Stock investors in the market for holistic exposure to the intersection between psychedelics and healthcare should add Numinus Wellness (TSX:NUMI) to their due diligence lists. The microcap stock trades at a discount to the potential scale of its multipronged operation, which positions it to tackle the rising rate of mental illness through differentiated infrastructure and aligned, value-conscious management.
A worrying trend
In Canada, approximately one in four individuals older than 18 screened positive for symptoms of depression, anxiety or PTSD in spring 2021, up from one in five in fall 2020. Worse yet, there were 7,328 opioid overdose deaths in 2022, up from 2,861 deaths in 2016, as the COVID-induced spike in mental health events continues to reverberate.
When it comes to our neighbors down south, about 21 percent of U.S. adults experienced a mental illness in 2023 – equivalent to more than 50 million people – up from 19 percent before the pandemic. The U.S. suffered 107,622 reported overdose deaths in 2021 alone, a 15 percent increase from the year earlier.
These crisis-level numbers are reflected on a global scale, with Allied Market Research expecting the mental health market to grow from US$383 billion in 2020 to US$538 billion by 2030, in no small part because of psychedelics’ emerging potential as an alternative to legacy, side effect-laden pharmaceuticals.
Treatments that work
There is clear evidence that psychedelics cause a cascade of neurobiological changes that help to treat conditions such as anxiety, depression, OCD, PTSD and substance abuse, as evidenced by recent literature on the clinical impact of MDMA for PTSD, the effects of ketamine on depression and alcohol and heroin addiction, the benefits of pairing ketamine with therapy, and the increased efficacy of psilocybin on major depression compared with traditional antidepressants.
This academic progress has been met with regulatory reform and legal access, with the U.S. Food and Drug Administration (FDA) issuing its first draft guidance for designing clinical trials for psychedelic drugs in June 2023. Other relevant milestones include:
- Health Canada (2020) and the FDA’s (2019) approval of Spravato, a ketamine nasal spray indicated for the treatment of treatment-resistant depression
- Colorado voting to allow psychedelic-therapy healing centres in 2022
- Australia’s legalization of psilocybin and MDMA prescriptions in July 2023
- Alberta’s recent oversight and legalization of psychedelic-assisted therapies
The confluence of a substantial global unmet need in mental health, and psychedelics’ life-changing applications, opens a door for new ventures with innovative solutions to claim market share.
An integrated mental healthcare company
Enter Numinus Wellness Inc. (TSX:NUMI), the only psychedelic stock specializing in therapy, research and practitioner training, whose efforts have improved tens of thousands of lives through access to proven alternatives to legacy pharmaceuticals.
The company’s evidence-based approach to wellness, and hand in shaping future psychedelics professionals, are catching on in the mental health market to the tune of more than 26x revenue growth from C$880,000 in FY2020 to C$23.18 million in FY2023, with plenty of upside remaining because 1) the psychedelics therapeutics market is expected to grow from US$3.94 billion in 2022 to US$13.29 billion by 2031, and 2) 87 percent of Numinus’ revenue in Q4 FY2023 stemmed from the United States, the market’s dominant region.
A diversified approach to an emerging industry
Numinus realizes its value proposition through three complementary business lines that together provide industry-wide exposure to psychedelic medicine.
Clinical care
The company operates nine wellness clinics across the U.S. and Canada that offer treatments for depression, mental illness and related conditions across traditional therapy, psychedelic therapy, neurology and psychiatry.
Numinus’ clinical network registered 19,961 appointments in Q1 FY2024, including 7 percent from new clients, generating C$4.9 million in revenue, down from 21,068 appointments and C$5.0 million in Q4 FY2023 because of a refocusing toward higher-margin services, demonstrating management’s commitment to shareholder value, which we’ll explore later on.
Patients also benefit from Numinus’ insurance coverage expertise – including overseeing more than C$15 million in coverage reimbursements for Spravato and ketamine-assisted therapy to date – to help them navigate the most cost-effective way to seek treatment.
Clinical research
Numinus substantiates its clinical practice with the latest advancements in psychedelics research, an increasing number of which it is helping to usher through clinical trials.
Cedar Clinical Research (CCR), Numinus’ contract research management provider, offers phase I-IV clinical trial services out of two locations in Utah primarily to drug developers, nonprofits and academic institutions. The services suite includes clinical trial design, patient recruitment, screening and enrollment, patient management and data collection, with applications open for studies across 15 mental health categories.
CCR brought in C$1 million in revenue in Q1 FY2024 from managing 22 clinical trials, which is down by 12.9 percent from C$1.2 million in Q4 FY2023, but up by 49.5 percent from Q1 FY2023, thanks to recent milestones that demonstrate Numinus’ leading-edge, early-mover advantage as psychedelics spread their wings across the healthcare landscape:
- In June 2023, Numinus submitted a clinical trial application to Health Canada for practitioners training to administer MDMA-assisted therapy to be able to conduct, observe and receive this same therapy. The research leader, the Multidisciplinary Association for Psychedelic Studies (MAPS), has already completed its phase 3 study and submitted a New Drug Application to the FDA
- On Oct. 3, 2023, the company introduced a comprehensive psychedelic program for mental distress tied to severe chronic illness at its Utah facilities
- On Dec. 15, 2023, the company was chosen as a clinical research site provider for Beckley Psytech‘s phase 2b clinical trial for synthetic 5-Methoxy-N, N-Dimethyltryptamine (5-MeO-DMT), otherwise known as BPL-003, as a potential therapy for treatment-resistant depression
Clinical training
Numinus rounds off its multipronged revenue streams with Numinus Digital, its proprietary practitioner training program. The certification pathway is accredited by major regulatory bodies in Canada and the U.S. and covers ketamine, MDMA or psilocybin-assisted therapy through a blended-learning format geared towards working professionals:
More than 700 students have enrolled in the program as of January 2024, each of them a source of increasing high-margin revenue catalyzed by strategic initiatives, such as:
- A free Introduction to Psychedelics program to foster a new generation of psychedelics-assisted therapists
- An improved learning management system in the areas of engagement, satisfaction, navigation and community experience currently being tested with Fundamentals of Psychedelic-Assisted Therapy cohorts
Fortified by a diversified business plan that is proving itself out in the field, Numinus is able to spread out its risk while offering pure-play stock exposure to psychedelic medicine, thus allowing investors to have their cake and eat it too as management remains squarely focused on profitability.
A growth-stage company building shareholder value
Numinus’ management team is backed by robust experience in clinical psychedelics, corporate finance and doing business with major brands (Canopy Growth, Saks Fifth Avenue and UPS), and it has proven to be acutely aware of the delicate balancing act needed to scale three business lines towards free cash flow generation.
This awareness is evident in cost-reduction measures announced in September to improve the client experience and save nearly C$1 million in annualized cash expenses, including the aforementioned focus on higher-margin clinical services, closing up shop at Numinus Bioscience, the company’s non-revenue producing research lab, closing and consolidating wellness clinics to improve space utilization, and letting leases expire on two research clinics in Montreal and Vancouver. These strategic moves had immediate effects on Numinus’ bottom line as of Q1 FY2024, such as:
- Reducing cash burn to below C$1 million since October 2023
- Reducing operating expenses by 19.9 percent and 30.6 percent compared with Q4 FY2023 and Q1 FY2023, respectively
- Increasing gross margin to 36.1 percent, up from 29.5 percent in Q4 FY2023
Management, which owns more than 5 percent of the stock, is keen on ramping up speed on its path to profitability in conjunction with continued growth. To this end, it has initiated a strategic review, alongside Stifel Nicolaus Canada as financial and strategic advisor, to evaluate new catalysts for unlocking shareholder value.
The exponential growth of Numinus’ integrated psychedelics business, backed by a monumental tailwind and management’s efficient use of resources, stands in stark contrast to the microcap stock’s 82 percent loss since inception in May 2020.
Far from an accurate reflection of company performance, the stock’s trajectory is a direct consequence of higher interest rates, bond yields and cash yields, which are expected to slow global growth in 2024, and continue nudging investors away from higher risk-reward opportunities like microcap stocks, despite their potential for outsized returns.
The market’s obliviousness notwithstanding, Numinus’ fundamentals are sound, and likely to improve as management continues right-sizing the business, gifting allocators with a hefty price-value mismatch that will surely disappear as the clinic, research and training segments scale into greater efficiency and psychedelic medicine progresses toward a standard method of mental healthcare.
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