Pan North American business
Numinus Wellness Inc has created a North American integrated business delivering mental health wellness services through clinics offering safe, evidence-based psychedelic-assisted therapies. Controlled doses of psychoactive agents under careful supervision are used as part of structured therapy programs. These aim to help people with depression, anxiety, trauma, pain and substance use.
The acquisition of Novamind, a US business, was completed on 10 June. The combined business has C$11.9mln of annualized historic revenues. The acquisition gives Numinus a further eight US clinics in Utah and Arizona, 13 now in total, two more will open soon, plus two clinical research facilities, and a production unit for controlled substances.
Numinus's Utah clinics have launched a pilot program to help businesses improve employee mental health by offering ketamine-assisted psychotherapy (KAP) for eligible employees with treatment-resistant depression. This operates in partnership with Utah-based HempLucid (video). HempLucid covers the cost of ketamine and leverages its existing healthcare insurance plan to support the therapy component of KAP. Enabling insurance coverage is a key element of Numinus's growth plans.
Building on Novamind acquisition though corporate health plans
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 company ended January 2022 with C$48.3mln of cash, down from C$59.2mln at the end of August 2021.
The Novamind acquisition was a share-based transaction with 0.84 Numinus shares per Novamind share. After the issue of shares, there are now about 252mln in issue, up from 205mln at the start of June.
The acquisitions will improve overall revenues and offset fixed costs. We now expect FY22 Numinus revenues of about C$5.2mln with an operational cash outflow of about C$24mln.
From FY23, the consolidated company aims to achieve good growth with cost reductions. Numinus could have revenues of up to C$15mln, 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.
Following the acquisition, the Numinus share price fell from C$0.36 on 10 June to C$0.25 on 27 June giving a market capitalization of C$63mln. The enterprise value (EV) is therefore only about C$27mln assuming about C$36mln FY22 year-end cash. If FY23 sales rise to about C$15mln, this suggests an EV/FY23E sales ratio of about 1.8. This seems very low for a revenue-generating, growth business.
Financial position and investment conclusion
Year end Aug 31 · 2020 · 2021 · 2022 · 2023
Revenue (CA$-000's) · 881 · 1,514 · 5,240 · 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. As part of this, Numimus is rebranding its operations under a new logo, Exhibit 1. Numinus has two operations:
- Numinus Health with 15 operating and planned wellness clinics in Canada and the US and several small trials units; and
- Numinus Bioscience (psychedelic research and a licensed psilocybin producer).
Exhibit 1 - Rebranding
The Novamind acquisition will boost annualized revenues by at least C$9mln. This revenue is derived from eight mental wellness clinics in the western US: six Utah clinics operating as Cedar Psychiatry, with two more due to open, and two clinics in Arizona operating as Foundations for Change (Exhibit 2). The Cedar clinical trials business provides centers for third-party trials. These add to the five Canadian clinics and two research clinics already run by Numinus.
Exhibit 2 - US clinics
Source: Novamind
Table 1 - Shares
Source: Numinus
Shares in issue and value
The number of Numinus shares in issue was 205mln on May 4, the date of the agreed acquisition, Table 1. A further 43.47mln shares were issued to acquire Novamind. This gives 251.85mln shares in issue as of 27 June
There are also some deal fees (C$200k) due to be paid in shares (444,444) giving an expected 252mln.
Table 1 also shows converted options and warrants.
On 28 Feb, Numinus already had 36.8mln warrants and 12.8mln options. These are all at various prices (between C$0.16 to C$1.75) and dates (up to Feb 2024). If all exercised plus the conversions, there could be 68.4mln new shares.
The value has suffered short term due to a share price fall. If sales can grow to C$15mln over FY23 then the prospective EV/sales ratio appears to be about 1.8, Table 2. Even at a less ambitious C$12mln sales target, the EV/sales is still just 2.3.
Table 2 - Valuation
Source: Numinus
Operations
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, specializes in medical cannabis treatments for conditions such as epilepsy, concussion, brain injury, headaches and migraines. With Health Canada's 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 program. An MDMA open-label trial in PTSD (post-traumatic stress disorder) 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.
Financial consolidation
The acquisition cost based on 0.84/share and a price of C$0.36 is about C$13.2mln net of cash — but we do not expect Novamind to have contributed much cash. Transaction fees were C$700,000 of which C$200k was paid in shares (Table 1).
We assume the mooted C$3mln of savings occur in FY23, and we assume these are net of any restructuring costs. We now estimate about C$5.2mln in consolidated FY22 revenue, Graph 1, based on the exact transaction date.
Graph 1 - Sales by quarter showing Novamind
Source: Numinus repots, ProActive estimates
MAPS trial update
An update to the clinical study sponsored by US-based Multidisciplinary Association for Psychedelic Studies (MAPS) was released in May. Numinus announced in July 2021 that it was participating in the study by providing two centers in Vancouver and Quebec to add to 10 others in the US. The trial, NCT04714359, is enrolling by invitation 100 planned patients with PTSD to be treated with MDMA. The May update indicates that the trial could complete in March 2023. We expect that top-line data may be available from mid-2023. We note that MAPS as the sponsor will control data release, usually at a major conference.
Financial forecasts
The following tables summarize our financial forecasts for Numinus: Table 1, Simple Revenue and Profit; Table 2, Cash Flow; Table 3, Balance Sheet. The reported loss will rise with a projected full-year loss for Numinus of about C$29mln, Table 1. The main, but still minor, changes are to the balance sheet (Table 3). 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. 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 around C$36mln.
Table 3 - Revenue and Profit Forecast
Source: Numinus reports, ProActive estimates
Table 4 - Cash flow
Source: Numinus reports, ProActive estimates
Table 5 - Cash flow
Source: Numinus reports, ProActive estimates
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. Corporate health insurance coverage could expand the use of KAP.
Numinus's annualized 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 C$33mln. 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.