iX Biopharma - Phillip Securities 2021-02-19: Delayed Profitability


iX Biopharma - Delayed Profitability

  • iX Biopharma (SGX:42C)'s net loss narrowed 51% y-o-y to S$2.8mn in 1H21 to beat expectations by 63% on FX gains of S$2.2mn – without which results would have missed by 25%. Revenue almost tripled on strong demand for specialty pharmaceutical and nutraceutical products.
  • Gross margins improved, though still negative as shipment of an integral component for a 5-6-fold increase in production capacity has been delayed till end-FY21.
  • Wafermine out-licensing deal remains in sight, though progress has been impeded by border closures.
  • Maintain BUY on iX Biopharma with a lower target price.

The Positive

Strong demand for products

  • iX Biopharma's revenue was up 182% y-o-y from S$294k to S$830k in 1H21. Excluding one-off out-licensing fees of S$150k in 4Q20, quarterly run rates of S$415k in 1H21 were comparable to the S$410k in 4Q20.
  • Specialty pharmaceutical revenue grew 112%. Growth could have been better if not for on-off lockdowns in Melbourne, which affected footfall in pharmacies and sales to clinics. iX Biopharma was also unable to conduct training for its newly-launched medicinal cannabis wafer, Xativa.
  • Nutraceutical revenue skyrocketed 267% to S$488k y-o-y, supercharged by online sales on their JD.com and Tmall platforms. Demand for its skincare supplement, LumeniX and anti-ageing NAD (nicotinamide adenine dinucleotide) products, MetaboliX and RestoriX, continued to climb. Reception of its NAD products is encouraging as they are non-wafer products whose production is not affected by a shortage of freeze dryers.

The Negative

Negative margins

  • Gross margin was -16% in 1H21, an improvement from the -57% a year ago. While demand for its wafer products remained robust, a shortage of production capacity did not help operating margins.
  • Planned installation of additional freeze dryers that will increase wafer production by 5-6-fold has been delayed by COVID-19 supply-chain disruptions to April this year.

iX Biopharma - Outlook

COVID-19 disruptions

  • Apart from the delayed installation of additional production capacity, the timeline for a Wafermine out-licensing deal continues to hinge on border restrictions in Australia. While iX Biopharma has received interest from potential partners, in-person meetings remain non-viable. Due diligence, including visits to production plants in Australia, could not be completed.
  • The disruptions will slow down iX Biopharma’s business turnaround that was previously expected by FY21. Nevertheless, with vaccine rollout in Australia soon, we are confident that deal-making and production expansion can resume by early FY22.

WaferiX’s intellectual property remains the jewel in the crown

  • R&D costs rose 4% y-o-y as the company continued to develop its medicinal cannabis range in preparation for more extensive commercialisation once the business environment improves.
  • With its extensive patents granted around the world, iX Biopharma stands to unlock value from its WaferiX technology in the future. It can pursue out-licensing deals beyond existing products under its belt, including the technology itself for new product development.

iX Biopharma - Recommendation

Tay Wee Kuang Phillip Securities Research | https://www.stocksbnb.com/ 2021-02-19
SGX Stock Analyst Report BUY MAINTAIN BUY 0.445 DOWN 0.455