Numinus Wellness Inc surging into the US with a big acquisition
Numinus Wellness Inc delivers mental health wellness services through five Canadian clinics offering holistic psychotherapy. Controlled doses of psychoactive agents under careful supervision are used as part of a structured programme. These programmes aim to help people overcome depression, break addictive behaviours and relieve traumatic stress. Numinus's first half of fiscal 2022 (H1FY22) sales doubled to C$1.6mln from C$1.5mln for all of FY21. This was helped by the first-quarter or Q1 (September 2021) acquisition of the Neurology Centre of Toronto. Numimus reported H1FY22 gross profit of C$0.3mln vs a H1FY21 gross loss of C$0.1mln.
The acquisition of Novamind, expected to be completed in June 2022, will add about C$8mln of annualised revenues at a 48% gross margin before growth. Novamind operates eight US clinics in Utah and Arizona, with two additional clinical research facilities. We have adjusted our forecasts for this Q4FY22 acquisition.
Building an North American business
The company ended January 2022 with C$48.3mln of cash, down from C$59.2mln at the end of August 2021.
In September 2021, Numinus paid C$0.3mln cash and C$0.2mln in shares to acquire the Neurology Centre of Toronto (NCT). The deal closed in September 2021. A further C$0.5mln in shares as a performance-based payment may be paid. NCT Revenues in 2020 were C$1mln with net revenue of C$454k.
The Novamind acquisition is a share-based transaction with 0.84 Numinus shares per Novamind share valuing Novamind as of 12 April at C$0.44/share and the transaction at C$26.2mln. Novamind shareholders will hold about 18% of Numinus shares on completion.
The effect of these acquisitions is to improve overall revenues and offset fixed costs. In H1FY22, Numinus operational cash outflow was C$10.3mln on a reported loss of C$12.7mln giving cash of C$48mln. Novamind had a H1FY22 cash outflow of C$3.2mln on a loss of C$6.3mln with cash of C$2.7mln. We now expect FY22 Numinus revenues of about C$5.5mln with an EBITDA (underlying earnings) loss of about C$24mln.
From FY23, the consolidated company aims to achieve good growth with cost reductions. Proforma based on respective H1FY22 accounts, Numinus could have revenues of about C$12mln, a loss of about C$37mln (after cost savings of C$3mln) and a cash outflow of about C$23mln. Cash, proforma, at the half-year point was about C$51mln indicating that Numinus can continue to invest in its growing business throughout FY23.
On a proforma basis in June 2022 at the current share price, Numinus could have a post-transaction value of C$113mln with an enterprise value (EV) of about C$76mln (assuming C$37mln year-end cash). If FY23 sales rise to about C$15mln, this suggests a growth rated EV/FY23E sales ratio of about 5.
Financial position and investment conclusion
Year end Aug 31 · 2020 · 2021 · 2022 · 2023
Revenue (CA$-000's) · 881 · 1,514 · 5,500 · 15,000
Cash Balance (CA$-000's) · 1,635 · 59,293 · 37,000 · 10,000
Numinus provides a wide range of mental health services, including psychedelic-assisted psychotherapy services in Canada with plans for rapid growth. Numinus has two operations, Exhibit 1.
Acquisitions build a North American specialist clinic network
- Numinus Health (five wellness clinics), and,
- Numinus Bioscience (psychedelic research)
Out of C$786k of Q2FY22 revenues, clinics generated C$680k (86.5%) and the laboratory contributed C$106k (13.5%).
Exhibit 1 - Business Units
Source: Numinus April 2022
The clinics offer ketamine-assisted psychotherapy (KAP) for mental disorders; ketamine is a legal pharmaceutical. The Neurology Centre of Toronto (NCT), acquired in September 2021, specialises in medical cannabis treatments for conditions such as epilepsy, concussion, brain injury, headaches and migraines. With Health Canada approval, Numinus is working with trial sponsors to develop compassionate access trials to evaluate medical-grade versions of psilocybin (from “magic mushrooms” and MDMA (ecstasy)). From January 2022, both of these can be used under the Health Canada special access programme. An MDMA open-label trial in PTSD was announced in July 2021.
The bioscience unit complies with Good Agricultural and Collection Practices and produces specific Psilocybe mushroom clones. It holds a licence covering the handling of multiple psychedelic compounds, including the purification of psilocybin and cannabis testing.
Corporate costs made up 83% (C$6.5mln) of the overall Q2FY22 loss of C$7.8mln.
The Novamind acquisition will bring a major uptick in annualised revenues of about C$8mln. This is derived from mental wellness clinics in the western US: Utah (six) and Arizona (two) (Exhibit 2). There is also a small clinical trials business (Cedar) where Novamind provides trial centres in third-party sponsor studies and gets fees for enrolling and treating patients. Revenues in H1FY22 were C$4.2mln from clinics and C$0.1mln clinical (acquired July 2021) Overall, Novamind had a H1FY22 gross profit of C$1mln with a 24% gross margin.
Novamind alters the mental map
Exhibit 2 - Locations
Source: Novamind
Exhibit 3 - Clinic in Draper, Utah
Source: Novamind
Financial consolidation
The pending June Novamind acquisition changes our previously forecast revenues and margins. In reality, we do not expect Novamind to contribute any cash; the H1FY21 cash outflow was similar to the C$2.7mln December cash, indicating the business was undercapitalised for its growth strategy. There were, however, C$1.7mln of marketable securities that may remain; we assume these are sold so include them in the cash flow. There may also be high transaction costs. We assume the mooted C$3mln of savings occur in FY23, and we assume these are net of restructuring costs.
We estimate about C$5.5mln in consolidated FY22 revenues, that is over C$3mln for the Numinus core Canadian clinics (based on H1FY22 revenues) and possibly C$2.5mln from Novamind, depending on the date of completion, Graph 1.
Graph 1 - Revenue Growth showing acquisitions
Source: Numinus and Novamind reports, ProActive estimates
The loss will rise with a projected full-year loss for Numinus of about C$26mln plus about C$3mln for Novamind in Q4FY22 (Table 1). The exact costs will vary.
The main changes are to the balance sheet (Table 2). We assume no working capital changes between the first-half reports and end of year balance sheets; there will be changes, but these are not predictable. Novamind owns clinics (C$7mln value) and has lower assets (C$1.5mln), with more right of use assets (C$5.1mln). Goodwill clearly increases on acquisition given the headline cost of C$26.2mln. Both companies made smaller acquisitions in the first half of their financial years.
Assuming fairly stable second-half balance sheets, we estimate year-end cash of about C$37mln.
FY23 outlook
For fiscal 2023 (FY23), we have not yet made a formal forecast given the uncertainties around the consolidated accounts and future margins. Sales could be about C$15mln which, at an averaged 25%+ gross margin, could yield C$3.8mln+ gross profit, and possibly more if higher-margin business is gained. We note that psychotherapy has a lot of time-consuming personal interaction and counselling that is essential as an integral part of the treatment, but expensive to provide and hard to scale.
Numinus's annualised costs are C$26mln with Novamind's being about C$14mln, which gives C$40mln total less C$3mln savings, so C$37mln less the gross profit of C$4mln. This implies an FY23 operating loss before working capital of about C33mln. This includes non-cash items such as share compensation. Assuming careful cash conservation and working capital adjustments of C$5-6mln, cash outflow might be about C$27mln leaving around C$10mln cash at the close of FY23. While this, with growing revenues and margins, could enable Numinus to move into calendar 2024 without needing to tap the market, a further funding round in calendar 2023 is likely in our view. If so, this will give Numinus the financial firepower it requires to grow the integrated core businesses as the psychotherapy market develops.
Financial forecasts
The following tables summarises our financial forecasts for Numinus: Table 1, Simple Revenue and Profit; Table 2, Balance Sheet, Table 3, Cash Flow. We will update the forecast based on the FY22 balance sheet after the Novamind transaction completes.
Table 1 - Revenue and Profit Forecast
Source: Numinus and Novamind accounts, ProActive estimates
Table 2 - Balance Sheet
Source: Numinus and Novamind accounts, ProActive estimates
Table 3 - Cash flow
Source: Numinus and Novamind accounts, ProActive estimates