RE:D-DAY, June 6th "I raised the 'revenue-mirage' in a previous post outlining how Gilles Gagnon's price increase, along with the FOREX gain, overstated Ceapro's growth in 2022; Sales volume growth that is. While REVENUES grew by 10%, sales volume did not grow by 10%; peak sales have been achieved."
A 10% increase in revenue is exactly what it is. It is a 10% increase in revenue. Part of the revenue increase was due to product volume as stated in the MD&A. That's not a peak. It's volume growth. Do you think this was the first price increase? Being able to increase prices is called pricing power and not all companies have it. In the long run FOREX tends to balance out. We've had recent years where a stronger Canadian dollar understated volume growth. Now it is balancing out. Over the long haul CZO's base business has grown double digit due to price increases and volume increases with FOREX tending to balance out. The base business has performed as intended providing cash and cashflow to support CZO's strategic transiton to a biopharma company. CZO's pipeline is now before critical value defining milestones such as human trial data and commercial-scale production for PGX. Thanks to the base business CZO has the cash to reach these key strategic and value defining milestones.
As for sales volume peaking, one year does not make a trend. There was volume growth last year and Gilles expected growth with Symrise this year too in the Feb. TSX-V video. Inventory is at a record in preperation for something. Some years CZO has had negative growth. Growth from new products, new markets, and new clients can hit in a lumpy manner over time. The beta glucan market is very large compared to CZO's current sales and Gilles said that its Chinese customer(using it for face masks) has informed CZO that there is nothing like CZO's beta glucan. There is a lot of room to grow. Beta glucan can also be used as a delivery vehicle.
Annual Report:
"As a result, the use of oat beta glucan as a potential delivery system has attracted interest from multiple parties looking to improve the delivery of their therapeutic products. The potential to impregnate or encapsulate bioactives into formulations of beta glucan has increased the interest in determining its potential as a delivery platform for cosmeceuticals."
Avenanthramide has many growth opportunities as Gilles noted in the Small Cap Discoveries interview from new products(eg. acne), to new clients, to new markets(eg. Japan). CZO has recently added research to support wound healing(beta glucan too). The Symrise news release last year talked about potential acceleration and new developments. This can take time from science, to client introduction, to product development, to pilot launch, to revenue significant enough to matter and be evident in the financial statements.
Annual Report:
"We also expect to work closely with some major key customers who are looking for second and third generation products to be included in some well-known brands. These high concentration products of both liquid and powder formulations of avenanthramides are produced from our proprietary enabling technologies."
The new company(Kenvue) in control of Aveeno and Neutrogena also depends on these products more than ever as a percentage of total revenue and this can incentivize growth and innovation. Kenvue is a more focused company than it was in J&J which was the largest healthcare company in the world and had interests outside of consumer health products.
CZO is also scaling up avenanthramide for markets requiring larger scale as the food market. It expects to scale up avenanthramide for oat flour this year as it also advances the avenanthramide pill.
"Selling 94% of your product through one distributor is NOT as strategy."
As a sub C$20 million revenue business CZO has not had the global the distribution/logistics infrastructure to distribute product globally in an efficient manner. Partnering with C$20 billion market cap Symrise for distribution/logistics makes sense. Symrise has also complemented the long term product development partnership it has with CZO. Being able to leverage the product development capability of a C$20 billion market cap company, in partnership, and its industry contacts can be a big strategic plus for little CZO. The end clients using CZO's active ingredients can also invest in product expansion and the end-clients using CZO's bioctives are many. CZO is the only producer of natural avenanthramide at scale in the world.
“Ceapro and Symrise have a long-standing relationship in product development that has benefitted both companies over the years,” said Joern Andreas, President Cosmetic Ingredients Division, Symrise AG. “We see great value in this partnership and are very pleased to have secured this agreement, which will continue to pave the way for future developments that I believe will benefit both companies in creating value.” news release
The long-term and trusted relationship CZO has developed with C$20 billion market cap Symrise, including for product development, can have important advantages when it comes to licensing PGX. Gilles has said Symrise is very positive on what CZO is doing. Gilles said Symrise could offer a PGX-CoQ10 formulation as a next-generation Aveeno as an example.
Gilles strategic master plan, from the beginning, was to develop a profitable base business to finance CZO's transition to a biopharma. With a decade of double digit growth for the base business, $12.6 million cash, no debt, and significant cashflow and potentially its third preclinical asset to reach human clinical trials this summer with the fibrosis poduct the strategic plan has been executed very well. PGX has also defined its product targets with PGX-YBG, and PGX-Alginate. The company has the cash and plan in place to potentially hit commercial-scale validation for PGX which should support a licensing deal. PGX is producing quality never before seen from multi-fold more immune stimulatory as with PGX-YBG, to 90-fold more surface area as with PGX-Alginate. CZO could have slow-release and faster release formulations. It could have a Trojan Horse that can hijack macrophages to deliver drugs to tissue. It has produced blowout results with CoQ10 against the gold standard in the industry. Dr. Martin Kolb has said that PGX-YBG could profoundly change the landscape for the treatment of fibrosis. Ronnie Miller, from the largest biotech company in the world, has joined CZO first as a Board member and then as Chairman and complemented CZO's Strategic Plan. The Canadian government has provided significant and ongoing support. For those who only look at the share price and not what has been achieved they will not see the value. CZO is under-the-radar, and cashed up to acheive its next value defining strategic milestones. With human data, commercial scale PGX, and the licensing of PGX with commercial-scale established the price of the stock will change accordingly. We are before the data, and before the crowd. That is the opportunity. If you need the crowd to deel secure in your investment it is probably best you come back next year when the key events are expected to be in hand. "In pursuing our objective to successfully position Ceapro as a biopharmaceutical company, the Company expects to advance these projects using our cash on hand while continuing our discussions to assess different market capitalization initiatives and corporate opportunities to unlock value,” commented Gilles Gagnon, M.Sc., MBA, President and CEO." news release