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Saturday, October 1, 2022

Numinus Acquiring Novamind in First Major Psychedelics Merger


Psychedelic stock investors woke up to some major news today: Numinus Wellness (TSX: NUMI) (OTCQX: NUMIF) announced that they are acquiring Novamind Inc. (CSE: NM) (OTCQB: NVMDF).

The acquisition will be done in stock, and shareholders of Novamind will receive 0.84 of a common share of Numinus per Novamind share held, implying an offer price of $0.44 per Novamind share. This means Numinus is offering a premium of 51% to Novamind shareholders, based on the 20-day volume-weighted average price of their stock. When the transaction is completed, Novamind shareholders will own around 18% of Numinus.

If you currently hold Novamind stock, you do not need to do anything. When the transaction is finalized, each Novamind share you own will automatically be transformed into 0.84 of a Numinus share.

Even before the acquisition, Numinus was already a top 10 player in the psychedelic medicines field. They have a market cap north of $100 million (CAD), are working with MAPS on treating PTSD with MDMA-therapy, they’re running a compassionate access trial treating Substance Use Disorders with psilocybin-therapy, they’re operating five therapy clinics in Canada, and they have two research facilities and a bioanalytical laboratory.

Novamind, while much smaller with a market cap just shy of $15 million (CAD), is also a leader in certain respects. The company has eight ketamine clinics throughout the USA, and they announced recently that they will be hosting a Usona Phase 2 clinical trial treating Major Depressive Disorder with psilocybin-therapy and a MindMed Phase 2b trial treating Generalized Anxiety Disorder with LSD therapy.

The combined company, operating under the Numinus’ name and leadership team, will operate 13 wellness clinics across North America, four research sites, and one bioanalytical laboratory. Perhaps most impressive, the combined company’s revenues will be just shy of $10 million, and they will have more than $56 million in the bank. This will make Numinus the psychedelic medicines company with the highest revenue, though of course there is still a long road to profitability.

On top of this, the recent revenue growth is impressive. When looking at the two companies’ combined revenue over the past 4 quarters, it has grown by an average of 11.8% quarter over quarter. If this trend line continues into the future, Numinus will double their revenues in approximately 1.5 years.

To be clear, this merger is not yet 100% finalized. That is expected to happen in June of this year, following the shareholders of both companies approving the measure, and several regulatory procedures being completed. These steps, however, are likely just formalities. While it is possible that this deal coul fall through, it is unlikely.

For investors in psychedelic stocks, this news should not come as a surprise. As I discussed in a video for The Psychedelic Investor, entitled Top 5 Psychedelics Milestones In 2021 & What To Expect in 2022, mergers and acquisitions in this space are likely to be a theme of 2022. 

Unfortunately, we are at a moment when many psychedelic stocks are low, as pessimism and fear of volatility run high. This means that many companies do not have market caps high enough for them to sustainably dilute themselves to fund millions or tens of millions in annual research and staffing costs. Given this paradigm, an obvious solution is for companies to combine resources and share costs.

For example, in this acquisition, Numinus and Novamind predict that they will be able to save an estimated $3 million annually, through elimination of duplicated roles. This represents more than 10% of the combined costs of the two companies.

In the coming months I expect to see more, perhaps many more, of such deals being announced. For example, Core One Labs (CSE: COOL) (OTC: CLABF) announced that they are looking for someone to finance them or acquire them, as they are having problems funding their operations.

This will make life easier for psychedelic investors, as at the moment we have more than 50 publicly traded psychedelic stocks. Many, perhaps even most, of these companies will not be around in 5 years time. The upcoming wave of mergers and acquisitions will re-focus investor attention on the companies that truly deserve it, and make the advent of psychedelic medicines much more likely.



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