• Annuity stream from milestone and royalty payments of Wafermine is on track, with out-licensing partner Seelos Therapeutics (SEEL US, Non-Rated) planning Phase 2 trials for Complex Regional Pain Syndrome (CRPS) in 2QFY23.
• iX Biopharma has expanded its pipeline of drugs by developing a sublingual wafer containing dexmedetomidine to treat multiple indications including Alzheimer’s disease-related agitation.
• Near-term developments include expanding markets for the distribution of cannabis to the United Kingdom and United States. We expect FY23e revenue from Xativa and nutraceuticals. We lowered our DCF target price to S$0.25 (prev. S$0.355) due to the delays in capacity expansion and drug trials, and have nudged up our WACC assumption. iX Biopharma is re-purposing active ingredients into higher efficacy drugs using its sublingual Waferix. Targeted treatments include acute pain, CRPS, acute agitation in dementia, male erectile dysfunction, vaccine delivery and medicinal cannabis.

PHARMACEUTICALS

1. Wafermine: treatment of CRPS

• In the licensing agreement with Seelos in November 2021, iX Biopharma received US$4.7mn in cash and 2.57mn in Seelos shares. Around 0.3mn Seelos shares were paid as fees. The company retains 2.27mn shares on the balance sheet valued at S$2.3mn. There was a S$3.2mn fair value loss due to the decline in the share price. These shares are now valued at around S$3.4mn.
• The company was granted US FDA orphan designation for CRPS, a rare disorder. Following the out-licensing to Seelos, Seelos is planning to begin Phase 2 trials for CRPS in 2QFY23. Seelos has designated the drug as SLS-003. It is expected that Seelos will have market exclusivity of seven years from regulatory approval of the drug.
• Seelos will make payments up to US$239mn upon the achievement of certain development and sales milestones together with royalties on future sales. All costs including development and registration of the product will be borne by Seelos.

2. Dexmedetomidine: treatment of agitation in dementia

• iX Biopharma is developing a sublingual dexmedetomidine wafer for the treatment of agitation in dementia. Dexmedetomidine was initially approved as an intravenous infusion (IV) by the US Food and Drug Administration (FDA) as a sedative medication.
• Drug formulation has been completed and Phase 1 human study is underway with results in December 2022/January 2023

3. Wafesil: treatment of male erectile dysfunction

• In September 2021, a supply agreement was signed with China Resources Pharmaceutical Commercial Group Co., Ltd (CRPCG). CRPCG is responsible for obtaining the marketing authorisation for Wafesil in China. There will be upfront and licensing fee payments prior to the commercialisation of Wafesil. We expect filling with the Chinese regulators to be conducted by 1Q23.
• iX Biopharma is also looking at the distribution of Wafesil in other countries.

1. Xativa: sublingual medicinal cannabis

• Xativa, the company’s sublingual Cannabidiol (CBD) wafer is sold in in Australia with a prescription in a variety of dosage strengths. We expect more product enhancements including combining with other nutraceutical ingredients. The company will be introducing a Tetrahydrocannabinol (THC) only version (called Hypera) in 2Q23.
• The company plans to market Xativa in larger cannabis markets outside Australia including the UK and US. Regulatory approval in the UK is progressing although it was delayed due to the pandemic

NUTRACEUTICALS

The Entity nutraceutical is sold in China through Tmall Global and JD Worldwide.The lockdowns and tight border controls affected delivery time and cost. Products had to be COVID-19 tested before arrival in China. To differentiate its nutraceuticals, iX does 3^rd party clinical trials for the efficacy of its products. Positive results will be supportive of their marketing efforts.

CAPACITY

Capacity has been boosted six times with new freeze dry equipment in Australia. The effective increase in capacity was in 4QFY22.

Recommendation

Our DCF model is highly dependent on development milestone payments and sales royalties from Wafermine. There is a high level of uncertainty over these cash-flows as it assumes completion of drug trials and successful sales of Wafermine.