A few weeks ago, Khiron published fourth quarter financial results and we are favorable on how the business is positioned to record strong growth on a going forward basis.
Reports Ramping Revenues While Cutting Expenses
During the quarter, Khiron reported that revenues grew more than 30% on a quarter-over-quarter basis as patient consultations at company-owned clinics returned to pre COVID levels and medical cannabis product revenues more than doubled over the prior quarter.
Selling, general and administrative (SG&A) expenses are one of the metrics that stood out in the earnings report. When compared to the prior year, SG&A expenses decreased by more than 20% and we are favorable on how the management team has executed on a cost reduction strategy that was announced earlier in the year.
Last year, Colombia became one of the first countries to offer national health insurance that covers medical cannabis for patients. The development served as a major catalyst for Khiron and we expect the business to report impressive growth in future quarters. In December, the company started to benefit from the country’s decision to offer insurance to patients and recorded more than 110% of sequential quarter-over-quarter revenue growth in medical cannabis product sales.
Another attractive aspect of the Khiron story is related to the strength of the balance sheet. As of December 31, 2020, the company had $21.6 million of cash and $29.1 million of working capital. During the quarter, Khiron raised more than $14 million through a bought deal financing and we expect the management team to strategically use the capital for projects that have the highest probability of success and return rates.
Executing on a Multi-Faceted Growth Strategy
2020 was a banner year for Khiron and we expect 2021 to be even more significant. Last year, the company started to sell cannabis in Colombia, Peru, and the UK. During this time, Khiron became the first company to sell medical cannabis magistral preparations in Colombia and Peru, and medical cannabis flower in Scotland. We are favorable on the track record that Khiron is creating as a company of firsts and find this to be a key pillar of the story.
Clinics are going to play an important part of Khiron’s expansion strategy and the company launched its Zerenia medical clinic strategy in 2020. During this time, Khiron opened its flagship location in Bogota and started to execute on its satellite clinic expansion strategy with the opening of its first location in Medellin, Colombia’s second largest city.
Due to the initial success of the Medellin satellite clinic, Khiron opened three additional satellite clinics in Colombia in the first quarter. Going forward, the company plans to open another three locations by June and plans to deploy its Zerenia™ medical cannabis clinic and telehealth strategy in Mexico. By June, the company expects to have 10 clinics open and 13 open by the end of the year.
Filled More Prescription in the First Quarter Than it Did in All of 2020
One of the most attractive aspects of Khiron’s quarterly financial report was the information that was provided on the current quarter. In the current quarter, the company has already filled approx. 135% of its total 2020 volumes in Latin America. Of these prescriptions, 60% were fully covered by insurance.
In the current quarter, Khiron reported that 4.5 prescriptions were filled by each Health Care Professional (HCP) daily. In the second quarter of 2020, this number was less than 1 prescription filled per day and we are favorable on the increase.
Another attractive metric that was provided is the increasing percentage of returning medical cannabis patient volumes. Khiron announced that this metric has increased from 20-25% of total monthly patients in the third quarter to nearly 50% in the current quarter.
A Global Execution Story to be Aware of
Although we are excited with the success Khiron is having in Latin America, we are even more favorable on the way it is positioned to capitalize in strategic markets in Europe. In March, the company announced a milestone and reported to have exported its Colombian-registered cannabis strains, in the form of live clones, to Europe.
Going forward, Khiron is highly focused on executing on an asset-light growth strategy in the United Kingdom (UK) and Germany. We believe these markets provide the business with an attractive entry point into the EU and expect to see it expand into additional international markets.
In March, Khiron commenced sales in Germany with the successful delivery of EU-GMP medical cannabis products. The following month, the company introduced high CBD flower in the UK and we are favorable on how the business has advanced. We expect these markets to support the growth of the business and find these regions to be not saturated.
Of the $370,000 of medical cannabis product sales that were generated by Khiron in 2020, $234,000 was generated in the fourth quarter. We believe the business reached an important inflection point in late 2020 and are favorable on the growth that is associated with the company’s expanding global footprint.
Khiron Reaches an Important Inflection Point
2020 marked a turning point for Khiron as the business transitioned from start-up mode to the sales execution phase of its strategy. We are impressed with how the business has advanced on the international side of the industry and how the company is selling medical cannabis in Colombia, Peru, the UK, and Germany.
Going forward, we expect Khiron’s future quarters to benefit from the launch of its telemedicine platform, Zerenia clinics, and improved patient access through medical cannabis insurance coverage in Colombia. We believe that Khiron will benefit from the infrastructure that has been developed over the last year and will report accelerating growth both at home and abroad.
At current levels, we find the valuation to be attractive on a variety of metrics (i.e. working capital to market capitalization and current assets to current liabilities) and believe that our readers need to be aware of Khiron. Based on how the business is structured, the company is positioned to benefit from the business-to-business and the business-to-consumer opportunity. We are favorable on the growth prospects that are associated with the business model and will monitor how the story advances from here.
If you are interested in learning more about how Khiron is positioned to capitalize on burgeoning international markets, please send an email to firstname.lastname@example.org with the subject “Khiron” to be added to our distribution list.
For the fastest access to data on Khiron, you can sign up for our free newsletter!
Pursuant to an agreement between StoneBridge Partners LLC and Khiron Life Sciences Inc. (KHRN) we have been hired for a period of 90 days beginning May 5, 2021 and ending August 5, 2021 to publicly disseminate information about (KHRN) including on the Website and other media including Facebook and Twitter. We are being paid $6,000 per month (KHRN) for or were paid “0” shares of restricted common shares. We own zero shares of (KHRN), which we purchased in the open market. We plan to sell the “ZERO” shares of (KHRN) that we hold during the time the Website and/or Facebook and Twitter Information recommends that investors or visitors to the website purchase without further notice to you. We may buy or sell additional shares of (KHRN) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.