Trxade Begins U.S. IPO Effort

Trxade Group (MEDS) has filed to raise $5 million in an IPO of its common stock, according to an S-1 registration statement.

The firm primarily provides pharmacies with an online purchasing platform.

MEDS is growing from a small revenue base and is profitable, but the firm has numerous business segments with many competitors, risking an unfocused approach.

I’ll provide a final opinion when we learn more about the IPO.

Company & Technology

Land O' Lakes, Florida-based Trxade was founded to enable the U.S. pharmacy industry to purchase and sell products online via its marketplace of accredited pharmaceutical suppliers.

Management is headed by Chairman and CEO Mr. Suren Ajjarapu who has a background in the energy industry and IT industry, who has been with the firm since 2014 and was previously Co-founder and COO of Global Information Technology.

The company’s primary offerings include:

  • Trxade.com online purchasing system

  • RxGuru product information

  • DelivMed pharmaceutical products delivery app

  • Other related services

Below is a brief overview video of the firm's DelivMed app:

Source: Proactive

The company's stock is currently traded on the OTCQB market under the symbol "TRXD" and its last reported sale on December 12, 2019 was at $6.25 per share, or $1.25 before the reverse stock split.

Customer/User Acquisition

The company has a number of subsidiaries in and around the pharmacy industry and has ongoing relationships with large buying groups and major regional suppliers.

The firm obtains customers and suppliers via word of mouth, online marketing and direct marketing, although management does not break out its sales & marketing expense.

General administrative expenses as a percentage of total revenue have been fluctuating as revenues have increased, as the figures below indicate:

General Administrative

Expenses vs. Revenue

Period

Percentage

Nine Mos. Ended Sept. 30, 2019

54.7%

2018

90.6%

2017

86.5%

Source: Company registration statement

The general administrative efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of G&A spend, was 1.0x in the most recent reporting period, as shown in the table below:

General Administrative

Efficiency Rate

Period

Multiple

Nine Mos. Ended Sept. 30, 2019

1.0

2018

0.3

Source: Company registration statement

Market & Competition

According to a 2017 report by GlobalData, the U.S. market for pharmaceutical products is expected to grow from $354 billion in 2015 to $497 billion in 2020.

This represents a forecast an average annual increase of nearly 8.1% from 2016 to 2020.

The main drivers for this expected growth are an increasing aging population, growing costs of prescription drugs and entitlement spending increases.

Major competitive vendors include:

  • McKesson (MCK)

  • Cardinal Health (CAH)

  • AmerisourceBergen (ABC)

  • SureCost

  • PharmaBid

  • RxCherrypick

  • PharmSaver

  • MatchRx

  • GenericBid

  • Amazon PillPack (AMZN)

  • Capsule

  • GetRoman.com

Management says its advantages include the 'ability to be flexible and fast moving in adjusting our business model to address the needs of our customer base.'

Financial Performance

Trxade’s recent financial results can be summarized as follows:

  • Growing topline revenue

  • Increasing gross profit but reduced gross margin

  • Uneven operating profit and margin

  • Growing cash flow from operations

Below are relevant financial metrics derived from the firm’s registration statement:

Total Revenue

Period

Total Revenue

% Variance vs. Prior

Nine Mos. Ended Sept. 30, 2019

$ 5,740,361

126.2%

2018

$ 3,831,778

30.7%

2017

$ 2,931,280

Gross Profit (Loss)

Period

Gross Profit (Loss)

% Variance vs. Prior

Nine Mos. Ended Sept. 30, 2019

$ 3,620,467

42.8%

2018

$ 3,382,729

-14.0%

2017

$ 3,931,280

Gross Margin

Period

Gross Margin

Nine Mos. Ended Sept. 30, 2019

63.07%

2018

88.28%

2017

134.11%

Operating Profit (Loss)

Period

Operating Profit (Loss)

Operating Margin

Nine Mos. Ended Sept. 30, 2019

$ 482,317

8.4%

2018

$ (87,616)

-2.3%

2017

$ 395,095

13.5%

Net Income (Loss)

Period

Net Income (Loss)

Nine Mos. Ended Sept. 30, 2019

$ 210,775

2018

$ 9,038

2017

$ 288,983

Cash Flow From Operations

Period

Cash Flow From Operations

Nine Mos. Ended Sept. 30, 2019

$ 324,565

2018

$ 273,386

2017

$ 171,670

Source: Company registration statement

As of September 30, 2019, Trxade had $3.4 million in cash and $2.0 million in total liabilities.

Free cash flow during the twelve months ended September 30, 2019, was $351,630.

IPO Details

Trxade intends to raise $5 million in gross proceeds from an IPO of its common stock, although the final amount may differ.

Management says it will use the net proceeds from the IPO as follows:

We intend to use the net proceeds from this offering to fund working capital and general corporate purposes and possibly acquisitions of other companies, products or technologies.

Management’s presentation of the company roadshow is not available.

The sole listed bookrunner of the IPO is Aegis Capital.

Commentary

Trxade is seeking a tiny U.S. IPO of $5 million to expand its marketing but hasn’t provided any meaningful details to prospective shareholders.

The firm’s financials indicate it is growing topline revenue and cash flow from operations, but other financial metrics have been uneven.

MEDS doesn’t break out its sales and marketing expenses, so there is no way to determine if the firm is becoming more efficient within that specific category.

However, its overall G&A spend is becoming more efficient, albeit in a fluctuating manner.

The market opportunity for pharmaceutical products distribution is indeed large but the firm faces numerous competitors across its business segments.

While MEDS has grown from a small revenue base, the firm has numerous disparate operational elements, which leads to an unfocused approach.

When we learn more IPO details from management, I’ll provide an update.

Expected IPO Pricing Date: To be announced.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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