Irwin Naturals, Numinus, Field Trip: Sector Analyst Compares Footprints, Cash, Organic Growth

The Analyst

Analyst Pablo Zuanic from Cantor Fitzgerald kept an Overweight rating for Irwin Naturals IWIN IWINF but lowered its 12-month price target to US$6.00 (C$8.05) from US$6.20 “on adjusted estimates.”

The Thesis

Zuanic highlighted the “potential approval of various forms of psychedelics-assisted therapy, which should provide a boost for the mental health clinics sector (where stocks remain mostly under the radar).”

Irwin Naturals remains focused on its “roll-up strategy" of the mental health clinics industry, but “it has pushed out targets (100 clinics by end of CY24 vs. CY23 before),” Zuanic said in his analyst note on Monday.

He also noted that organic growth “should play a more-relevant part,” besides M&A.

“While we are positive on the investment story, and realize there will be integration issues, we note that the company’s US clinics so far lag those of Numinus Wellness NUMIF(doing 4x per clinic vs. Irwin) and Field Trip FTHWF (more than 2x),” Zuanic said. "That said, it is early days for the mental health service-providers industry, with revenues in the short term likely to be driven by expanding services, efficiencies, and by leveraging telehealth, where applicable."

The analyst expects a “boost” for the stocks if MDMA-assisted therapy is approved for PTSD in 2024. “A whole new revenue stream would become available to the leading service providers in the industry (we expect MDMA-assisted therapy to be reimbursed),” Zuanic said.

What Is New At Irwin Naturals?

Management provided a series of updates according to Zuanic, including that the company now aims for 55 clinics by the end of CY23 and 90 by the end of CY24. “This is a slower ramp than the previous target of 100 by the end of CY23 (we were assuming 100 by March 2024). The expansion now will not only be solely M&A driven but also will include organic openings; the latter permit faster standardization and tend to be accretive sooner,” Zuanic said.

Also, according to management, the company is in negotiations with 24 clinics. “The target of 55 clinics by the end of 2023 assumes at least 10 organic openings. Of the 35 clinics that are to be added in 2024 (to get to 90), as many as 25 are to be organic openings,” Zuanic said.

In terms of access to capital, management expects to have access to a $60Mn bank facility that will help fund the expansion plans and to garner a NASDAQ listing in 2023, and to raise further capital via the IPO route, below $3 per share. “Irwin has the advantage of its consumer goods infrastructure (from its nutraceuticals business) that can centralize back-office services for the clinics,” Zuanic explained.

Irwin Vs. Numinus, Field Trip

Zuanic added that in the November quarter, Numinus Wellness' seven US clinics generated $4.2Mn in revenues, "at $600K rev/clinics per quarter, this would be 3-4x the apparent run rate at the Irwin clinics,” Zuanic said. "On average, the Numinus US/Canada clinics generated $415/quarter vs. $204 for Field Trip."

The analyst explained that in total, the 12 Numinus clinics scheduled almost 20,000 appointments in the quarter or +16% sequentially. The company believes it is well-positioned to offer MDMA-assisted therapy once approved by the FDA and management expects the cost of the therapy will be in the $10,000-15,000 range, but this should be covered by insurance.

“The cost of the drug dosage is expected to be $300-500 (accruing to MAPS), but the bulk of therapy-related revenue will accrue to the service providers similar to the case for Spravato. The company is keeping a close watch on state/province-level regulatory developments (OR, CO, Alberta). Numinous plans to seek a NASDAQ listing by early in 2H. For now, the company seems well-funded, with $26Mn in cash and a monthly burn that it soon expects to be under $1mn,” Zuanic continued.

Meanwhile, In the Sep quarter, Field Trip reported $1.8Mn in revenues and ended with $13Mn in cash. “Cash burn is trending down, although running at about $1.5Mn/month,” Zuanic said. “Accordingly, the company is now more focused on efficiencies and ramping up revenue from the existing asset base. The company has nine operational clinics and does not plan to add to the B&M clinic footprint for the time being, with the focus on expanding revenue per clinic and ramping up its telehealth platform.”

Field Trip telehealth Freedom Program at $299 per month does integration at the clinic, but patients can be treated at home.

“Like Numinus, Field Trip also believes the MAPS study is likely to be the biggest catalyst for the sector in the near term. despite federal legalization, Management does not expect every state to approve these therapies right away. Management expects the TSX to permit companies like Field Trip to offer psychedelics-assisted therapy in states that legalize this (CO, OR), even before outright federal legalization,” Zuanic concluded.

Photo by Nick Fewings on Unsplash.