Wellgistics Health Inc(WGRX) - 2024 Q4 - Annual Report

Part I Business Overview Wellgistics Health, Inc. operates as a holding company integrating pharmacy, wholesale distribution, and technology platforms to create a micro health ecosystem focused on specialty-lite pharmaceuticals - The company operates as a holding company for a pharmacy (Wellgistics Pharmacy), a wholesale distributor (Wellgistics LLC), and a technology hub (DelivMeds), aiming to create an integrated 'micro health ecosystem'[19][20] - The company completed the acquisition of Wood Sage (holding company for DelivMeds and Wellgistics Pharmacy) on June 16, 2024, and the acquisition of Wellgistics LLC on August 30, 2024[21][25] - The business model focuses on the 'specialty-lite' or niche pharmaceutical market, leveraging synergies between its pharmacy, wholesale, and technology divisions to improve patient outcomes and provide value to stakeholders[19][28] Pharmacy — Wellgistics Pharmacy Wellgistics Pharmacy is a mail-order pharmacy licensed in 32 states and D.C., offering general and specialty services with a revenue model based on prescription reimbursement and planned SaaS fees - Wellgistics Pharmacy is licensed in 32 states and the District of Columbia, operating as a mail-order pharmacy with a focus on both general and specialty services[33] - Key services include patient care coordination, clinical drug therapy management, compliance packaging, patient financial assistance, and managing prior authorizations and REMS protocols[35][38] - The current revenue model is based on prescription reimbursement, but the company plans to introduce recurring SaaS transaction fees for its technology platform and services offered to its network of independent pharmacies[36] Wholesale — Wellgistics LLC Wellgistics LLC is a 50-state licensed pharmaceutical wholesaler serving over 5,000 pharmacies, specializing in niche therapeutic products and offering 3PL services - Wellgistics LLC is a 50-state licensed wholesaler serving over 5,000 pharmacies and has relationships with over 60 manufacturers[37][39] - The product portfolio consists of approximately 65% topical generics (dermatology focus), 20% oral generics (non-narcotic pain), 10% brand formulations, and 5% OTC products[39] - Services include pharmaceutical distribution and third-party logistics (3PL), such as warehousing, inventory management, and shipping, from facilities in Lakeland, FL, and Columbus, OH[42] Technology (Hub & Clinical Services) — DelivMeds DelivMeds is the company's technology arm, providing a pharmaceutical hub platform with AI-driven prescription routing and clinical concierge services for B2B clients - DelivMeds serves as the middleware technology between patients, providers, pharmacies, payors, and pharmaceutical companies (the '5P-Model')[40] - The platform uses an AI-driven algorithm for 'smart' routing of prescriptions to partner pharmacies based on contracts, licenses, and pricing, and facilitates delivery through partnerships with Lyft and Roadie[43] - Key services include benefits investigation, prior authorization assistance, patient financial assistance, data access and reporting, and clinical services like MTM and tele-pharmacy support[43] The 5P-Model: Value Proposition to Stakeholders The company's '5P-Model' strategy aims to deliver synergistic value to Patients, Providers, Pharmacies, Pharmaceutical Manufacturers, and Payors/PBMs through integrated services - The company's core strategy is the '5P-Model,' designed to provide synergistic value to Patients, Providers, Pharmacies, Payors/PBMs, and Pharmaceutical Manufacturing Companies[44] - For pharmaceutical manufacturers, the company offers a distribution channel, patient adherence programs, and access to de-identified clinical data, for which it receives fees[53][55] - For payors and PBMs, the company aims to reduce long-term healthcare costs by improving medication adherence and offering a potential integrated ecosystem for mail order, network management, and wholesale pricing[60][62] Risk Factors The company faces significant risks including integration challenges, reimbursement pressures, intense competition, operational disruptions, cybersecurity threats, and financial vulnerabilities from debt and limited operating history - Significant business risks include difficulties integrating the Wellgistics LLC and Wood Sage acquisitions, potential for unrealized synergies, and a limited operating history as a combined entity[63][67][69] - The company is exposed to financial risks from reductions in third-party reimbursement, margin compression, and direct and indirect remuneration (DIR) fees from PBMs, which could adversely affect profitability[63][70][72] - Operational and technology risks are substantial, including potential disruptions in IT systems, cybersecurity incidents, data breaches of protected health information (PHI), and compliance with privacy laws like HIPAA[64][133][139] - The company has significant outstanding debt ($33.3 million as of Dec 31, 2024) and a substantial amount of goodwill and intangible assets from acquisitions, which could become impaired and result in material non-cash charges[65][144][148] Cybersecurity The company lacks a formal cybersecurity risk management program, with board oversight, and achieved SOC-II Type 1 compliance in March 2025 without material incidents in 2024 - The company does not have a formal cybersecurity risk management program, with oversight handled by the full board of directors[229] - Wellgistics Health obtained SOC-II Type 1 compliance on March 18, 2025[229] Properties The company leases its 6,200 sq. ft. corporate office in Tampa, Florida, under a 3-year agreement commencing May 2024, with shared rent - The company leases its 6,200 sq. ft. corporate office in Tampa, FL under a 3-year agreement that commenced in May 2024[230] Legal Proceedings The company is not currently involved in any legal proceedings expected to materially impact its financial position or operations - The company is not currently subject to any material legal proceedings[233] Part II Market for Common Equity and Related Matters The company's common stock began trading on Nasdaq under 'WGRX' in February 2025, with 51.9 million shares outstanding and $3.12 million net proceeds from its IPO - The company's common stock began trading on Nasdaq under the symbol 'WGRX' on February 14, 2025[236] - On February 24, 2025, the company closed its IPO of 888,889 shares at $4.50 per share, generating gross proceeds of $4.0 million and net proceeds of approximately $3.12 million[240][241] - As of March 20, 2025, there were 51,944,397 shares of common stock outstanding[237] Management's Discussion and Analysis (MD&A) MD&A highlights 2024's first revenues of $18.1 million, a $6.9 million net loss, $33.3 million in debt, and a going concern uncertainty requiring additional funding Results of Operations In FY2024, the company generated $18.1 million in net sales and a $1.77 million gross profit, but increased operating expenses led to a $6.86 million net loss Financial Performance (FY 2024 vs. FY 2023) | Metric | FY 2024 (ended Dec 31) | FY 2023 (ended Dec 31) | | :--- | :--- | :--- | | Net Sales | $18,128,831 | $- | | Gross Profit | $1,767,314 | $- | | Total Operating Expenses | $7,912,446 | $2,880,603 | | Loss from Operations | $(6,145,132) | $(2,880,603) | | Net Loss | $(6,856,226) | $(2,895,684) | - The increase in general and administrative expenses to $6.8 million in 2024 from $2.9 million in 2023 was primarily due to the acquisition of Wellgistics LLC[273] - The company recorded $1.11 million in depreciation and amortization in 2024, related to intangible and fixed assets from the Wood Sage and Wellgistics, LLC acquisitions[274] Liquidity and Capital Resources Future operations depend on cash flow, debt, and equity, with management expecting positive cash flow in 2025 but acknowledging the need for additional capital given $33.3 million in debt - The company's ability to continue as a going concern is dependent on generating sufficient revenue and/or obtaining additional financing[277][409] Cash Flow Summary (FY 2024 vs. FY 2023) | Cash Flow Activity | FY 2024 (ended Dec 31) | FY 2023 (ended Dec 31) | | :--- | :--- | :--- | | Net cash used in operating activities | $(511,918) | $(349,136) | | Net cash provided by investing activities | $469,072 | $- | | Net cash provided by financing activities | $1,069,818 | $350,500 | - As of December 31, 2024, total debt and credit obligations amounted to $33.3 million[144] Critical Accounting Policies and Estimates Critical accounting policies involve significant judgment, particularly in revenue recognition for wholesale and pharmacy segments, and business combinations for purchase price allocation - Revenue for wholesale distribution (Wellgistics LLC) is recognized when goods are delivered to the customer, net of estimated chargebacks, rebates, and allowances[295] - Revenue for the retail pharmacy (Wellgistics Pharmacy) is recognized when the patient confirms delivery of the prescription[296] - The company accounts for acquisitions using the business combination method, allocating the purchase price to tangible and intangible assets and liabilities at their estimated fair values, with the excess recorded as goodwill[300] Financial Statements and Notes Audited financial statements for 2024 and 2023 reflect the impact of 2024 acquisitions, significant debt, and a 'going concern' uncertainty, with detailed notes on business combinations and subsequent events - The independent auditor's report includes a 'going concern' paragraph, citing the company's history of losses and accumulated deficit, which raises substantial doubt about its ability to continue without additional funding[306][408] - A critical audit matter identified was the valuation of intangible assets (customer relationships, trademark) acquired in the Wood Sage and Wellgistics, LLC business combinations, due to the high degree of judgment required for assumptions like revenue growth and discount rates[311][312] Consolidated Balance Sheet Highlights As of December 31, 2024, total assets increased to $57.3 million due to acquisitions, with $50.6 million in liabilities and $6.7 million in stockholders' equity Consolidated Balance Sheet Data (as of Dec 31) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Total Assets | $57,332,650 | $338,364 | | Goodwill | $16,219,929 | - | | Other Intangible Assets, net | $20,746,009 | - | | Inventories, net | $9,518,608 | - | | Total Liabilities | $50,598,204 | $3,238,798 | | Total Current Liabilities | $38,046,747 | $2,888,798 | | Total Stockholders' Equity (Deficit) | $6,734,446 | $(2,900,434) | Note 3: Business Combinations In 2024, the company acquired Wood Sage for $0.4 million (stock) and Wellgistics, LLC for $40.0 million (cash, note, stock), resulting in significant goodwill and intangible assets Wellgistics, LLC Purchase Price Allocation (Summary) | Component | Value | | :--- | :--- | | Cash Payment (due to seller) | $10,000,000 | | Note Payable | $15,000,000 | | Common Stock Issued | $15,000,000 | | Total Purchase Price | $40,000,000 | - The Wellgistics, LLC acquisition resulted in the recognition of $14.7 million in goodwill, $11.3 million in customer relationships, and $10.1 million in trademarks[418] - The Wood Sage acquisition had a purchase price of $400,000 (paid in stock) and resulted in $1.55 million of goodwill[416] Note 9: Debt As of December 31, 2024, total debt was $23.4 million, primarily comprising a $15 million note, a $5.5 million line of credit, and $1.3 million notes Outstanding Debt (as of Dec 31, 2024) | Debt Instrument | Current Portion | Long-Term Portion | Total | | :--- | :--- | :--- | :--- | | Merchant cash advance | $1,259,415 | $55,085 | $1,314,500 | | Note payable - owners of Wellgistics | $5,000,000 | $10,000,000 | $15,000,000 | | Revolving line of credit | $5,531,260 | - | $5,531,260 | | Note payable - Scienture Holdings | - | $1,300,000 | $1,300,000 | | Other Notes | $137,141 | $100,000 | $237,141 | | Total | $11,927,816 | $11,455,085 | $23,382,901 | Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2024, with no material changes reported - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2024[474] - Based on the COSO framework, management believes the company maintained effective internal control over financial reporting as of December 31, 2024[478] Part III Directors, Executive Officers and Corporate Governance The executive team includes Brian Norton (CEO) and Vishnu Balu (CFO), with a board chaired by Suren Ajjarapu and an audit committee of three independent directors - The executive team is led by CEO Brian Norton and CFO Vishnu Balu. The Board of Directors is chaired by Suren Ajjarapu[486][487] - The audit committee is composed of three independent directors: Donald W. Anderson, Rebecca Shanahan, and Sajid Syed (Chair)[497] Executive Compensation FY2024 NEO compensation included $400,000 salaries for former CEO Suren Ajjarapu and former COO Prashant Patel, and the adoption of an equity incentive plan with 43.5 million shares 2024 Summary Compensation Table | Name and Principal Position | Year | Salary ($) | Total ($) | | :--- | :--- | :--- | :--- | | Suren Ajjarapu (Former CEO) | 2024 | 400,000 | 400,000 | | Prashant Patel (Former COO) | 2024 | 400,000 | 400,000 | | Dr. Shafaat Pirani (CCO) | 2024 | 275,000 | 275,000 | | Tim Canning (Former CEO) | 2024 | 300,000 | 330,000 | - The company adopted the Amended and Restated 2023 Equity Incentive Plan, with an initial 43,506,064 shares available for issuance[522][525] - Independent directors receive an annual cash retainer of $50,000[551] Security Ownership As of March 20, 2025, directors and executive officers collectively owned 30.41% of common stock, with Prashant Patel and Suren Ajjarapu as significant individual holders Beneficial Ownership (as of March 20, 2025) | Name of Beneficial Owner | Percentage | | :--- | :--- | | Directors and NEOs (as a group) | 30.41% | | Prashant Patel | 17.53% | | Suren Ajjarapu | 12.25% | | Five Percent Holders: | | | Annapurna Gundlapalli Revocable Trust 2010 | 17.22% | | Patel Trust 2010 | 8.61% | | Sandhya Ajjarapu Revocable Trust 2007 | 7.44% | Related Transactions and Director Independence All directors are independent except Prashant Patel, with significant related party transactions involving acquisitions, executive employment agreements, and a financial advisory agreement with the CFO's firm - The board has determined all directors are independent except for Prashant Patel, who is an executive officer[567] - The acquisition of Wellgistics LLC involved a purchase agreement with entities beneficially owned by current CEO Brian Norton[570][572] - The company entered into an agreement with Aletheia Strategic Advisory LLC, an entity owned by CFO Vishnu Balu, for his services as financial lead for an annual fee of $200,000[581] Principal Accountant Fees and Services Suri & Co. served as the principal accountant, with audit fees of $96,000 in 2024 and $109,000 in 2023, and the Audit Committee pre-approves all services Accountant Fees | Fee Type | 2024 | 2023 | | :--- | :--- | :--- | | Audit Fees | $96,000 | $109,000 | | Audit-Related Fees | - | - | | Tax Fees | - | - | | All Other Fees | - | - | | Total | $96,000 | $109,000 |