Business Update: Positive Trajectory Continues

NRC Grant to Produce Coronavirus Therapeutic Candidates by PGX Technology

Robust Q1 Results With 34% Sales Growth

Potential Therapy for Pulmonary Fibrosis in COVID-19 Patients

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Healthcare

Biotechnology

Ceapro Inc

Investment Appraisal
On May 28, 2020, Ceapro announced financial results for the first quarter of F2020 ended on March 31, 2020. Despite the ongoing COVID-19 pandemic, the quarter was highlighted by strong financial results as Ceapro reported a net profit of $1.126 mm compared to a net loss of $(0.64) mm in Q1/F2019. Product sales in the quarter increased 34% relative to Q1/F2019. 
In the quarter, Ceapro made significant progress on R&amp;D activities designed to develop novel drug delivery systems. The Company received approval to modify its lead human clinical trial on the use of oat beta glucan for the treatment of hyperlipidemia, which will allow for patients to received oat beta glucan as a monotherapy. This will speed up patient enrollment in the trial and better position the drug for further development. 
Management reiterated its strategic decision to transition to a new business model, from a contract manufacturer to a biopharmaceutical company offering innovative new products and drug delivery systems (including oral, topical, sub-lingual and intranasal) with applications in the nutraceutical and biopharmaceutical markets. After the quarter ended, Ceapro announced the expansion of a collaboration with McMaster University to develop PGX-YBG as a novel treatment for pulmonary fibrosis as a complication of COVID-19 patients. In our opinion, this program fits well with Ceapro&#8217;s new business strategy to transition into the biopharmaceutical segment of the industry. &nbsp;
Robust Q1/F2020 Financial Results
In Q1/F2020, Ceapro reported total sales revenue of $4.273 mm representing a 34% increase over the $3.2 mm reported in Q1/F2019. Ceapro beat our revenue estimate of $3.5 mm. The 34% growth relative to last year&#8217;s quarter was primarily attributed to a 68% increase in avenanthramides sales. In the quarter, the higher U.S. dollar relative to Canadian dollar positively impacted revenue by approximately $117,000. For Q1/F2020, Ceapro reported a net profit of $1.126 mm compared to a net loss of $(0.64) mm in Q1/F2019. In Q1/F2020, Ceapro generated CFO of $0.531 mm versus CFO of $0.367 mm in Q1/F2019. On Marck 31, 2020, Ceapro had working capital balance of $6.26 mm. 
Total sales revenue grew 34%, but COGS only increased by 3%
Despite the 34% increase in total revenue, COGS only increased by 3% as the quality of the raw material used resulted in higher output of finished goods. The increase in COGS was significantly lower than the increase in revenue, which contributed to an overall increase in the gross margin percentage from 42% to 56%. Gross margin was positively impacted from both the strengthening U.S. dollar on sales and lower COGS. It was also positively impacted from the higher margin sales product mix compared to corresponding quarter of last year. 
Exhibit 1 &#8211; Ceapro Income Statement. In the quarter, total sales revenue of $4.273 mm represents 34% growth over the $3.2 mm reported in Q1/F2019. In Q1/F2020, gross margin was 56% compared to 42% in Q1/F2019. In Q1/2020, R&amp;D expenses were $0.5 mm compared to $0.8 mm in Q1/F2019. The decrease was mainly attributed to lower expenditures in human clinical trial evaluating oat beta glucan for the treatment of hyperlipidemia. Patient enrollment has been slower due to COVD-19 pandemic. In the quarter, G&amp;A expenses increased 18% from $0.73 mm to $0.87 mm, mainly due to the engagement of an international consulting firm to support Ceapro&#8217;s licensing activities, increased employees&#8217; salaries and benefits, and higher investor communications and stock exchange listing expenses. &nbsp;&nbsp;&nbsp;
&nbsp;<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/Snip20200528_3.png" style="width: 495px;height: 273px;float: none" />&nbsp;
Source &#8211; Ceapro, Inc. 
Ceapro&#8217;s quarterly financial results primarily fluctuate due to variations in the timing of customer orders, different product mixes, and changes in the capacity to manufacture products. Net income (loss) for Q1/F2020 and each of the quarters of F2019 include amortization of approximately $0.456 mm, which is significantly higher than corresponding quarters in F2018. The increase is primarily attributed to amortization on Ceapro&#8217;s Edmonton manufacturing facility, which substantially completed commissioning activities in Q4/F2018. Net income in Q4/F2018 includes the recognition of impairment losses on intangible assets of $430,533 and goodwill of $218,606. 
Exhibit 2 &#8211; Ceapro selected financial information from the last eight quarters. Q1/F2020 net income of $1.126 mm was the highest in the whole period. Results fluctuate due to variations in the timing of customer orders, different product mixes, and other factors.
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/Snip20200528_4.png" style="width: 495px;height: 162px;float: none" /> 
Source &#8211; Ceapro, Inc. 
Management highlighted the milestones achieved in Q1/F2020 including:
<ul type="disc">
<li>In the quarter, Ceapro received approval from Health Canada to modify its clinical trial protocol evaluating oat beta glucan as a cholesterol lowering agent, as an add-on therapy to statins. This is Ceapro&#8217;s first human clinical trial with a proprietary PGX-processed product. The amendment to the trial will allow evaluation of subjects with confirmed pathophysiological condition of hyperlipidemia who voluntary request to be treated with beta glucan only, without regular dosing of statins. This should accelerate patient enrollment and expand target addressable patient population. The cholesterol lowering properties of oat beta glucan have been previously demonstrated in several industry studies (Proc Nutr Soc 2003, 62, p135-142; Eur J Clin Nutr 2002, 56, p1-14). However, we believe Ceapro&#8217;s study will be the first randomized, properly controlled human clinical trial to demonstrate the potential of PGX-processed oat beta glucan (tablet formulation) as an add-on therapy to statins for the treatment of hyperlipidemia. The principal investigator of this study is Dr. Jean-Claude Tardif of the Montreal Heart Institute. Hyperlipidemia is a disease characterized by abnormally high levels of lipids in the blood. Patients suffering for hyperlipidemia has a higher risk of heart attacks and stroke. Patients with &#8220;low density lipoprotein-cholesterol (LDL-C) level&#8221; of more than 130 milligrams per deciliter (3.37 millimolar per liter), who cannot tolerate current therapies are eligible for the study. The duration of the trial will be 18-24 months and will enroll 264 patients (Exhibit 3). All patients are scheduled to receive 10-20 milligrams of atorvastatin (a statin drug), unless they elect not to (as per the new modification of the protocol).</li>
<li>Ceapro also received approval by Health Canada to perform research on cannabis formulations of delivery systems based on PGX technology. </li>
<li>Published results from a collaborative project with the University of Alberta in Journal of Supercritical Fluids entitled &#8220;Preparation of PGX-dried gum arabic and its loading with coQ10 by adsorptive precipitation&#8221;.</li>
<li>Ceapro completed technical upgrades of its PGX Demo plant and advance R&amp;D efforts to develop PGX produced complexes with potential applications like pills, capsules, fast dissolving strips and face masks. In 2020, management plans to disclose strategic plans for future commercial scale-up of PGX technology. Depending on the evolution of the COVID-19 pandemic, management expects to have completed the transition to the Edmonton site and have fully decommissioned the Leduc site by the end of Q3, 2020. In Q1/F2020, Ceapro conducted a technical assessment of available equipment in Europe and North America, actively evaluating locations for a future commercial scale-up of the PGX technology.</li>
<li>Ceapro advance research collaborations with the University of Alberta and McMaster University on novel drug delivery systems, which are based on the impregnation of various bioactives using PGX-processed polymers including dry beta glucan, gum Arabic and alginate. Subsequent to the end of Q1/F2020, Ceapro announced a new research project with McMaster University for PGX-processed yeast beta glucan as a potential treatment for pulmonary fibrosis in COVID-19 patients. </li>
<li>Ceapro also continued business dialogue with potential partners seeking to out-license potential applications of its technologies, and hired an international consulting firm to support licensing activities.</li>
<li>Ceapro listed its shares for trading on the &#8220;OTCQX Best Market&#8221; , a U.S. capital market, under the ticker symbol CRPOF. Shares are DTC (&#8220;Depository Trust Company&#8221;) eligible fast coded. This electronic method of clearing securities speeds up the receipt of stock and cash, and thus accelerates the settlement process for investors reducing brokerage and transfer fees.</li>
<li>Continued to monitor stability studies for liquid beta glucan and avenanthramides produced at a new manufacturing site as well as for the pharmaceutical-grade dry powder formulation of avenanthramides to be used in a human bioavailability study. </li>
<li>Developed new PGX-dried chemical complexes like sodium alginate and gum arabic impregnated with coenzyme Q10 demonstrating the versatility of the PGX technology and the potential to develop significant bioactives delivery systems (Exhibit 4). </li>
</ul>
Exhibit 4 &#8211; Ceapro uses its PGX technology to produce sodium alginate with large surface area, a superior feature compared to commercial sodium alginate produced using conventional methods. This matrix with improved properties might be impregnated with bioactives for new applications.
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/Snip20200526_19.png" style="width: 495px;height: 204px;float: none" /> 
Source &#8211; Ceapro, Inc. 
<ul>
<li>Advanced conversations with interested potential partners to out-license applications developed using Ceapro&#8217;s proprietary innovative technology. In the quarter, Ceapro advanced research and development efforts to pursue the development of new PGX-dried chemical complexes for potential applications under various forms like pills, capsules, fast dissolving strips and face masks.</li>
</ul>
Exhibit 5 &#8211; PGX technology utilizes the unique properties of a PGX liquid consisting of pressurized carbon dioxide (CO2) and ethanol (alcohol) to dry the aqueous polymer solution at mild operating conditions (40 degrees of temperature and 100 bar of pressure) in a spray chamber. In this chamber, the biopolymer is precipitated, dried, purified, and micronized in fractions of seconds, which allows high throughput using a compact equipment.
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/Snip20200526_15.png" style="width: 295px;height: 300px;float: none" /> 
Source &#8211; Ceapro, Inc.
Reiterating Outperform Rating
Management explained that Ceapro&#8217; focus remains on the health and safety of the employees during the COVID-19 pandemic, while preserving business continuity. Thus far, Ceapro&#8217;s business continuity has not been affected. We expect Ceapro&#8217;s cosmeceutical base business to continue to grow, with higher product sales and operating cash flows to support the transition from contract manufacturer to a new business model. This new business model will focus on the development of novel biopharmaceuticals and nutraceuticals. Using its proprietary PGX Technology, Ceapro is pursuing the development of novel delivery technologies for bioactives through different modes of administration including oral, topical, sub-lingual and nasal spray. 
We believe the Company will emerge as a significant competitor in the personal care, nutraceutical and cosmeceutical markets. In our opinion, the potential of lead products beta glucan and avenanthramides, as well as Ceapro&#8217;s innovative technologies including PGX drying and related technologies, are not reflected in the current share price. We believe that the expansion of Ceapro&#8217;s business into the nutraceutical, cosmeceutical and biopharmaceutical industries, combined with steady growth of its base active ingredients business, will attract new investors. Despite of COVID-19 pandemic uncertainty, we are maintaining our forecast to reflect the robust results of the quarter. For F2020/F2021, we forecast total revenue, net income (loss) and EPS of $13.4 mm/$31.8 mm, $(2.2) mm/$13.3 mm, and $(0.03)/$0.17, respectively (Exhibit 6). We are reiterating our Outperform rating and US$1.08 target price on the stock.
Exhibit 6 &#8211; Ceapro Income Statement 
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/Snip20200529_5.png" style="width: 695px;height: 381px;float: none" />&nbsp;
Source &#8211; Noble Life Science Partners
Exhibit 7 &#8211; Ceapro Cash Flow Statement
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/Snip20200529_6.png" style="width: 695px;height: 442px;float: none" /> 
Source &#8211; Noble Life Science Partners

Ceapro Inc (CRPOF)

Robust Q1 Results With 34% Sales Growth

Fundamental Analysis:

Rating: Log in to view

Business Update: Positive Trajectory Continues (CRPOF)

NRC Grant to Produce Coronavirus Therapeutic Candidates by PGX Technology (CRPOF)

Robust Q1 Results With 34% Sales Growth (CRPOF)

Potential Therapy for Pulmonary Fibrosis in COVID-19 Patients (CRPOF)

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