Medbox Inc. (OTC Pink: MDBX) may be well known for its ties to the burgeoning marijuana industry, but management has its sights set on much larger industries. With a patented system that dispenses medication to individuals based on biometric identification, the company’s products target pharmacies, assisted living facilities, prisons, hospitals, doctors’ offices, and alternative medicine clinics to manage possession of sensitive drugs.
Revolutionizing the Pharmacy Business
The aging population in the United States has created enormous demand for pharmaceuticals that are usually dispensed via traditional pharmacies like Walgreen Company (NYSE: WAG) and CVS Caremark Corporation (NYSE: CVS). Walgreens alone – as the largest pharmacy operator in the U.S. – has 8,385 stores with net sales of $71.6 billion in FY 2012, with prescription pharmaceuticals accounting for approximately 65% of those total revenues.
With well over 60,000 pharmacies in the U.S., Medbox’s unique medication dispensing system (“MDS”) has enormous potential within this industry alone. The innovative solution helps pharmacies lower overhead, prevent fraud, comply with laws, easily track inventory, and simplify accounting, all while reducing costs by around 40 cents per transaction. Add in the ability for a Walgreen’s or CVS to upsell customers on additional in store products, and the potential to boost revenue per customer greatly increases.
In FY 2012, the average Walgreen’s store generated approximately $5.4 million in pharmaceutical revenues, assuming $5 million in average annual revenue and 60,000 stores. With the total U.S. pharmacy market climbing from $145B in 2000 to $267B in 2010, the enormous growth of this industry should not be ignored by any investor. For a smaller company like Medbox, capturing just a fraction of this market could equate to significant revenue potential and a multi-billion dollar valuation for the company.
Cash Flow & Development Plans
Medbox’s marijuana-related operations should be viewed by investors as more of a cash flow generation tool than an area of focus for management. In FY 2012, these operations contributed to revenues of more than $4.5 million and net income of $881,304.40, with approximately $3 million in shareholders’ equity on the balance sheet. These funds have helped limit the amount of money that needs to be raised via financings to cover development costs, keeping dilution to a minimum.
With these funds in hand, the company has been focused on acquiring biotech companies involved with prescription drug management in order to bolster its R&D efforts and enhance its intellectual property position. Management also continues to strengthen its patent portfolio; with U.S. Patent 7,844,363 B1 covering its medicine dispensing systems, as well as having several patents pending covering safe access storage lockers and other technologies.
The management team itself is also well positioned to break into the pharmacy market with a cumulative 100 years of C-level executive experience at Walgreens. With significant insight into the industry’s hurdles and requirements, the company is likely better positioned than many others that have tried to break into the pharmacy business. Medbox has already shown that they are very capable of executing on their goals, and ultimately unlocking significant value for shareholders.
Potential Investment Opportunity
Medbox trades with a market capitalization of approximately $499 million, with only 14,313,572 shares outstanding and 207 shareholders, according to OTC Markets. While this is a high valuation for a largely development-stage company, the company’s patent and technologies could have a far greater opportunity than many realize. As mentioned earlier, the pharmacy market alone was worth approximately $300 billion in 2012, and this represents only one potential end market.
Investors looking for exposure to the company may want to average in over time, given the recent volatility in share price, and can learn more by reading the company’s website at www.thedispensingsolution.com or their profile on OTC Markets at www.otcmarkets.com/stock/mdbx/quote.
Disclosure: The subject security is a client of Emerging Growth, LLC. For full financial disclosures for all Emerging Growth, LLC clients, please visit http://secfilings.com/Disclaimer.aspx
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