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Targeting FDA studies in FY23

Incannex Healthcare 23 September 2022 Update
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Incannex Healthcare

Targeting FDA studies in FY23

FY22 results

Pharma and biotech

23 September 2022

Price

US$4.84

Market cap

US$295m

ADR/Ord conversion ratio 1:25

Net cash (US$m) at end Q422

26.1

ADRs in issue

60.9m

ADR code

IXHL

ADR exchange

NASDAQ-GM

Underlying exchange

ASX

Depository

DBK

Share price performance

%

1m

3m

12m

Abs

(4.3)

12.6

N/A

Rel (local)

5.3

12.6

N/A

52-week high/low

US$35.5

US$3.44

Business description

Incannex Healthcare is an Australian dual-listed biotech company focused on developing medicinal cannabis pharmaceutical products and psychedelic medicine therapies. These therapies are being designed to target indications with unmet need, including obstructive sleep apnea, generalized anxiety disorder, trauma and inflammatory conditions.

Next events

Phase IIa Psi-GAD interim data readouts

Q422

Open FDA IND for IHL-42X

Q422

Analysts

Soo Romanoff

+44 (0)20 3077 5700

Dr Adam McCarter

+44 (0)20 3077 5700

Incannex Healthcare is a research client of Edison Investment Research Limited

FY22 marked a busy year for Incannex Healthcare, focused on the expansion of its cannabinoid therapeutic portfolio through the acquisition of APIRx Pharmaceuticals and clinical progression of IHL-42X. The APIRx acquisition has resulted in a developmental pipeline consisting of 28 preclinical and clinical assets, providing Incannex with what we believe is one of the sector's most diversified portfolios of medicinal cannabinoid drug formulations and psychedelic treatment regimes. We believe Incannex’s Nasdaq listing will enhance its reputation and shareholder base in the United States, providing further access to pools of capital. We value Incannex at US$714.7m or US$11.74 per ADR.

Year end

Revenue (A$m)

PBT*
(A$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/21

2.0

(8.2)

(0.83)

0.0

N/A

N/A

06/22

0.8

(14.9)

(1.25)

0.0

N/A

N/A

06/23e

0.0

(20.6)

(1.38)

0.0

N/A

N/A

06/24e

0.0

(33.4)

(2.24)

0.0

N/A

N/A

Note: *PBT and EPS are normalized, excluding amortization of acquired intangibles, exceptional items and share-based payments.

Well-funded past future catalysts

Incannex completed two option exercise programs in Q122 and Q422, raising a total of A$41.2m and providing it sufficient cash to support operations into FY24, past interim readouts from the Psi-GAD Phase II study and potential initiation of FDA studies for IHL-42X. Total operating expenses for FY22 (A$15.7m) were higher than our estimates (A$10.1m), relating to increased clinical and regulatory costs, resulting in a net cash outflow from operating activities of A$12.8m (FY21: A$6.9m). We have revised our FY23 estimates due to the expected increase in costs as the company progresses its assets towards the clinic (FY23 net cash outflow from operating activities of A$21.4m, previously A$14.9m).

IHL-42X pivotal studies await

The positive results (see our initiation) from the Phase II Australian trial for IHL-42X in obstructive sleep apnea have paved the way for the company to pursue FDA-regulated studies. Having already agreed with the FDA that IHL-42X would forgo preclinical animal studies, management believes that the current data package for IHL-42X will support opening an investigational new drug application to initiate studies in FY23, which we believe represents a significant catalyst for the company.

Valuation: US$714.7m or US$11.74 per ADR

We value Incannex at US$714.7m or US$11.74 per ADR (US$695.7m or US$11.42 per ADR previously). Value uplift has been achieved by rolling our model forward. However, our underlying long-term assumptions remain unchanged. With a net cash position of A$37.5m at end FY22, we estimate this provides the company with a cash runway into CY H223 (ie H124). We expect Incannex will need to raise c A$70m (FY23: A$40m, FY24: A$30m) before reaching profitability in FY26.

Exhibit 1: Financial summary

Accounts: IFRS, year-end: 30 June, AUD$’000s

 

 

2020

2021

2022

2023e

2024e

PROFIT & LOSS

 

 

 

 

 

 

 

Total revenues

 

 

822

1,973

789

77

79

Cost of sales

 

 

(450)

(912)

(6)

(6)

(6)

Gross profit

 

 

372

1,061

782

71

72

Total operating expenses

 

 

(4,301)

(9,225)

(15,686)

(20,678)

(33,482)

Research and development expenses

 

 

(2,111)

(4,750)

(5,372)

(9,848)

(21,600)

SG&A

 

 

(864)

(1,236)

(3,027)

(3,399)

(4,157)

Operating income (reported)

 

 

(3,929)

(8,164)

(14,904)

(20,607)

(33,409)

Finance income/(expense)

 

 

0

0

0

0

0

Exceptionals and adjustments

 

 

0

0

0

0

0

Net loss from discontinued operations

 

 

(768)

0

0

0

0

Profit before tax (reported)

 

 

(4,698)

(8,164)

(14,904)

(20,607)

(33,409)

Profit before tax (normalised)

 

 

(4,698)

(8,164)

(14,904)

(20,607)

(33,409)

Income tax expense (includes exceptionals)

 

 

0

0

0

0

0

Net income (reported)

 

 

(4,698)

(8,164)

(14,904)

(20,607)

(33,409)

Net income (normalised)

 

 

(4,698)

(8,164)

(14,904)

(20,607)

(33,409)

Basic average number of shares, m

 

 

684.0

978.0

1,191.2

1,489.0

1,489.0

Basic EPS (c)

 

 

(0.69)

(0.83)

(1.25)

(1.38)

(2.24)

Adjusted EPS (c)

 

 

(0.69)

(0.83)

(1.25)

(1.38)

(2.24)

Dividend per share (c)

 

 

0.00

0.00

0.00

0.00

0.00

BALANCE SHEET

 

 

 

 

 

 

 

Tangible assets

 

 

0

0

0

0

0

Intangible assets

 

 

0

0

0

0

0

Right-of-use assets

 

 

0

0

0

0

0

Other non-current assets

 

 

0

0

0

0

0

Total non-current assets

 

 

0

0

0

0

0

Cash and equivalents

 

 

3,603

9,124

37,501

16,126

22,764

Current tax receivables

 

 

0

0

0

0

0

Trade and other receivables

 

 

413

169

295

292

307

Inventory

 

 

183

0

0

0

0

Other current assets

 

 

36

36

84

84

84

Total current assets

 

 

4,236

9,329

37,880

16,502

23,155

Non-current loans and borrowings

 

 

0

0

0

0

0

Non-current lease liabilities

 

 

0

0

0

0

0

Other non-current liabilities

 

 

0

0

0

0

0

Total non-current liabilities

 

 

0

0

0

0

0

Accounts payable

 

 

955

755

2,011

1,240

1,302

Illustrative debt

 

 

0

0

0

0

40,000

Current lease obligations

 

 

0

0

0

0

0

Other current liabilities

 

 

117

0

0

0

0

Total current liabilities

 

 

1,072

755

2,011

1,240

41,302

Equity attributable to company

 

 

3,164

8,574

35,869

15,262

(18,147)

CASH FLOW STATEMENT

 

 

 

 

 

 

 

Operating income

 

 

(4,698)

(8,164)

(14,904)

(20,607)

(33,409)

Depreciation and amortisation

 

 

37

0

0

0

0

Share based payments

 

 

565

1,172

1,465

0

0

Other adjustments

 

 

97

91

(594)

0

0

Movements in working capital

 

 

91

(10)

1,226

(768)

47

Cash from operations (CFO)

 

 

(3,907)

(6,910)

(12,807)

(21,375)

(33,362)

Capex

 

 

13

0

0

0

0

Acquisitions & disposals net

 

 

0

29

0

0

0

Other investing activities

 

 

0

0

0

0

0

Cash used in investing activities (CFIA)

 

 

13

29

0

0

0

Capital changes

 

 

7,469

12,401

41,185

0

0

Debt Changes

 

 

(65)

0

0

0

40,000

Other financing activities

 

 

0

0

0

0

0

Cash from financing activities (CFF)

 

 

7,404

12,401

41,185

0

40,000

Cash and equivalents at beginning of period

 

 

93

3,603

9,124

37,501

16,126

Increase/(decrease) in cash and equivalents

 

 

3,510

5,520

28,377

(21,375)

6,638

Effect of FX on cash and equivalents

 

 

0

0

0

0

0

Cash and equivalents at end of period

 

 

3,603

9,124

37,501

16,126

22,764

Net (debt)/cash

 

 

3,603

9,124

37,501

16,126

22,764

Source: Incannex Healthcare, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Incannex Healthcare and prepared and issued by Edison, in consideration of a fee payable by Incannex Healthcare. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Incannex Healthcare and prepared and issued by Edison, in consideration of a fee payable by Incannex Healthcare. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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