Marble Arch Research Report Healixa, Inc. (OTC Pink: EMOR)

May 13, 2021

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On-Demand Economy and Services: Fulfilling the goals of the digital pharmacy application relies on the ability to execute last mile delivery to shorten the treatment time from diagnosis. Healixa has entered into a partnership with an existing globally recognized tech-enabled last-mile company with one of the largest rideshare networks in the world, which effectively enables Healixa to provide last mile delivery in nationally without absorbing the overburdening costs of setup, driver acquisition, technology, operations and the like. It also allows for a rapid roll out of services to a board geographic area quickly.

Healixa is a disruptor in a fast-evolving market:

Currently, available virtual care solutions remain predominantly siloed and not altogether seamless, creating market opportunity for industry disruptors, such as Healixa, to take virtual care to the next level. With its combination of healthtech and fintech assets, Healixa has been able to develop a uniquely seamless virtual care ecosystem which ties a telehealth platform with a broad range of specialties and expanding scope of practice to digital pharmacy capabilities offering same-day delivery to the door.

Profitable revenue generation expected to ramp up quickly:

Healixa is starting to produce revenue through its digital pharmacy component which is expected to ramp quickly as it closes on additional pharmacy transactions. We project Healixa will report ~$130MN of revenues in FY 2022 (year ending March 31), its first full financial year as an operational virtual care company growing to ~$1BN in the next 5 years. Based on Healixa’s anticipated cost structure, the company looks well positioned to generate at least ~$8M of operating income in FY 2022, which we project will rise more than 20X to ~$180MN by FY 2026.

We assess fair value at $2.8-$3.3/share:

Using a comps-based valuation approach, we believe EMOR should be trading at $2.8-$3.3 per share vs the prevailing $1.20. Acknowledging that Healixa is in the very early stages of commercializing its virtual care ecosystem, we place a Speculative Buy recommendation on the stock, but put it on watch to a possible upgrade to a firm BUY as we monitor the company’s early operational progress, moves towards a main board uplisting and a much-needed increase in its public float.

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Enter Healixa – A Uniquely Complete Virtual Care Ecosystem

In January 2019, privately held Pure Vida Health LLC, a health and wellness company completed a reverse merger with Emerald Organic Products Inc. (OTCPK: EMOR), to become a public company, with a mission to bring to market and improve consumer access to holistic and FDA-regulated products and services. While the company’s mission, in essence, remains the same, the business model has changed with the past year seeing Emerald transition itself from being predominantly a supplier of consumer packaged vitamin and health supplements including hemp/CBD (Cannabidiol) products, to becoming an innovative HealthTech disruptor through a combination of in-house developments, acquisitions and strategic partnerships, focused on the emerging virtual care space which promises to revolutionize healthcare as we have known it in the US and beyond.

In January 2021, Emerald took a major step forward towards this objective when it announced a joint venture with Swys Inc. The latter brings a robust portfolio of digital applications to the JV, owned 51% by Emerald and 49% by Swys. The JV furthers the company’s key business-building strategies and objectives by merging HealthTech applications with FinTech assets and significantly expanding the company’s intellectual property and suite of tech-enabled products, bringing a unique value to its virtual care ecosystem. It enables a scalable virtual care solutions platform embracing a broad range of specialties from physical to mental healthcare.

To better reflect Emerald’s revamped business model, as well as the company’s strategic focus and positioning as a disruptor in the emerging new age of healthcare, Emerald has changed its name to Healixa Inc. in the State of Nevada (the company’s state of incorporation). The adoption of the Healixa name reflects the company’s emphasis on and breadth of “healing technology” solutions intended to meet the needs of a diverse customer base. While Healixa continues to trade under symbol OTCPK: EMOR, filings have been submitted to FINRA requesting the name change to be reflected on the OTC ticker board.

HEALIXA’s Virtual care Ecosystem – A Closer Look

Following a year of COVID, Telehealth as a function (streaming, HIPAA-secure video) is now considered no more than a commodity. Healixa is positioning itself as a next generation digital healthcare company with a more complete virtual care ecosystem than is currently available. To this end, there are three critical interdependent components to Healixa’s ecosystem build out strategy.

NATIONAL MEDICAL GROUP

Embracing A Broad Range Of Specialities

Healixa’s hand selected national medical group is a premier medical group that embraces all the traditional features brick in mortar practice via telehealth enabling Healixa to onboard a broad range of specialties. This allows the consumer (i.e., patient) with a healthcare episode to satisfy all his/her specific needs and requirements within the Healixa ecosystem without the toil of having to search for the remainder of the care continuum elsewhere. Because the medical group is dedicated to Healixa, this enables the company to infuse a broad range of specialties into its ecosystem and vastly expand its scope of practice. Importantly, the medical group has recruited top line physicians as well as key administrators with experience in the telehealth space, who are critical to Healixa’s mission of building out its scalable virtual care ecosystem. The assembled team holds an excellent pedigree, collectively having been involved in the onboarding of over 75M lives and the generation of ~$1B of annual revenues for a variety of other telehealth & virtual care organizations.

An Expanding Scope Of Practice

One of the most important future trends for the telehealth industry is its adoption and integration of remote patient monitoring as well as its synergistic usage of the resulting data collected. These are critical in advancing the industry past the basic functions of video conferencing and toward the capabilities of delivering truly proactive healthcare. To this end, Healixa is in the process of integrating additional features to the platform with the goal of enhancing the Patient- Physician relationship in its ecosystem.

One such feature is the capacity to facilitate next generation advanced remote patient monitoring of patients. The technology applied will enable a 10 to 15 second face scan of the patient using a mobile device to produce the biometric data in real time for a medical provider during a virtual care consultation. Real-time data will allow the physician to promptly render a diagnosis of the patient’s condition and indicate an immediate therapeutic solution. The integration of this digital monitoring technology is targeted to be completed in mid to late 2Q 2021.

INTEGRATED DIGITAL PHARMACY

An Important Aspect Missing From Existing Virtual Care Platforms

While most may define telehealth as focused on the Physician-Patient nexus, having the capacity to connect patients with physicians across a broad variety of specialties is only one aspect of Healixa’s virtual care ecosystem. Indeed, it is through the digital pharmacy application that Healixa will largely monetize the provider-patient relationship and make the most of the utilization of its virtual care ecosystem. In this respect, once the therapy for a patient is determined by the physician, the goal of the Healixa ecosystem is to facilitate same-day delivery of that medication therapy to the patient’s door. The digital pharmacy application enables the transfer of prescriptions to a pharmacy, the scheduling and tracking of prescription deliveries, the setting of reminders for when the patient should take the prescribed medication as well as remote notification management for prescription refills. Inclusive, the pharmacy application provides price transparency and prescription price discounts to the consumer.

A key aspect of fulfilling the goals of the digital pharmacy application is the ability to execute last mile delivery to shorten the treatment time from diagnosis. Last mile delivery is especially valuable because some medication needs are urgent and waiting several days for delivery may not be an option for the patient. However, getting directly involved in last mile prescriptions delivery is the most costly and time-consuming part of the shipping process. Last mile delivery typically accounts for more than 50% of overall shipping costs. Thus, in order to allay much of these expenses, Healixa has entered into a partnership with an existing globally recognized tech-enabled last-mile company with one of the largest ride share networks in the world, which effectively enables Healixa to provide last mile delivery nationally without absorbing the overburdening costs of setup, driver acquisition, technology, operations and the like. It also allows for a rapid roll out of services to a board geographic area quickly.

Healixa’s final steps in building out its integrated digital pharmacy operations and bringing in revenue flow involve connecting the company’s digital ecosystem to pharmacies across the country for national prescription fulfillment. To this end, Healixa has partnered with pharmacies nationwide giving Healixa’s virtual care model the critically important ability to centrally process, fill, refill and ultimately, through its nationally recognized, tech enabled last mile delivery partner, deliver prescriptions.

The strategy going forward is for Healixa to bring additional independent pharmacies operating in large metro areas nationwide into its central processing pharmacy command center in Dallas, Texas. Strategically located close to Amazon and UPS. Each additional pharmacy brings with it a new population that Healixa’s virtual care ecosystem can further monetize. Additionally, Healixa has recently onboarded a team of pharmacists, telehealth experts and seasoned pharmacy operators that in aggregate were responsible for more than $200MN in annual pharmacy sales in retail, digital pharmacy, specialty pharmacy, infusion pharmacy and mail order. As a result of this recruitment, the company is starting to see a build up of its Rx revenue pipeline.

Digital Pharmacy Is A Value Proposition For All Ecosystem Members

Healixa’s integrated digital pharmacy application has been designed not only to address the needs of the patient, but also those of medical providers and pharmacists within the ecosystem by optimizing back-office operations. The most significant advance, however, is its contribution to improving the safety and quality of patient care by the medical provider and pharmacist. In this respect, digitalization can go a long way to prevent avoidable errors associated with handwritten or phoned in prescriptions which can include selection of an incorrect or unavailable drug or dosage, duplication of therapy, omission of information, and/or misinterpretation of the order due to illegible handwriting. Moreover, illegible prescription orders result in millions of calls between pharmacists and medical providers each year which can ultimately delay patient care, contribute to enhanced patient morbidity and mortality.

Among other important benefits, pharmacy digitalization has shown to significantly ease bottlenecks caused by prior authorization requirements. Such bottlenecks are caused when a physician prescribes a patient a medication, the patient goes to the pharmacy to pick up their prescription, only to be denied. The pharmacist then calls the physician’s office, the physician’s office calls the insurance plan, and the insurance plan faxes over a form for the physician to fill out and send back. Only then can the patient pick up the medication. The process can lead to undesirable consequences – according to prior authorization vendor CoverMyMeds, patients abandon more than a third of prescriptions that require prior authorization. Pharmacy digitalization applications like Healixa’s pharmacy application helps to improve pharmacy workflow by streamlining prescription processing and removing unnecessary burdens on physicians and the patient.

ADVANCED VIRTUAL CARE

Benefits Of Combining Healthtech And Fintech Assets

This third component of Healixa’s virtual care ecosystem is effectively a multichannel feeder to both the medical group and pharmacy components of the ecosystem. Healixa’s virtual care platform is flexible and can be customized to meet the needs of specific populations.

The efficacy of Healixa’s virtual care platform has been substantially enhanced by Healixa FinTech roadmap. The E-Wallet makes payment to the doctor that much easier and therefore enhances the user experience from the medical provider’s perspective.

The E-Wallet allows the platform to verify people’s identity as well as capture important data which can then be used for social care support. These features allow the platform to tap into relevant state and government programs as well as many charitable organizations offering aid and/ or supplemental benefits and medications. The advanced technology allows the platform to match individuals within the Healixa ecosystem to the relevant aid and benefits based on the collected personal information without having to direct these individuals outside of the ecosystem. Not only does this feature provide a public good, it also creates additional revenue opportunities for Healixa by driving incremental demand for online pharmacy.

HEALIXA’S BUSINESS MODEL

A Unique One-Stop Shop Approach In Virtual Care

The prevailing business model in telehealth is one that espouses fragmented solutions using multiple software platforms to access or deliver care. However, this places different segments of the virtual care continuum into separate silos which creates inefficiencies that lead to higher operating costs, compliance risks and engenders little customer loyalty resulting in revenue loss from non-returning customers. The business models adopted are predominantly subscription based, visit-based fees, or SaaS-based fees derived from licensing out the software platform to facilitate a virtual encounter between physician and patient. However, these models do not provide a seamless integration with the pharmacy fulfillment process.

Healixa is effectively developing a unique one-stop shop approach in the virtual care space. Moreover, its technology has the architecture to expand its suite of digital care solutions to include advanced patient monitoring, personalized medication instruction videos, and access to community resources, just to name those services that are currently being advanced in Healixa’s development pipeline.

EMBEDDING LIVES INTO THE ECOSYSTEM

At the same time as building out its ecosystem infrastructure, Healixa has worked towards embedding lives into the ecosystem. To this end, in August last year Healixa formed a joint venture with Health Services Hub, an ancillary/ supplemental benefits administrator and leading care benefits management platform which supplies bundled care services to a large network of employers and associations.. This agreement helps to infuse over 3MN lives into Healixa’s ecosystem who can receive bundled care services including telehealth visits, behavioral health visits, prescription discounts and patient advocacy. Together, HSH and Healixa will grow the already established lives through various channel partners in the marketplace. Healixa also intends to approach the Direct-to-Consumer marketplace, a model pursued by some of its peers, which typically incurs higher customer acquisition costs.

Capacity To Extract The Most Valuable Users

With over ~3MN lives Healixa has data mining and digital marketing capabilities to drive utilization of specific, more profitable areas, such as patient monitoring (which will be sold as a premium service), to increase user value. As not all users are equal, Healixa’s platform has the analytic tools to allow it to mine the users within its addressable population, notably patients with chronic conditions requiring ongoing care, to provide those users who can potentially generate the most value with the services they need.

HEALIXA’S LEADERSHIP TEAM

DEEP BENCH OF DYNAMIC ENTREPRENEURIAL LEADERS

IAN PARKER | CHIEF EXECUTIVE OFFICER

JOHN LEE | CHIEF FINANCIAL OFFICER

HEALIXA’S MANAGEMENT TEAM

Highly Qualified, Experienced Leadership Team

MICHAEL BERG | CHIEF DEVELOPMENT OFFICER

Mr. Berg graduated from the State University of New York at Plattsburgh in 1984 and was granted a B.S. in Accounting. He then spent the next two years working as a staff accountant for Kessler, Blum and Company, Great Neck, New York. The firm handled mid-sized accounts, and Michael was part of an audit team. In 1986 Michael began his entrepreneurial career with a foray into Commercial Finance when he started Bison Commercial Leasing Corp., a small ticket equipment lease and finance company where he could use his knowledge of Accounting to access credit worthiness of commercial equipment loan requests. Bison Commercial Leasing Corp. was a very successful venture that was built up to become the second largest independent private Lessor on the East Coast, leading to invites to the annual meetings of such banks as U.S. Bank, Continental Bank, and CIT as a policy influencer.

In 2004 Bison was sold to a vendor entity to conduct its business as a captive finance entity to allow Michael to take the position of President of a Credit Suisse Holdings entity in middle and large ticket lease finance. The business grew quickly, well beyond budget and was a very successful entity until the 2007 / 2008 economic crash as a result of which Credit Suisse disbanded its debt offerings and wound up its lease finance business.

In 2009 Michael became the Special Asset Coordinator for New Bank, New York City. He structured an internal Leasing group for the bank and was advisor to its Board of Directors. He then put together the funding to start Blue Bridge Funding, an independent Lessor out of Buffalo, NY, where he owned the largest block of stock, and served on the Board of Directors. During that time Michael was asked to join Keyfoods supermarket Co-op as Vice President of finance for its 220+ store group. Responsibilities included all acquisition and merger activity for all 220 member companies, as well as all related financing needs, which included a full “in house” equipment finance program, as well as acquisition funding as well as negotiation and deal structuring.

In 2016 Michael structured and created an additional small ticket Lease / finance group called Targeted Lease Capital where he served on the Board of Directors. In early 2019 Mr. Berg was brought into Emerald Organic Products (Healixa) to be its Chief Development Officer. His responsibilities include, but are not limited to, identifying companies and products that benefit Healixa, and negotiating, structuring and onboarding such entities and products, as well as developing growth strategies for the company.

JACOB ELLMAN | SVP OF SPECIAL PROJECTS

Jacob began his career on Wall Street as a derivatives trader at Axiom Markets focused on commodities and equity indices before branching off to start his own businesses. In 2018, he co-founded DMO Holdings Corp., a data and digital media company focused on niche industries and markets, which was acquired by Healixa. in July of 2020.

DIEGO LUCERO | CREATIVE DIRECTOR

With years of experience in the marketing and advertising business, Mr. Lucero accomplished several successful projects for a variety of clients by being an active and essential piece inside every area of marketing and advertising media production, from print to television including interactive media, UX/ UI for digital products and web development. Diego can be summarized in a few words: creative, effective, and professional and on time.

JUSTIN WOLLER | OPERATIONS

A healthcare executive with over 20 years of experience in operations, project management, clinical software, data analytics, reporting, and business transformation, Mr. Woller started his career in health care in 1999 for an early stage software company that became one of the leading innovative companies in the industry for emergency rooms. He was instrumental in the growth and the development of the company that grew to over 300 hospitals nationwide and was utilized exclusively by 4 of the top 10 for-profit healthcare systems in the United States.

In 2013 Justin transitioned into a nationally recognized Telemedicine company that covers over 30 million lives. During the next 5 years Justin was responsible for building a scalable infrastructure for client operations, special projects, and clinical operations to effectively support over 4,000 plus Telemedicine Consults per day nationwide. Over the past 2 years Justin has worked with several startup companies creating record breaking results and increased revenues.

JAMES CAMP | SVP DIGITAL MARKETING

Mr. Camp has extensive experience and holistic understanding of both digital strategy and capital markets. James has created and consulted on digital strategy and marketing for a myriad of startups, as well as multi-national enterprises including Mckinsey & Company, Lionsgate, and others

He is a KPI driven leader, with roots in performance marketing. In the past, he has given back through mentoring on growth strategies and customer acquisition at international tech accelerators including Google Launchpad in London and MaGIC in Kuala Lumpur.

KEALY ALTMAN | VP OF MARKETING

In May 2020, Ms. Altman joined Healixa to oversee marketing and advertising strategies. She is a leading virtual health expert in the field. In her six-plus years in the telehealth field, Kealy has helped build one of the industry’s most successful telehealth companies. Starting with a handful of employees to over 200 employees. She created, managed, and executed campaigns that led to record-setting patient registrations and virtual doctor visits. Kealy also developed and implemented a digital assessment management system, which increased revenues year over year.

JESSICA MUZQUIZ | ADVISORY BOARD MEMBER

A proven C-Suite leader with Fortune 5 and PE backed venture experience who also served honorably as Staff Sergeant of the Army National Guard for 6 years, Ms. Muzquiz led the human resources team at BriovaRx (the specialty division of Catamaran) at startup, which was acquired by UnitedHealth Group/ Optum in 2015 for $12.8B. Jessica continued to lead the team of post-acquisition guiding people strategy and organizational design, talent management, and workforce planning by working with management to evaluate staff mobility, succession planning, and skill gaps through the talent review and performance management process. She managed multiple HR functional areas for the business and assisted in the development and implementation of strategic and operational HR initiatives, partnering with business leaders to help drive business initiatives through proactive business-focused HR programs

In 2018, Jessica joined AppianRx as Chief Human Resources Office, leading and directing all human resource functions, executing on strategic business objectives and building and enhancing organizational capacity while driving change to create a reward-based culture and organizational environment that is agile, flexible, and responsive to client needs.

Jessica joined Healixa in 2020 as Director of Pharmacy Operations bringing with her a unique blend of human capital expertise in the Healthcare and Logistics Industries.

JASON R. MISCHEL | IN-HOUSE COUNSEL

Mr, Mischel is an attorney specializing in: 1) premier legal research and brief writing in complex commercial and other civil litigation; 2) drafting of myriad complex commercial contracts, licenses and agreements, including SaaS and software licensing; and 3) providing expert services in matters involving the Americans With Disabilities Act and other human rights laws. Jason is licensed to practice in New York, New Jersey (federal and state) and the United States Court of Appeals for the District of Columbia, and has submitted briefs to the United States Supreme Court, the United States Court of Appeals for the Second Circuit, the United States District Court, District of Columbia and the Civilian Board of Contract Appeals.

Jason has co-authored a number of influential articles and white papers, including:

Proposed Model Regulations: Accessible Taxicabs and For-Hire Vehicles for the International Association of Transportation Regulators, final version published December 2015;

Mediating Disability Employment Discrimination Claims, Chapter 17 of the American Arbitration Association’s Handbook on Employment Arbitration and Alternative Dispute Resolution, 3rd Edition, published February 2016 by Juris Publishing;

The Expanding Transportation Network Company “Equity Gap” – Adverse Impacts on Passengers With Disabilities, Underserved Communities, the Environment & the On-Demand Workforce, originally published by the University Transportation Research Center (Region 2) of the City College of New York and edited by New York University School of Law’s Labor and Employment Law Center and Cornell University’s School of Industrial and Labor Relations, and to be published in Who is an Employee and Who is the Employer? Proceedings of the New York University 68th Annual Conference on Labor (LexisNexis, 2016); and

Accessible Transportation Reform: Transforming the Public Paratransit and Private For-Hire Ground Transportation Systems for The Transportation Lawyer, October 2015, Volume 17, Number 2.

THE MARKET OPPORTUNITY

Virtual care – A HIGH GROWTH MARKET THAT IS STILL EVOLVING

Healthcare Playing Catch Up To Technology

Telehealth is actually not a new concept. Its origins can be traced back to the early 1960s when NASA scientists unwittingly originated the industry. NASA needed to monitor the health of Alan Shepard, the first American astronaut to travel into space piloting the first Project Mercury flight in an attempt to orbit the earth in 1961. Because there was no place to fit a medic on board the Mercury spacecraft, NASA connected Shepard to peripheral devices and communicated with him via audio and video. This monitoring was, in effect, the first instance of remote delivery of healthcare. Telehealth further developed in the US military in the 1970s and 1980s, as the government applied the same principles and technology to treat deployed soldiers around the globe.

Efforts to mainstream telehealth began in earnest 20 years ago, but confronted underwhelming enthusiasm to embrace telehealth platforms from providers, payers, and consumers alike. Physicians most frequently cited technology challenges (72%) as a barrier to telehealth adoption at their organization, followed by uncertainty around reimbursement (64%) and questions about clinical appropriateness (58%). Privacy and data protection issues in a digital ecosystem raised additional but no less important concerns. However, the advent of the global COVID-19 pandemic appears to have forced a sudden change in mindset which has quickly broken down barriers that previously discouraged telehealth adoption. The pandemic has, in fact, ushered in unprecedented telehealth usage by both providers and consumers, as highlighted by the 2020 Amwell Physician and Consumer Survey.

COVID-19 Profoundly Alters The Trajectory Of Virtual Care Adoption

In Amwell’s 2019 survey, just 8% of consumers reported ever having had a virtual visit. According to its 2020 survey, in the midst of COVID-19, that number had nearly tripled to 22%. Physician adoption of telehealth experienced an even more dramatic sea change, from 22% in 2019 to 80% in 2020. An overwhelming majority of these providers cited continuity of care — the ability to see patients during the pandemic — as the main reason for adopting telehealth. The key question is whether the changes triggered by the pandemic are temporary or here to stay. Significantly, the survey findings point to the latter, suggesting an increased level of openness and acceptance of virtual care from both consumers and providers moving forward beyond the pandemic.

While the nearly threefold surge in telehealth adoption by consumers has been driven largely by the restrictions on in-person care during COVID-19, the survey highlights that consumers are not only interested in video visits out of necessity. Overall, patients have had an overwhelmingly positive experience with virtual care, with 91% of consumers who had a video visit saying they were either “satisfied” or “extremely satisfied” with their visit. 76% of consumers indicated that they will use telehealth post-COVID.

Meanwhile, 96% of physicians said they were willing to use telehealth (up from 69% in 2019) going forward with 92% saying they expected to keep using video visits even after it was safe to see patients in person. Of the 80% of physicians who used telehealth during the pandemic, 70% said they would continue using it sometimes or “frequently,” while 70% of those who had not yet adopted telehealth expected to do so within the next three years.

Prior to the pandemic, telehealth was most commonly used for on-demand urgent care, as well as for some specific types of specialty acute care such as telepsychiatry and telestroke.

The survey findings suggest that in 2020 physicians also developed a newfound understanding of how virtual care can be integrated into the way they care for patients all the time. Not only were 96% of physicians willing to use telehealth overall, but a sizable majority said they were willing to use telehealth for prescription renewals (94%), which is a particularly encouraging prospect for Healixa in light of its business model.

A Potential $375BN Market Opportunity for Healixa To Tap

Against this backdrop, growth projections for the telehealth market have been sharply elevated since the advent of the pandemic. In a research report published in April 2020 when the extent of the global pandemic was only just beginning to be realized, advisory and intelligence group Arizton predicted that the US Telehealth market would grow ~80% to $9.5BN in size in 2020 from ~$5BN in 2019. That growth rate is consistent with the revenue trajectories reported by US telehealth leaders Teledoc (ex Livongo) and Amwell in their latest earnings reports for 2020. The aforementioned companies recorded year-on-year revenue growth rates of 79% and 78% respectively for the 9-month period to September 30, 2020.

In light of the abrupt change in attitude towards telehealth brought on by the pandemic, coupled with the continuing evolution in virtual care technology and consequent growing awareness of its potential applications, healthcare providers are incorporating virtual care into a broader range of settings. Most healthcare industry observers agree that recognition of virtual care becoming an integral part of healthcare system has the reached the point of no return. This is recognized by the inclusion of favorable private and public reimbursement coverage for telehealth services in almost every state and the inclusion of remote patient monitoring (RPM) under federal reimbursement coverage which adds further fuel to the uptake of telehealth services in the US. Indeed, Arizton projects that the US telehealth market could generate $25BN in revenues by 2025 implying robust post-COVID CAGR in excess of 20% over the next 5 years. Consulting firm Mckinsey & Company suggests that up to ~$250BN or ~20% of current US healthcare spend is ripe for virtualization.

However, the virtual care industry is still evolving. Currently, available virtual care solutions remain predominantly siloed and not altogether seamless. This creates market opportunity for industry disruptors such as Healixa to take virtual care to the next level with a more complete and seamless virtual care ecosystem.

We would note that the principal revenue driver in Healixa’s business model is the Rx revenue stream leveraged to patient utilization within its broadening ecosystem which we discuss in more detail below. In this context, while a potential $25BN addressable telehealth market by 2025 is not a number to be sniffed at, Healixa’s Total Addressable Market is considerably higher given its direct exposure to digital pharmacy. According to CMS estimates, prescription spend in the US came close to ~$380BN in 2020 and is projected to top $500BN by 2025. Forrester Research estimates that the US online prescription drug market is currently less than 10% penetrated. This creates a massive whitespace opportunity for Healixa’s business model to exploit. Assuming 70% of the prescription drug market can be converted online, we estimate that the total market opportunity for Healixa after adding the telehealth segment could amount to $375BN by 2025.

COMPETITIVE LANDSCAPE

The virtual care market is diverse, with multiple operators in the highly fragmented and segmented market embracing B2B players which exclusively provide a variety of software, tech-enabled services, and network solutions to hospitals, health systems, other providers and payers, and B2B2C/D2C companies which focus predominantly on the Doctor- Patient nexus. Many of the platforms within each of these categories are focused on certain areas of specialization. The main platform types include Care Management Platforms focusing on longitudinal engagement complemented by a physician interaction to drive outcomes, Convenience Care Platforms focusing on episodic convenience and access, using asynchronous telemedicine and subscription services combined with a light touch of physician interaction, and Digital Pharmacy Platforms enabling delivery of required medications.

Within the B2B2C or the front-end of the virtual care space, there are hundreds of small to mid-size digital platforms that employers/payers can contract, allowing employees/enrollees to connect patients with physicians, track their own fitness and health statistics, manage and fill their medication prescriptions, but with no single platform providing a seamless continuum of care. We believe that Healixa’s business model probably goes further than most towards providing a more seamless continuum of care, from consultation through to same-day pharmacy delivery capability, as well as more personalized care across a broad spectrum of specialties and care benefits.

Privately held Ro (which owns roman) is the only other company of which we are aware that has been building its own in-house pharmacy resources. It also has a strategic partnership with Truepill, an online pharmacy platform. Nevertheless, Ro does not take insurance as does Healixa, does not guarantee same-day delivery. Moreover, Healixa is currently effectively the only investable one-stop shop virtual care model to the public.

The table below compares Healixa’s capabilities and offerings compared with some of its leading peers in the telemedicine and digital pharmacy space. Healixa stands out by offering a more robust suite of services relative to its peers.

A Consolidating Industry Primed For More M&A Activity

To be sure, the virtual care industry is still evolving. The proliferation of companies with a variety of digital platforms servicing the healthcare industry over the past several years has provided a feeding ground for consolidation, particularly led by digital health companies looking to expand their capabilities to provide more comprehensive services via the acquisitions and the rollup of other platforms. According to Rock Health, a venture fund dedicated to digital health investment, there were 145 M&A deals involving digital health companies in 2020 in the US alone, the second best year (after 2015) in terms of number of transactions. These include the largest acquisition in digital health on record to date with Teladoc (NASDAQ: TDOC) purchasing Livongo for $18.5BN.The single largest group of acquirers has been digital health companies themselves looking to expand their capabilities, but as the chart below demonstrates, there is plenty of interest from other types of acquirers wanting to jump onto the digital health bandwagon, among them the more traditional healthcare companies, payers and technology companies and payers.

With digital health hitting an inflection point in mainstream adoption, it will be no surprise to see further significant M&A activity in this segment. In this environment, the competitive landscape will likely remain in a state of flux for the foreseeable future. The first two months of 2021 have already seen notable deals, including United Healthcare’s (NYSE: UNH) $13BN proposed acquisition of B2B digital health company Change Healthcare (NASDAQ: CHNG), a provider of data and analytics-driven solutions to improve clinical, financial, administrative, and patient engagement outcomes in the US healthcare system, and Cigna’s (NYSE:CI) announced purchase of telehealth platform MDLIVE for an undisclosed consideration. Should Healixa develop as expected, we would consider the company to be a plausible target for acquisition within the next 2 years.

LOOKING AHEAD

FUNDING

Digital Health – A Very Friendly Funding Environment

The transition from Emerald Organic Products, a Health and Wellness focused CPG company to Healixa, a Virtual Care company is essentially complete. In-house development costs in this transition have totaled ~$1.7MN, largely funded by the issue of convertible debentures, and contributions from officers of the company. In addition, acquisitions have been funded by the issue of equity.

Based on the December 2020 quarterly report from Emerald Organic Product, Healixa’s balance sheet is relatively clean, with net debt of just ~$70K. There is ~$395K of convertible notes outstanding, but these are expected to be converted into ~500K EMOR shares by the end of the quarter.

With the central processing element of the digital pharmacy component up and running as of last month, Healixa is starting to produce revenues through its digital pharmacy platform and is seeking to raise growth capital through a proposed Series B equity round to finance its initial revenue pipeline. This report assumes a modest $3M in capital injected over time to support growth. About a third of this is projected to go towards marketing expenses with the balance to be used for working capital purposes to fund initial receivable carry and inventory for prescription fills.

In a very friendly environment for venture funding in the digital health sector, demonstrated by a record ~$14BN of venture capital raised in 2020, a $3M of capital is also very modest by comparison with the median sized Series B transaction of ~$25MN in the sector. With Healixa starting to generate revenue from its virtual care ecosystem, we expect the company’s funding exercise will be able to attract a positive response. It’s entirely possible that Healixa receives more than the $3M anticipated in this report, which would only have a positive effect and accelerate growth.

FINANCIAL PROJECTIONS

Healixa’s Revenue Model

Below, we set out our revenue projections and assumptions for Healixa for the period FY2022 through FY2026 (Healixa has a financial year ending March 31).

Healixa – Revenue Projections FY 2022 – FY 2026

We project Healixa will report ~$130MN of revenues in FY 2022, its first full financial year as an operational virtual care company. Driven by its Rx-centric revenue model, we believe annual revenues could approach $1BN within 5 years.

We expect that 75%-80% of Healixa’s revenue base will be made up by Rx generated revenues, with the balance emanating from subscriptions and care benefit fees. As the Revenue Model table above indicates, there are several components to these Rx revenues:

Mail Order Rx: These are prescription fill orders received by Healixa’s pharmacy network going through its central processing pharmacy in Dallas, Texas. Healixa starts with a network of 29 independent pharmacies at which it can fill subscriptions. Healixa’s strategy is to build out this network as described earlier in the report.

Digital Pharmacy Rx: This component will be driven by prescriptions generated by utilization of Healixa’s 50-State Medical Group, accounting for more than 70% of the company’s total Rx revenue stream. We project Medical Group generated Rx revenues to grow to more than $550MN by FY 2026.

Other Rx Revenues: These include Rx utilization by lives brought into the ecosystem from bundled service agreements with supplementary benefits managers. The most significant element here is the Rx business that can be generated from ongoing care for patients with chronic conditions or synchronous patient monitoring consultations.

The introduction of real time patient monitoring services, expected in the next quarter, will allow Healixa to bring on additional specialties into its ecosystem, which creates additional reoccurring reimbursements which in turn generates more predictable revenue streams through longitudinal patient capture. Moreover, linking real time, tech-enabled monitoring to the ecosystem’s virtual care workflows can expand the portfolio of patient therapies that can be made accessible virtually, further driving Rx utilization and revenues.

Healixa’s P&L Model

The reinvention of Emerald Organic Products into Healixa is a transformational event for its income statement with serious revenue starting to flow through from its virtual care operations. Based on Healixa’s anticipated cost structure, the company looks well positioned to generate at least ~$8M of operating income in FY 2022, which we project will rise more than 20X to ~$180MN by FY 2026 generating high teens margin. We set out our P&L projections and assumptions in the table below.

Healixa – Revenue Projections FY 2022 – FY 2026

The surge in demand for telehealth services in the past year has for the most part been a revenue story to date. But, as the table below highlights, with reference to Wall Street consensus estimates, few telehealth companies are yet turning those revenues into meaningful profit or likely to do so in the foreseeable future. In our list of comps, Teladoc, the world’s leading telehealth company, and GoodRx, a prescription pricing analytics platform are the only companies generating meaningful profits.

Although GoodRx is not a digital pharmacy per se, its revenue is driven by Rx transactions. Although Healixa pursues a different business model than GoodRx in that it can best be described as a digital pharmacy company which can provide a wide range of telehealth services, its principal revenue driver is Rx transactional volume. By leveraging its Rx business off a scalable virtual care services platform, its business model can generate higher margin than its predominantly subscription based peers.

Healixa vs. Peers

VALUATION ASSESSMENT

Comps-based approach

Comps Indicate Potentially Substantial Value Upside for Healixa Shares

It would not be an understatement to say that the Digital Health sector has been a very popular magnet for investors over the past year. As mentioned above, US digital Health companies attracted record venture funding in 2020, while publicly traded digital health plays have enjoyed substantial value creation over the year. During 2020, there was also a raft of IPOs including four of the stocks in our table, which have been warmly embraced by investors.

These share price performances have resulted in significant EV/Revenue multiple elevation. However, at its prevailing valuation of 3X, EMOR ostensibly trades at a significant valuation discount on a projected 2022 revenue basis to these comps. Not only does this ignore Healixa’s growth profile, but also its relatively attractive profit profile. Moreover, the comps with market and enterprise values of $1BN plus are trading in a 6X-13X EV/2022 Revenue multiple range, while those trading below the $1BN threshold are trading in the low single-digit range. EMOR’s market/enterprise value in recent months has been hovering around $1BN or more.

It is also noteworthy that the highest rated stock in the comp group, at 13X 2022 revenues, is GDRX, whose revenue stream is largely driven by Rx transactions as will be the case for Healixa. While we acknowledge that their business models are different, the commonality is that in both cases, the underlying revenue driver is Rx transactions.

Nevertheless, applying more conservative 6X-7X multiple to Healixa’s projected 2022 (i.e. FY 2023) revenues, EMOR should still be trading at greater than 65% its current share price value of $1.95. Based on this multiple range, we assess a target share value range of $3.3-$3.7. This would certainly not be unreasonable based on our projections for the company growing its revenues at a CAGR of 66% and EBITDA at an even more impressive 119% over the next 5 years.

Healixa – Valuation Thesis & Assumptions

As we pointed out earlier in this report, the current enthusiasm for digital health companies has spilled over into the M&A market which remains robust. In the sector’s biggest transaction to date, Teladoc’s $18.5BN purchase of Livongo translates into a seemingly frothy 21X EV/2022 Revenue multiple (based on Teledoc’s management’s projection of Livongo’s 2022 revenue). As we have cited above, we would consider Healixa a plausible acquisition target within the next two years should the company develop as expected. A Livongo-sized exit multiple would result in a considerably higher valuation target for the company, at closer to $10/share.

RISK FACTORS

Execution Risk: Despite the termination of the merger with Carie Health, most of the pieces of Healixa’s virtual care ecosystem are in place. While the company has indicated that it is now just starting to deliver revenues, it remains to be seen whether Healixa can meet operational and financial expectations as set out in our projections. The company’s ability to quickly ramp up its revenue base in the coming quarters will depend on its ability to execute on its pipeline of transactions on various fronts, particularly on the pharmacy side.

Funding Risk: Continued ability to shore up the company’s financial stability in the early stages of its revenue build out remains important. Securing venture funding from investors can be competitive, but we believe Healixa is well positioned to attract the necessary funds given the combination of a compelling business model, a very friendly fund-raising environment for digital health ventures and the relatively modest size of its Series B funding proposal.

Litigation: Healixa filed a lawsuit on April 20, 2021 against Matthew J. Wanderer and Carie Health, Inc. and Epic Health, LLC (CHI-E) in the Supreme Court of the State of New York, as a result of a dispute involving a conditional merger agreement entered into between EMOR and CHI-E on March 30, 2020 which EMOR terminated. The lawsuit alleges multiple counts of fraud, breach of contract and conversion against the Defendants and seeks a judicial confirmation that the merger was properly terminated before it closed or, in the alternative, that it should be deemed a nullity due to procedural irregularities and fraudulent inducements that were revealed in the continuing due diligence process. The outcome of any litigation matter cannot be predicted.

Listing Status: As a loosely regulated pink sheet public company EMOR is not required to file with the SEC nor does it have any obligation to disclose any financial information to investors. While EMOR does provide disclosures including quarterly financial updates, corporate governance and liquidity concerns associated with pink sheet companies tend to discourage institutional investor interest in those companies. With Healixa expected to deliver more than $100MN of revenue in FY 2022, Healixa plans to seek a main board uplisting in the coming months which, if effected, should broaden investor interest in the company adding support to our valuation thesis.

Limited Free Float: Based on data as of the end of 2020, EMOR is held by 273 shareholders. However, the shareholding is tight. Of the 828MN shares outstanding (excluding the outstanding convertibles), only ~78MN shares are held in the public float or ~9% of the outstanding shares, limiting liquidity in the stock. An uplisting should also help increase the public float.

CONCLUSION

Speculative BUY For Now

With Healixa in the very early stages of commercializing its virtual care ecosystem, we place a speculative buy recommendation on the stock, but put it on watch to a possible upgrade to a firm BUY as we monitor the company’s early operational progress, moves towards an uplisting and a much-needed improvement in its public float. Our fair value share price range is $2.8 to $3.3.

MARBLE ARCH RESEARCH, INC.

Analyst Certification

I, Robert Sassoon, hereby certify that the view expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the recommendations or views expressed in this research report.

Disclaimer

This research report was prepared for informational purposes only.

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Marble Arch Research Report Healixa, Inc. (OTC Pink: EMOR)

INTEGRATED DIGITAL PHARMACY

An Important Aspect Missing From Existing Virtual Care Platforms

ADVANCED VIRTUAL CARE

Benefits Of Combining Healthtech And Fintech Assets

HEALIXA’S BUSINESS MODEL

A Unique One-Stop Shop Approach In Virtual Care

EMBEDDING LIVES INTO THE ECOSYSTEM

HEALIXA’S LEADERSHIP TEAM

DEEP BENCH OF DYNAMIC ENTREPRENEURIAL LEADERS

HEALIXA’S MANAGEMENT TEAM

Highly Qualified, Experienced Leadership Team

THE MARKET OPPORTUNITY

Virtual care – A HIGH GROWTH MARKET THAT IS STILL EVOLVING

LOOKING AHEAD

FINANCIAL PROJECTIONS

Healixa’s Revenue Model

Healixa – Revenue Projections FY 2022 – FY 2026

Healixa – Revenue Projections FY 2022 – FY 2026

Healixa vs. Peers

VALUATION ASSESSMENT

Comps-based approach

Healixa – Valuation Thesis & Assumptions

RISK FACTORS

CONCLUSION

Speculative BUY For Now

MARBLE ARCH RESEARCH, INC.

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