Redeye comments on Lytix’ second quarter report 2024. Strong phase II data were presented by Verrica in August. This changes the investment case somewhat, putting basal cell carcinoma on an equal footing with melanoma.

Lytix Biopharma

* No current revenue and operates in a capital-intensive industry, requiring significant investment for drug development.
* Highly dependent on capital markets for funding and potentially reliant on one or two partners for future revenue.
* Operates in a heavily regulated industry with significant regulatory interference and risks associated with clinical trial outcomes.
* Limited revenue diversification expected, with success heavily dependent on one or two drug candidates.
* Competitive advantage primarily based on patents, which have a limited lifespan of 10-15 years after approval.

* Strong potential for growth with a platform of host-defense peptides and successful expansion into new markets through licensing deals.
* Positioned in a growing market with cancer rates increasing globally, benefiting from secular tailwinds in healthcare.
* Patents and proprietary clinical data provide a competitive advantage, with limited competition in oncolytic molecules.
* Contributes to the greater good by developing cancer treatments and demonstrates commitment to sustainability goals.
* Positive employee satisfaction and good relationships with customers, suppliers, and key opinion leaders in product development.

* Lack of profitability across all key metrics, including Gross Profit Margin, Operating Margin, and Return on Equity and Assets.
* No consistent revenue or earnings growth, suggesting challenges in market penetration and financial performance.
* Poor financial health indicators, including high net debt relative to cash flow and likely need for additional capital raising within 12 months.
* Absence of dividend payments and related metrics, indicating the company is not in a position to return value to shareholders through dividends.
* Low earnings quality, with potential issues in inventory management, accounts receivable, and cash flow conversion.

* Current Assets are 1.5 times greater than Current Liabilities, indicating the availability of short-term liquidity and ability to cover immediate financial obligations.

* Lack of a well-defined strategic plan for value creation, particularly regarding funding for future studies or potential partnerships.
* Limited revenue generation compared to costs, indicating challenges in achieving attractive returns on capital.
* Frequent share issuances without corresponding EPS growth, potentially diluting shareholder value.
* Overly generous stock-based compensation plans, with warrants representing more shares than management owns.
* Limited management ownership stake (less than 5%) and absence of a controlling owner with long-term commitment.

* Experienced CEO with deep industry knowledge and long-term commitment, demonstrating a strong founder mentality and focus on innovation in host-defense peptides.
* Lean, virtual business model with a stable senior management team, promoting self-direction and accountability.
* Transparent and timely communication with investors, focusing on long-term value creation and sustainability reporting.
* Strong insider ownership and founder involvement, with the CEO being one of the company's founders.
* Diverse and experienced board with female representation, capable of challenging management and aligning with business strategy.

NOKm	2023	2024e	2025e	2026e
Revenues	10.2	6.3	22.6	231.5
Revenue Growth	-40.7%	-38.5%	258%	926%
EBITDA	-96.8	-76.7	-37.2	173.8
EBIT	-96.9	-76.7	-37.2	173.8
EBIT Margin	-2427%	nm.	-178%	75.1%
Net Income	-87.9	-76.7	-37.2	173.8
EV/Sales	36.1	nm.	15.3	0.5
EV/EBIT	-1.5	-3.7	-8.5	0.6

Verrica – Basal Cell Carcinoma

LTX-315

Base Case NOK16

Key financials

Investment thesis