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Bod Australia Ltd Limited

(ASX:BOD)



Investment Memo: Bod Australia Ltd (ASX:BOD) - LIVE

Opened: 01-Jul-2022

Shares Held at Open: 500,000


What does 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?

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 did we invest in ?

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 do we expect to deliver in 2022?

Objective #1: Complete UK open-label “Proof of Concept” clinical trial for MediCabilis treatment for Long-Covid to expand prescription numbers

Milestones

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

Milestones

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

Milestones

Sales agreement with potential distributors (Q4 – Q1, 2023)

TGA approval (late Q2 2023?)

Product launch (late Q2 2023?)

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


Quarterly report - advancing multiple clinical trials

ASX:BOD Jul 28, 2022 Announcement

Investment Memo: BOD IM-2022


Our long-term Wise-Owl cannabis investment, BOD Australia (ASX:BOD) released its quarterly results earlier today.

While the company improved in several financial metrics that we track on a quarter-vs-quarter basis (total quarterly sales up 46% to $943,608), it declined on a previous-corresponding-period last year basis ($1,173,498).

This is partially explained by the company now focussing more on its R&D pipeline with the hopes of unlocking several growth opportunities (and future revenue sources) in the year ahead.

Bod holds $3.67M cash at bank as of 30 June 2022, which we think likely means the company doesn’t need to raise capital for the rest of the year, unless a significant new investment/ growth opportunity arises.

Capped at ~$10.5M, Bod’s enterprise value (EV) is now under $7M.

That said, as per our Investment Memo, we are more interested in how Bod’s numerous clinical trials are advancing.

On this front, we like the progress being made. During the quarter, BOD dosed the first patients for the following two trials:

  1. Insomnia (Phase IIb) - for an over-the-counter (OTC) treatment available at pharmacists
  2. Long-COVID (Open label, “Proof of Concept”)

These both address substantial markets, and hence successful outcomes on either trials could ultimately lead to new products and potentially prosperous revenue sources. Typically this is when significant market re-rates can occur.

Of interest, Bod is planning to launch a new low dose cannabidiol product through Australian SAS-B channels (i.e. via a prescription from a medical practitioner), providing the company with another sales channel and additional delivery format for consumers ahead of any OTC launch.

We will provide a more detailed analysis on the progress of the clinical trials in August.


BOD to launch low dose CBD schedule 3 product

ASX:BOD Jun 23, 2022 Announcement


Investment Memo: BOD 2022

Objective #2, Objective #3: Insomnia trial, Schedule 3 CBD product registration


Our cannabis Investment, BOD Australia (ASX:BOD) has just confirmed it intends to launch a new product in July for the Australian SAS-B channel (medicinal cannabis prescription).

Bio-Absorb 100 is a soft gel formula that delivers a low dose of CBD and is currently the product being used in BOD’s phase II insomnia trial.

Successful completion of that phase II trial is Objective #2 in our BOD Investment Memo, and subsequent registration of registration of Bio-Absorb 100 is Objective #3 in our BOD Investment Memo.

Here’s how we see today’s news helping BOD achieve these two Objectives:

  • It provides important product awareness ahead of a potential Schedule 3 registration (no prescription needed)
  • It will act as a good trial run for larger scale manufacturing by getting it in the market early

What’s next for BOD: We’re looking forward to recruitment updates from BOD about their insomnia trial which BOD says is progressing well. This is in addition to the Long-Covid trial. The Long-Covid trial is Objective #1 in our BOD Investment Memo and could unlock additional prescription sales while also giving


Proof of Concept CBG Trial Success

ASX:BOD May 26, 2022 Announcement



Investment Memo: BOD 2022

General: Additional clinical trial


Our medical cannabis Investment, BOD Australia (ASX:BOD), has announced that its “Proof of Concept” CBG trial was successful.

CBG, or cannabigerol, is a non-intoxicating cannabinoid which BOD has been exploring for a range of therapeutic uses, including fibromyalgia, inflammatory bowel disease and irritable bowel syndrome (IBS).

This is what the product looks like:

BOD found that, “74% of trial participants reported a noticeable improvement in

their conditions within two to four weeks of using MediCabilis™ CBG 50 twice a day.

That’s a solid result for a novel therapy and should make doctor’s feel more comfortable prescribing BOD’s CBG product in the UK and Australia.

As BOD Investors, we’re glad that BOD’s R&D/clinical trial pipeline is starting to deliver results and we’re hoping these trials lead to more sales.

What’s next for BOD: We’re looking for an update on patient recruitment for their two main clinical trials - one for Long-Covid and another for insomnia. These trials form Objective #1 and Objective #2 in our BOD investment memo.