$PKPH Initial Canna-Pet Revenue with 72.7% Gross Margin

Peak Pharmaceuticals Inc. [OTC: PKPH], the leading innovator of over-the-counter cannabinoid products for animals and manufacturer of Canna-Pet™ pet health products, achieved a significant milestone recently with the release of their first quarter fiscal 2015 business update. The company has clearly made the leap from development to “growth stage” status on news of $161,360 in revenues with nearly 73% gross margins in their latest 10-Q filing from February 17th. With a solid management team in place led by Dr. Soren Mogelsvang, Peak Pharmaceuticals has proven an ability to provide a short-term path to commercialization in a highly scalable business model. In this article we will be interviewing Dr. Mogelsvang, and looking further into the upcoming potential of Peak Pharmaceuticals.

Peak Pharmaceuticals began developing, manufacturing, and marketing pharmaceutical-grade phytocannabinoid products for the prevention and treatment of various diseases in March of 2014. Since then, the company has entered into a licensing agreement with Canna-Pet™, signed a cultivation agreement with a Colorado-based hemp farm, and rebranded itself to better reflect its position in the growing hemp market.

The fruits of these efforts have started to show up in its fourth quarter 2014 financial results, which included initial revenue from its CBD-infused Canna-Pet™ pet health products. The company generated $161,360 in revenue, between processing the first order on October 16, 2014 and December 31st, 2014. That works out to an average sales volume of just over $2,100 per day, and with management recently indicating that they’ve seen strong growth in order volumes during the first quarter of 2015, investors may want to add Peak Pharmaceuticals to their watch list.

Potential Profitability

Peak Pharmaceuticals could break even on the bottom-line with attainable sales of $4.37 million per year, assuming a steady 73% gross margin and stable expenses. It’s worth noting that more than 70% of its SG&A last quarter was in the form of equity-based compensation, which are a type of “in-kind” expense that differs from traditional expenses. By discounting these expenses, the company appears to be rapidly approaching a break-even point.

The high gross margins also point to high-growth potential over the long-term. Each dollar generated in sales past the break even level will drop down $0.73 to the bottom-line. These dynamics suggest that the company could be highly profitable over the long-term as it grows revenue past expenses. At the same time, the attractive gross margins provide management with added flexibility in pursuing other ventures without resorting to dilution.

Management’s long-term focus on profitability is highlighted by its hemp cultivation agreement, which should provide lower cost inputs for its current and future CBD-infused products. By keeping these raw materials costs down, the company can lower both its fixed R&D expenses and variable production expenses. The lower expenses frees up cash flow for the company’s future endeavors and ultimately enhances long-term shareholder value.

Long-term Potential

Non-psychoactive hemp-based foods have been fully legalized following a February 2004 court decision – HIA v. DEA – where a judge ruled that the DEA could not regulate naturally occurring THC not contained within or derived from a marijuana plant. With hemp-based CBDs excluded from the DEA’s Schedule I Controlled Substances list, anybody is free to sell non-psychoactive hemp-based nutritional supplements or other food-based products.

The recession-proof U.S. pet industry grew at an 8% CAGR to reach $51.58 billion in 2014, according to the American Pet Products Association, creating a large initial market for Peak Pharmaceuticals’ hemp-based CBD-infused Canna-Pet™ products. Companies in the industry such as PetSmart Inc. (NASDAQ: PETM) and VCA Inc. (NASDAQ: WOOF) have seen their stock prices appreciate by more than 10% in the last 3 months alone, a reflection of this impressive growth trend.

The Pet Supply and OTC medication industries make up $14 billion and $13.72 billion, respectively, of the overall $51.58 billion pet industry. The $14 billion Pet Supply industry is a particularly strong market segment, as 41% of pet owners have considered or tried various alternative therapies. Peak Pharmaceuticals Canna-Pet™ products fall into this category, showing an existing, large market prime for capture.

While pets represent a low-hanging fruit and a short-term path to revenues, the company ultimately plans on expanding it’s market potential by offering hemp-based CBD-infused products to humans, which management plans to introduce later this year. While companies such as GW Pharmaceuticals plc (NASDAQ: GWPH) are making great strides in the clinical trial world, their approach endures a lengthier time frame to commercialization than a company like Peak Pharmaceuticals, as FDA studies are both lengthy and necessary.

Looking Ahead

Peak Pharmaceuticals stands at a tipping point with early signs of revenue providing validation of its highly scalable business model. With indications of top-line growth in early 2015, the company is on its way toward breaking even on a bottom-line basis. Management is also gearing up for the release of its first human-targeted products later this year, which could further catalyze the stock over the coming quarters.

For more information, visit the company’s website at https://www.peakpharma.com/.

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