as provide data on side effects and preferred dosages. Despite CBD generally being accepted as safe, there is no guarantee that BOD’s new products will prove effective following the trials.
Market risk: Alternative products are available within the markets that BOD targets with their own pricing and marketing channels, which can impact demand for BOD’s products. In Australia, BOD’s product is priced at the premium range of the spectrum of cannabis based CBD products, due to the fact that they are GMP validated. There is the potential for lower cost hemp based CBD products, such as those cultivated in the United States and potentially supplied by competitors, to compete and significantly reduce the market price.
Regulatory risk: Any new CBD-based products and treatments must receive approval from the appropriate regulatory bodies within the desired markets. There is no guarantee that BOD’s products will receive such regulatory approvals, or may be delayed from entering new markets. For instance, the Food Standards Agency (FSA) in the UK regulates that only products which have a valid Novel Food application are allowed on the market – it is only at the start of 2022 that BOD was granted such approval.
Financial risk: BOD is yet to generate profits or become cashflow positive, and so relies on favourable external capital markets for funding. With $4.47M cash at bank at 31 March 2022, BOD appears to be well positioned to not require another capital raising for the remainder of the year, but there is no guarantee that this is the case.
What is our investment plan?
We originally Invested in BOD in early 2021 at 50c because we believed the stock was on the cusp of a further growth underpinned by growing revenues.
Since then the stock has underperformed and is now trading at ~15c, well below our Initial Entry Price of 50c.
We have not sold any shares and will continue to hold our full position in the expectation of a share price re-rate on the company achieving at least one of the objectives outlined above.
Disclosure: The owners of Wise-Owl, S3 Consortium Pty Ltd, and Associated Entities, own 500,000 BOD shares at the time of publication. S3 Consortium Pty Ltd has been engaged by BOD to share our commentary on the progress of our Investment in BOD over time.
Investment Milestones for BOD
✅ Initial Investment: @50c
🔲 Top Slice
🔲 Free Carry
🔲 Take Profit
🔲 Price increases 300% from initial entry
🔲 Price increases 500% from initial entry
🔲 Price increases 1000% from initial entry
✅ 12 Month Capital Gain Discount
🔲 Hold remaining Position for next 2+ years
