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BXN makes its money by pharmaceutical manufacturing, which expanded by over 800% year-on-year. As a result, as flagged in their recent 4c, life is pretty rosy:
They primarily operate as a contract manufacturer for medical cannabis companies, charging per-unit fees for their sophisticated manufacturing services. This approach allows them to generate consistent revenue while minimizing the risks associated with brand development and direct patient sales. (sourced from TAMIM - and would love the opportunity to ask this directly in the next SM interview- nudge nudge)
Consequently, their contracts insulate them from the price pressures that the end-sellers will increasingly face. Of course, those contracts expire, and come up for re-negotiation.
The bull case:
Revolves around a return to normal margins and a huge increase in volume (capacity upgraded already).
The story is all about the EU - mostly Germany - and the UK. Germany has 5m regular cannabis users, the UK 2m. BXN aim to supply 5-10% of the German flower market next year: 0.05 x 147k =7.35 kg = 7.35 metric tons! or $11.5m of revenue. This aligns with their updated revenue guidance of FY2026 of $65-75m and EBITDA of $11.5-13.5m. All figures AUD.
It is probable that input costs may decrease as new suppliers come on line (Asia) and competition heats up.
So the bear case:
....and the sudden sell off I suspect is because of a) profit taking, b) margin compression for the last year c) a saturating Australian market and d) execution risk.
It is an evolving business model, but I believe they have demonstrated they can carve out a niche for themselves and are doubling down on it.
b)This primarily explained by the increase in costs in "general and administrative" but this should be viewed in the light of expenditure to increase capacity. So that shouldn't be a concern.
They are also not shy of increasing the share count (see bottom line of expenses), and I think there are another 150m options and share based payments still to come, representing ~7%.
Lastly, if you look at the patient pricing expectations for the German market above, Price per gram is expected to decline and it is possibly a worse outlook in other countries from what I can discover. Those reductions in margins for the seller are going to be part of any future fee-per-unit contract negotiations.
c) saturating Australian market ?
this is no doubt why they are expanding oversees!
On balance though, I can't see any real reason for the sell off, I am reasonably happy with my medium term thesis, though any of the above risks could come to pass. That doesn't even include regulatory risk etc, see bear case/risks in previous posts.
HELD IRL and SM
A few sporadic thoughts I dropped down on their webinar. I won't re-hash previous points made just areas where there is more in depth information or an insight I hadn't realised before:
significant steps achieved:
Capacity after new upgrades is 30m tonnes pa. For reference the entire Australian market is 100 tonnes
Australian market growing 20% pa. and currently has 1 million patient. Bioxyne has a 30% market share. Product mix here is 30% flower, 30% pastilles 30% other. It would be good to get a clearer idea of margin by category.
BXN Source their flower from ~ 10 national and international cultivators. Has been a difficult process to be able to identify growers with adequate capacity and quality control. A barrier to entry for competitors
EU GMP recognition really opens the doors to ramp up production and flower sales to Germany and the UK
Some margin compression occurring in the German market but pie is huge and growing. Margins generally are expected to remain stable as sales are structured on commission of margin, headcount remains low and have significant moat over competitors from economies of scale.
UK still has a few regulatory hoops to be jumped through but they have partnered with the UKs leading medical marijhuana chain of clinics which services 60,000 patients. Expect hurdles to be cleared in next few weeks, initial 2.5 mill AUD order to be shipped, and anticipate this will be exhausted within 3 months - so more orders coming.
In negotiations with other prescribers....watch this space.
Have identified a site in the UK, in negotiations, hopefully 1 year rent free, applied for 20% UK government grant/rebate, expected CAPEX 1mill AUD. Unclear timeline as permitting commercial negotiations etc
Czechia: CAPEX $500k, change in government expected so may delay progress of packing plant build out.
in meantime enough capacity in AU to cover short term expectations.
Questions:
acquisitions unlikely in next 12/12 as organic growth opportunities are ample
CAPEX (see above) should be limited - need for further working capital was not addressed but 7.6m in bank and CF+ve.
FY26 guidance will be issued in August. not so subtle hints that there will be good news on this front.
Psychedelics:
no real prospect of significant revenue stream in next 5-10 years as trials grind along, data is gathered and biases overcome. Potential similar path to medical marijhuana but some time away. Being a lead provider of product to trial and experimental sites is a sticky revenue source as must have same product characteristics, legal recognition etc so if this nut is cracked, very few challengers.
In conclusion, short to medium term thesis remains very much intact.
What could bust this? Many things including regulatory backlash and over-reach, but for me - primarily margin compression. I anticipate BXN are going to rapidly expand revenue, have a lumpy bottom line due to CAPEX requirements to fulfil the increase in orders and will become increasingly recognised by the market; resulting in a significant increase in SP due to increased earnings and a multiple expansion. However, the old "your margin is my opportunity" may be the largest problem. I think they have a Moat on scale and regulatory hurdles. If there is significant evidence of margin compression this would cause me to have doubts, even if the top line is increasing rapidly.
I'm going to reach out to tour their manufacturing facility in Brisbane if anyone wants to come along. Hopefully we will get a goodie bag of free samples.
@Strawman any progress lining up a meeting ?
I’ve increased my holding in BIOXYNE.
They have recently upgraded the FY earnings guidance which did not come as a surprise. In addition they have succeeded in getting licences to supply THC/CBD products into the UK, Singapore, Canada and the EU. It wasn’t that long ago that bringing weed into Singapore got you a death sentence, so I’m not too sure this is going to provide much of a kicker to revenue. Canada is no doubt well supplied by local and US cannabis suppliers. However, they do have an established brand and business (on Amazon) in the UK and have also just announced a $5.6m deal to supply a German distributor with “flower”. That’s buds to those of us more used to buying it the old fashioned way.
All of their revenue bar $1million comes from Australia currently. They have invested for growth with recent increases in capacity for the production of both flower and pastilles.
I have included 2 slides from today’s presentation that show the progress and the opportunity.
*What could go wrong?
The US experience is a bit different but is not pretty. There, manufacturers sell flower to retailers, who sell it to the general public. In Australia, the UK and the EU (I’m unclear if that is the whole of the EU, but certainly major economies) these THC products are prescription only. So, in the US it has been a race to the bottom, with multiple business failures and no one having a decent margin. The barriers to entry and compliance constraints are so far limiting the number of players in this space in Australia. BXN is the market leader and economies of scale being what they are, should be able to maintain a small moat. It will informative to see what the bottom line looks like come results season.
Currently, BXN have a gross margin of 50% which is healthy and should allow for a reasonable ROIC. I’d love some more detail around these numbers. I would anticipate this margin can be sustained in Australia and replicated, if not improved upon in the UK - they also have their Dr Watson brand which should increase margins there.
There are also the psilocybin and MDMA arms of the business that are currently only involved in clinical trials in Australia.
*Deep dive into the product suite:
Strawman members will be reassured to know that I take my research very seriously. Purely in the interests of due diligence, I registered as a patient (insomnia, back pain, I once got rejected by a girl I fancied when I was 15 and have PTSD etc) and have subsequently tested the majority of the BXN products.
After a few weeks of somnolence and moderate disorientation, I realised that I am not the target market and have discontinued frequent use. Additionally, I recently received a bulk package of “TV snacks” from Amazon that I have no clear recollection of ordering and do not usually enjoy eating. Mysteriously, I have also gained 6kg.
BXN released its quarterly today and I think it shows the thesis is intact. They had a CR of $3m during this period to accelerate the build out of increased manufacturing capacity. I hope that is the last one required.
$7.2 million Q3 Revenue - 352% increase on Q3 FY2024
$8.5 million Q3 Cash Receipts - 14% increase on prior quarter and 238%
increase on Q3 FY2024
Year to date Revenue of $19.7 million - up 213% on YTD Q3 FY2024.
On track to exceed FY2025 revenue forecast of $25 million
Positive Q3 cash flow of $1.9 million with increased investment in working capital to fund growing sales
Capital raise in Q3 of $3.0 million (before costs)
Cash on hand $6.5 million
Increased manufacturing capacity from investment in plant and equipment of $0.9 million during Q3
New $7 million manufacturing and supply contract executed for FY2026
They restated expected full year revenue of $25m.
Australia is tracking well and the goal is to get GMP certification for their Czech manufacturing plant to serve the EU and UK customers.
i have some concerns about trying to expand in too many geographical sites at once, but if they can execute as intended the future looks bright.
Held. Watching intently.
Looks like BXN will have a couple of other revenue streams come the end of the year
Having light heartedly responded to @juneauquan's post about this company, I have by a curious twist of events ended up looking at it again. I have just gone through the process of becoming a patient for CBD gummies for insomnia after various people had recommended them and was interested to see who the manufacturer was for the pharmacy I am buying them from. Turns out to be Bioxyne, via it's 100% holding in Breathe Life sciences.
Bioxyne is tiny, it has a MC of $55m.
It had previously issued shares at a phenomenal rate to keep itself alive expanding the count from ~600m in 2022 to four times that in 2024. Ouch. But in the last few months it has turned the corner in quite spectacular style.
It has had various iterations over the last 10 years but is now firmly in the THC/CBD manufacturing business, and that has gone quite well of late. It received a GMP licence from the TGA to manufacture THC gummies (as well as MDMA and psilocybin products) in Jan 2024. It also has a manufacturing facility in the UK and Japan and serves those markets and an import and packaging plant in the Czech republic. It is not only a B2B manufacturer but also has its own wellness direct to consumer brand DrWatson (see UK below).
The medical marijhuana market is predicted to grow at a CAGR of 30% until 2030.
It released a very positive quarterly in Jan 2025 and an update to guidance. If you like pictures these are the two that matter
Just assuming no further increase in revenue and annualising the last quarter gives you about $30m in cash receipts and positive Operating cash flow of $6m. They are, however looking to expand manufacturing capacity in anticipation of further contract wins which may increase costs significantly in the short term but have 2.7m of cash which may be enough.
GM appears to be 20% which isn't bad for a manufacturing business.
They haven't given a geographic breakdown of revenues.
Potential other sources of income include their DrWatson brand of CBD oil and mushroom products sold DTC and on Amazon in the UK EU and Japan. They have flagged a potential ramp up of manufacturing in the EU to supply that market.Lastly, there is the potential for revenue streams from the MDMA and psilocybin arms which look to be some way off currently, though they are the only GMP approved manufacturing facility in Australia currently and can consequently supply medical trials.
It's clearly a high risk play in a variety of domains: regulatory risk, execution risk and capital allocation risk to name but a few.
Having just written all this up I realise I should just have waited a few days until the Half yearly comes out, sigh.
Not held yet, but really very interested.