Incannex plans to redomicile to US with sole NASDAQ listing – we look at the arithmetic

Incannex is on the move with plans to redomicile to the US with a newly formed Delaware corporation to become the ultimate parent company of the group.

Incannex Healthcare (NASDAQ: IXHL) (ASX: IHL) said the move will provide the company with greater access to an international capital market more understanding of its value proposition with peer comparison companies trading at significantly higher market valuations.

The US is an important market for the company, which has 28 pharmaceutical cannabinoid and psychedelic drug assets under FDA development. IHL already has SEC registration to trade on Nasdaq and is doing so with packaged IHL securities called ADRs.

A newly formed Delaware corporation to be known as Incannex Healthcare Inc. (Incannex US) will become the ultimate parent company of the group, following implementation of the Schemes of Arrangement for shareholders and optionholders.

The new strategy means that the Australian IHL shares and the ADRs will all be transitioned to US Incannex shares.

The IHL board believes the move to all US shares will provide:

Improved access to large pools of lower cost equity capital over the long term.
Increased attractiveness of IHL to a broader investor pool who previously could not invest in non-US or packaged ADR securities.
Increased alignment with prominent pharmaceutical companies that are already listed on the NASDAQ, enhancing the group’s visibility and reputation to investors.
A simplified corporate structure, which may increase IHLs attractiveness to potential merger partners or acquirers.
Enhanced regulatory pathway for IHL’s pharmaceutical products through direct access to FDA resources, guidance, and expertise.

The Maths: What IHL shares and options will be worth

IHL has said that it will also undertake a consolidation of capital following advice from numerous US investment banks concerning an appropriate pricing model for the company in the US.

Speaking to the CEO, Mr Joel Latham, said, “our strong advice to date is that US investors think of share prices differently to Australian investors. There’s a greater emphasis and appreciation placed on share prices being higher with less total shares on issue. This understanding of perceived investment quality is what has led us to proposing a consolidation of capital for our full transition to Nasdaq.”

IHL said holders of fully paid ordinary shares in IHL will be entitled to receive one share of common stock in Incannex US for every 100 IHL shares held on the record date for the Share Scheme.

Holders of Incannex ADRs will be entitled to receive one Incannex US share for every four ADRs, with each ADR currently representing 25 IHL shares.

Speaking with Stockhead, Incannex said: “The consolidation of capital at 100:1 ultimately means that the total number of shares on issue will change from approximately 1.58B in Incannex Australia to 15.8M shares in Incannex US.”

“Any shareholder with 100,000 Incannex Australia shares will receive 1000 shares in Incannex US. This also means that the theoretical share price of the Incannex US shares should increase 100 times assuming the market value of the company remains static on the day of transition from the ASX to Nasdaq.”

“At yesterday’s price of 11c for the IHL Australian shares, the Incannex US shares on Nasdaq should theoretically trade at approximately A$11. The trading value will of course be in USD, so the price should actually be about US$7.40 when factoring in the exchange rate of about 0.67 AUD/USD.”

IHL said the re-domiciliation is not expected to result in any material changes to the company’s assets, management, operations or strategy, and is expected to be structured on a tax-neutral basis to Incannex and its shareholders.

Move subject to shareholder vote

IHL shareholders and option holders will be given the opportunity to vote on redomiciling to the US in October 2023. If approved, IHL said the change in nature of the shares in the company can be implemented rapidly because they already have SEC approval to trade securities in the US on Nasdaq.

The company said it will assist shareholders and to seamlessly ensure their new holdings US shares are tradable on Australia broking platforms to ensure little to no disruption to shareholders.

IHL said redomiciling IHL to the US is not intended to coincide with any capital raise as the company has ~$33m in cash reserves for development activities as of June 30, 2023.

IHL matures on ASX, now ready for next step

“IHL has matured on the ASX to the point that it has a large and diversified drug portfolio with two exciting drug candidates imminently entering pivotal clinical trials,” IHL managing director and CEO Joel Latham said.

“By committing our presence to the United States, we believe that our company’s visibility to international investors will increase.”

He said after 18 months of engaging with the US investor community IHL has witnessed investor demand increase, which was demonstrated on July 6 when IXHL ADRs traded the equivalent of 160 million IHL shares in one day of trade.

“Incannex has less than 1.5% of its securities trading as ADRs in the US, and it has presented a limitation for investors to aggregate investment positions in our company,” he said.

“Very few Australian brokers can trade ADRs, however post the redomicile, most online trading platforms facilitate direct market access to trading US shares.

“Having all Incannex shares in the company trading on the NASDAQ will facilitate a cohesive single market with the appropriate level of liquidity expected by the US investment banks, some of which have commenced the process to initiate independent research coverage on Incannex.”

This article was developed in collaboration with Incannex Healthcare, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.