Willow Biosciences is a first-mover in a disruptive industry, says AltaCorp Capital

Calgary-based Willow Biosciences is focused on the biosynthetic (as opposed to plant-based) production of cannabinoids for the pharmaceutical industry, aiming to manufacture a consistent and scalable product for the medical market.

The company announced on Tuesday its fourth quarter and year-end results, with management saying that with success recently in developing it proprietary cannabinoid-producing yeast strain, it is now in the scale-up process and expects a 500-litre pilot-scale demonstration by the fourth quarter of this year and larger commercial-scale fermentation vessels as early as the first half of 2021.

Willow president and CEO Trevor Peters said management is carefully monitoring the COVID-19 pandemic, with the priority placed on Willow’s people and their communities as the company works with local authorities to ensure compliance.

“We are extremely pleased with the significant scientific and commercial advancements we have made over the past few months that have allowed us to bring forward our commercialization timing by six months,” Peters said.

In his report, Kideckel said for companies at Willow’s stage in development, one of the most important financial metrics to consider is capital position, on which Willow is doing well.

“Willow’s cash position and cash burn over the [fourth] quarter beat our expectations,” Kideckel wrote. “The cash burn in Q4/19 was $4.4 million, compared to our estimate of $5.4 million, and the net cash position was $19.6 million, compared to our estimate of $18.6 million. We believe that Willow’s capital position is strong in light of the Company’s low capex needs, since a major portion of the capex is already deployed.”

Kideckel said his bullish view on WLLW is based on its early mover advantage as well as its strong management team, which he noted has a blend of technical expertise and business experience in successfully starting new companies.

“In our view, biosynthetically-produced cannabinoids will be a fundamental addition to the cannabis sector’s supply chain dynamics. We believe that pharmaceutical and CPG companies may prefer biosynthetic cannabinoids, given their advantages related to reliability, consistency, and cost. We view Willow to be among the first early movers in a nascent industry, which has disruptive potential,” Kideckel wrote.

At the same time, the analyst has reduced his revenue and profitability estimates on WLLW due to his more cautious stance concerning the CBD market, which has been volatile over the last few months and has the uncertainties inherent to a nascent global industry.

“Currently, Willow is evaluating strategic relationships with various entities in the consumer-packaged goods and pharmaceutical industries, with the goal of defining Willow’s market participation and potential entry into new global markets. We expect Willow to commence its commercial sales to the wellness industry in H2/21e, Cosmetic and Food & Beverage industries in H1/22e, and Pharmaceutical industry in H2/22e,” Kideckel said.

The analyst’s forecast calls for 2020 revenue of $0.0 million and adjusted EBITDA of negative $9.6 million and 2021 revenue of $0.7 million and adjusted EBITDA of negative $1.5 million.

With the update, Kideckel maintained his “Speculative Buy” rating but dropped his target from $5.00 to $2.75 per share, which at press time represented a projected 12-month return of 473 per cent.