Executive Summary / Key Takeaways

• Strategic Transformation Underway: Cosmos Health is actively transforming from a traditional pharmaceutical distributor into a vertically integrated global healthcare group, emphasizing proprietary nutraceuticals, pharmaceutical manufacturing, and AI-driven R&D, aiming for higher-margin growth.
• Technology as a Core Differentiator: The company leverages advanced technologies like the AI-powered Cloudscreen platform for drug repurposing and nanoemulsification for enhanced product efficacy, forming a crucial competitive moat for its innovative product pipeline.
• Improving Operational Efficiency and Margin Mix: Recent financial results indicate a significant shift towards higher-margin revenue streams, with gross profit surging 52.7% in H1 2025, even as overall revenue growth remains modest, signaling progress towards profitability targets.
• Critical Liquidity Infusion and Digital Asset Strategy: A recent $300 million financing facility, including an initial $8 million closing in August 2025, has substantially improved liquidity and alleviated immediate going concern doubts, while also launching a novel digital asset treasury strategy with Ethereum.
• High Growth Potential, Significant Execution Risks: While strategic initiatives in new markets (UAE, Albania, U.S. manufacturing) and a robust R&D pipeline offer substantial upside, the company faces ongoing execution challenges, including internal control weaknesses and the need to sustain profitability amidst competitive pressures.

From Distribution to Diversification: COSM's Strategic Evolution

Cosmos Health Inc. (NASDAQ:COSM) has embarked on an ambitious journey, evolving from its origins as Prime Estates and Developments in 2009 into a diversified, vertically integrated global healthcare group. This transformation has seen the company strategically acquire and develop capabilities across the healthcare value chain, encompassing proprietary nutraceutical and pharmaceutical brands, manufacturing, distribution, and cutting-edge research and development. This strategic pivot is a direct response to the dynamic and competitive landscape of the global healthcare industry, where demonstrating both medical benefits and cost advantages is paramount.

The company's history is marked by a series of calculated acquisitions designed to build out its integrated model. Early moves included the establishment of SkyPharm S.A. in 2014 for nutraceutical and pharmaceutical trading, followed by the acquisition of Decahedron Ltd. in the UK in 2017 to bolster its distribution of generics and OTC products within the EEA. A significant expansion of its distribution network came with the acquisition of Cosmofarm S.A. in Greece in 2018. More recently, the 2023 acquisition of Cana Laboratories Holdings Cyprus Limited and its operating subsidiary, Pharmaceutical Laboratories Cana S.A., was a game-changer. This move provided COSM with a Good Manufacturing Practice (GMP) license, enabling in-house pharmaceutical manufacturing within the EU and opening doors to high-margin contract manufacturing agreements with multinational clients. Concurrently, the acquisition of Ioannis Bikas O.E.'s distribution network in Greece in June 2023 significantly boosted annual revenue by over $10 million and enhanced gross margins through economies of scale, leveraging synergies with Cosmofarm's robotic facilities for improved service and increased orders.

COSM's strategic direction is clearly focused on high-margin segments and innovation. The company has developed its own proprietary nutraceutical brands, Sky Premium Life (launched 2018) and Mediterranation (launched 2022), which are now expanding globally through digital channels and exclusive distribution agreements, such as the one in the UAE. This emphasis on proprietary products and manufacturing capabilities positions COSM to capture greater value within the healthcare ecosystem.

The competitive landscape for Cosmos Health is multifaceted, pitting it against larger, more established players in various segments. In generic pharmaceuticals and distribution, companies like Teva Pharmaceutical Industries (TEVA), Perrigo Company (PRGO), and Cencora (COR) represent formidable rivals. COSM, while a smaller player, differentiates itself through vertical integration and a targeted focus on e-commerce and patient-centric outcomes. For instance, its gross profit margin of 9.85% (TTM) significantly lags behind Teva's 49% and Perrigo's 35%, reflecting the inherent margin pressures in its distribution-heavy segments. However, it surpasses Cencora's 3% gross margin, which is primarily a distributor. COSM's deeply negative operating profit margin of -26.66% (TTM) and net profit margin of -27.90% (TTM) underscore the operational challenges and high overhead relative to revenue, contrasting sharply with the positive operating margins of Perrigo (3%) and Cencora (1%), and even Teva's less severe negative operating margin (-2%). This highlights the critical need for COSM's strategic shift towards higher-margin proprietary products and contract manufacturing to improve its financial health and competitive standing.

The Engine of Innovation: Proprietary Technology and R&D

A cornerstone of Cosmos Health's strategy and a key competitive differentiator is its commitment to technological innovation and research and development. The company is actively investing in advanced platforms and product development to carve out a unique position in the market.

At the forefront of its technological advantage is the Cloudscreen platform, an Artificial Intelligence (AI) powered system acquired in January 2024. Cloudscreen specializes in drug repurposing, a process that involves uncovering new target proteins or indications for existing drugs to treat different diseases. This technology offers a tangible benefit by potentially accelerating drug development timelines and reducing associated costs, as it leverages existing, approved compounds. The strategic intent behind Cloudscreen is to address major health challenges by identifying novel treatments more efficiently, thereby enhancing COSM's R&D capabilities and pipeline.

Another significant technological differentiator is the nanoemulsification technology employed in products like its Melatonin Spray. This technology is designed to increase the absorption of lipophilic molecules, such as melatonin, by reducing the micelle diameter to a range between 50 and 300 nanometers. The benefit is a proportionally increased absorption of the active ingredient, leading to potentially higher efficacy and faster onset of action for consumers. This advanced delivery system provides a performance advantage over conventional formulations, contributing to the premium positioning of its nutraceutical products.

COSM's R&D initiatives extend to a robust pipeline of IP-driven products. These include CCX0722, an obesity and weight management pill, and CCDL24, an innovative treatment for gastrointestinal disorders. The company is also actively researching treatments for various cancers, including CNS, Prostate, Ovarian, and Colorectal cancers. The stated goal of these initiatives is to deliver an innovative product pipeline and accelerate R&D efforts on these proprietary assets. For investors, these technological advancements and R&D efforts are critical. They contribute to COSM's competitive moat by enabling the development of differentiated, high-value products that command better margins than generic distribution. This focus on innovation is essential for improving the company's long-term financial performance and market positioning against larger, more diversified competitors.

Financial Performance: A Turn Towards Higher Margins

Cosmos Health's recent financial performance reflects the early stages of its strategic pivot, with notable improvements in gross profitability despite ongoing bottom-line losses. For the three months ended June 30, 2025, the company reported revenue of $14.75 million, an increase of approximately 11.7% compared to the same period in 2024. For the six months ended June 30, 2025, revenue reached $28.46 million, a 2.4% increase year-over-year. These revenue gains were primarily driven by higher sales from SkyPharm S.A.'s proprietary nutraceutical line, Sky Premium Life, across the UAE, Cyprus, and Greece, alongside significant growth from Cana S.A.'s contract manufacturing agreements.

A critical implication for investors is the substantial improvement in gross profit. For the three months ended June 30, 2025, gross profit surged by 51.7%, and for the six-month period, it increased by an impressive 52.7% to $3.21 million. This significant margin expansion is directly attributable to a favorable shift in the company's revenue mix towards higher-margin product lines, particularly within the nutraceuticals segment and from contract manufacturing revenue generated by Cana. This strategic shift is vital, as COSM's TTM gross profit margin of 9.85% still trails many pharmaceutical peers, but the rapid improvement signals successful execution of its high-margin strategy.

Despite the gross profit gains, the company reported a net loss of $2.83 million for the three months ended June 30, 2025, an increase from $2.59 million in the prior-year quarter. This was primarily due to non-cash interest expense and changes in the fair value of convertible notes. However, for the six months ended June 30, 2025, the net loss decreased by 18.2% to $3.65 million, a direct result of the significantly higher gross profit. Operating expenses increased by 16.5% for the three-month period and 3.9% for the six-month period, mainly due to higher salaries and wages from the addition of management and scientific personnel at Cana, reflecting investment in its manufacturing capabilities. Conversely, sales and marketing expenses saw a significant decline, down 80.4% and 82.5% for the three and six-month periods, respectively, as management strategically scaled back brand promotion. New research and development costs of $74,637 and $90,266 for the three and six months ended June 30, 2025, respectively, also reflect the company's renewed focus on innovation.

Liquidity, Capital, and the Digital Horizon

Cosmos Health's liquidity position has historically been a point of concern, with the company acknowledging "substantial doubt" about its ability to continue as a going concern as of June 30, 2025. This was driven by negative working capital of $604,249, an accumulated deficit of $117.67 million, and a reliance on external financing. However, recent developments have significantly altered this outlook.

For the six months ended June 30, 2025, net cash used in operating activities dramatically improved to $1.40 million, a substantial reduction from $4.62 million in the prior-year period. This improvement was largely due to the lower net loss and reduced operating investments compared to early 2024. Cash and cash equivalents increased to $655,503 as of June 30, 2025, up from $315,105 at the end of 2024.

Crucially, on August 5, 2025, the company secured a Securities Purchase Agreement for the issuance of up to $300 million in senior secured convertible promissory notes, with an initial $8 million closing completed on August 6, 2025. This substantial financing facility is intended to acquire digital assets as treasury holdings and support working capital and general corporate purposes. Management explicitly stated that this facility "significantly improves the Company’s liquidity and alleviates substantial doubt regarding our ability to continue as a going concern for at least the next 12 months."

A unique aspect of this financing is the launch of Cosmos Health's digital asset treasury reserve strategy. Under the terms of the $300 million facility, at least 72.5% of the net proceeds from each tranche closing must be allocated towards building this reserve, with the remainder for working capital and growth initiatives. The company has already commenced this strategy, completing an initial $1 million purchase of Ethereum (ETH) in August 2025. CEO Greg Siokas highlighted this as a "strategic milestone for Cosmos Health, offering shareholders direct exposure to ETH... and provides access to growth capital to support a range of strategic initiatives, including accelerated product development, advanced R&D innovation, enhanced commercial initiatives, and our planned entry into U.S. manufacturing." This move signals a broader commitment to innovation and a strategy to deliver long-term, sustainable value by diversifying its treasury holdings.

Outlook and Risks: Charting the Path Forward

Cosmos Health's outlook is characterized by ambitious growth plans and a concerted effort to leverage its strategic acquisitions and technological investments. The company is "on track to meet profitability targets," driven by the favorable shift in its revenue mix. Management plans include expanding its portfolio of brand-name and private-label products, launching new distribution channels, and increasing sales from recently secured agreements. The exclusive distribution of Sky Premium Life products in the UAE, for instance, has already generated significant purchase orders and is expected to contribute to operating cash inflows in the near term, with a five-year goal of surpassing 3 million units in cumulative orders. Further, the company is expanding Cosmofarm's customer base and strengthening Cana S.A.'s contract manufacturing agreements.

From a financing perspective, COSM expects to become eligible to utilize an S-3 registration statement in August 2025, enabling more efficient access to equity capital. The company is also pursuing amendments to existing debt facilities to defer principal repayments and exploring additional debt financing opportunities. A strategic entry into U.S. manufacturing through an agreement with DolCas Biotech LLC, commencing production at GMP-certified facilities, is aimed at mitigating tariff risks and expanding market reach.

Despite these promising initiatives, several risks warrant investor attention. While the recent financing alleviates immediate going concern doubts, there is "no assurance that the Company will be successful in executing its plans or obtaining the necessary funding" in the long term. The company also faces ongoing challenges with Nasdaq listing compliance, having received an additional 180-day period until November 3, 2025, to regain compliance with the $1.00 minimum bid price requirement. Operational risks include supply chain disruptions, particularly in the European pharmaceutical industry, and regulatory/pricing pressures from European regulators seeking to boost competition and drive down medicine prices. Internally, the company has identified material weaknesses in its disclosure controls and procedures, specifically a "lack of proper segregation of duties" and inadequate IT General Controls (ITGCs), though management plans to remediate these by December 31, 2025. The success of its digital asset treasury strategy is also subject to the inherent volatility and risks associated with cryptocurrency markets.

Conclusion

Cosmos Health is at a pivotal juncture, actively reshaping its identity from a traditional distributor to a vertically integrated, innovation-led healthcare group. The core investment thesis hinges on its ability to successfully execute this strategic transformation, leveraging acquisitions like Cana Laboratories for high-margin manufacturing and advanced technologies such as the AI-powered Cloudscreen platform and nanoemulsification for proprietary product development. The significant improvement in gross profit margins in the first half of 2025, driven by a favorable revenue mix, provides tangible evidence that this strategy is beginning to yield results.

The recent $300 million financing facility, coupled with the innovative digital asset treasury strategy, represents a critical turning point, addressing immediate liquidity concerns and providing capital for future growth and R&D. While the company faces the inherent execution risks of ambitious expansion, competitive pressures from larger players, and the need to fully remediate internal control weaknesses, its clear strategic roadmap, technological differentiators, and recent financial and financing milestones paint a picture of a company actively pursuing a higher-value business model. Investors should closely monitor COSM's continued progress in expanding its high-margin segments, the effective integration of its new technologies, and its ability to translate gross profit improvements into sustainable bottom-line profitability and positive operating cash flow.