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The Reason The US Department Of War Awarded iX Biopharma A $41M Contract For A Painkiller · Investor Exchange

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Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
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So imagine you are sitting in the chief executive chair of a small pharmaceutical
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company. Okay, I am picturing it.
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Right. And on paper, you are in serious trouble.
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Like your business is just burning through cash at an alarming rate.
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And that massive licensing partnership you were relying on to,
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you know, kind of carry you through the next few years, that just collapsed. Oh, wow.
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Yeah, that is a nightmare scenario. Exactly.
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So you were forced into this incredibly uncomfortable position of going back
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to your shareholders, practically begging for more capital just to keep your
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factory running and your research alive.
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Which is a tough sell. A very tough sell. For anyone looking at your balance
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sheet, the situation looks incredibly grim.
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But then, almost out of nowhere, you secure a massive $41 million financial
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lifeline. That is a plot twist.
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And the wildest part is that it does not come from like a Wall Street investment
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bank or some desperate venture capitalist.
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It comes directly from the United States military.
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Huh. Yeah, that kind of sudden intervention, it completely changes the gravity
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of a company's financial narrative.
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I mean, you go from this grueling story of mere survival to a story of.
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Well, immense, albeit highly calculated potential.
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It is the type of catalyst that just forces the entire market to reevaluate
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what they thought they knew about your core assets.
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Which makes this the perfect subject for us today. Welcome to the Dipe Dive, everyone.
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We are cracking open a brand new initiation report from Phillip Capital on a
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company called IX Biopharma.
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A very interesting case study right now. It really is. And our mission for this
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deep dive is to look at this business purely through the lens of a skeptical investor.
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We need to understand, you know, why the recent financial performance looks
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so incredibly weak, how this massive influx of military funding actually works
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mechanically to save them.
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And we need to map out the genuine opportunities against the very real risks
2:00
that come with biotech investing. Right.
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And just setting the foundation here, if you are looking to invest in the pharmaceutical
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space, you really have to understand that survival usually boils down to this
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brutal balancing act. How so?
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Well, you have to secure enough capital to drag your drug through years and
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years of expensive clinical trials,
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but you have to do it without either surrendering the rights to your best products
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or completely destroying the value of your existing shares in the process.
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Yeah. Eyeing Spiopharma has been walking that exact tightrope and,
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I mean, they nearly fell off.
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They really did. And to appreciate the magnitude of this military grant,
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we have to look at the precarious reality they were living in just a few months ago.
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Let's do a quick reality check on their balance sheet. Let's do it.
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So this company was founded back in 2008 and they listed on the Singapore Exchange in 2015.
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But if you just glance at their recent earnings reports, It is not a pretty picture.
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During their fiscal year 2024 and fiscal year 2025, they recorded net losses
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of around $10 million each year.
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Yeah, and if you dig into the revenue side, it is actually even more concerning
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because their total revenue for fiscal year 2025 was a mere $7.7 million.
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But the real red flag for an institutional investor is the concentration of
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that revenue. Right. It was mostly one thing, wasn't it? Exactly.
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Roughly 80% of that money came from a single product.
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It is a medicinal cannabis product called Zetiva, and it is sold exclusively in Australia. Oh, wow.
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Yeah. So trying to fund a global pharmaceutical research pipeline on the back
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of, you know, one regional medicinal cannabis product, that is a deeply stressful
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position for any balance sheet.
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I mean, if I'm an investor looking at that, my immediate thought is,
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why am I putting my money into a company losing $10 million a year selling Australian wheat?
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Exactly. Especially because things actually got much worse for them recently.
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In 2024, they suffered a massive setback. They had a licensing agreement with
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a partner called Cilos Therapeutics.
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And that deal was supposed to be their revenue engine, but the agreement was
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suddenly terminated. Which is devastating. Completely.
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NIAX Biopharma was forced to take back the rights to their lead drug.
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So suddenly, the financial burden of continuing those trials fell squarely back
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onto their own shoulders.
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Which, of course, triggers an immediate cash flow crisis.
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Because when a partner pulls out, those trial costs, they do not just vanish.
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Like the bills keep coming. The clinical machinery has to keep moving.
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So to plug that massive hole, IX Biopharma was forced to raise $21.7 million,
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by issuing new shares to investors throughout late 2025 and early 2026.
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Which, you know, issuing new shares just to survive is one of the most painful
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things a company can do to its early backers. Oh, absolutely.
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It is basically like watering down the soup at a restaurant because you suddenly
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have more customers than food. That is a great way to put it.
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Right. Like the bowl might look full to the new people sitting down,
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but the existing shareholders are left tasting a much weaker diluted broth.
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Their ownership percentage just shrank. So if the core financials are this weak,
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and their previous partnerships crumbled, there has to be a hidden asset here.
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Like, why on earth is a firm like Philip Capital suddenly initiating coverage
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with a buy recommendation?
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Well, the hidden asset is not a new chemical compound. It is actually their
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proprietary delivery technology.
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Okay. It is a platform they call WaferX.
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Basically, they have engineered this highly specialized method for delivering
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existing drugs into the human body using a tiny freeze-dried wafer that you
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just place underneath the tongue.
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Okay, I know sublingual delivery is becoming more popular, but like mechanically
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speaking, why is that so much better than just swallowing a traditional pill?
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What is the actual biological advantage there? It really comes down to bypassing
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the body's natural defense systems. Think about it.
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When you swallow a standard pill, it enters the gastrointestinal tract.
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So first, it has to survive the highly acidic environment of your stomach,
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Right. And then it gets routed directly to your liver.
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Now, the liver's primary job is to filter out foreign substances,
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right? Yeah, that makes sense.
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So it treats the medication almost like a toxin. It starts breaking it down
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in a process called first-pass metabolism.
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By the time the drug actually makes it into your bloodstream,
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a massive percentage of the active ingredient has just been destroyed or wasted.
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Oh, wow. So a pill is actually incredibly inefficient. Highly inefficient,
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yeah. But underneath your tongue, you have a very dense network of tiny blood
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vessels called capillaries, and they are covered by a very thin eucosal membrane.
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Okay. When that wafer dissolves, the drug seeps straight through that thin tissue
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directly into the bloodstream.
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Oh, so it completely avoids the stomach acid. Exactly.
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It entirely bypasses the liver. The result is a drastically faster absorption
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rate, and you get a much higher concentration of the medicine actually reaching the nervous system.
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That makes total sense. You are taking a biological shortcut.
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Precisely. And they have applied this wafer shortcut to a specific drug they call wafermine.
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But reading through the reports, this is where the story takes a wildly unexpected
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turn, right? It really does.
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Because wafermine is a ketamine-based painkiller.
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And if you were listening to this, you were probably thinking the same exact thing I am.
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Isn't ketamine primarily known as an illegal party drug or, like,
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at best, a heavy animal tranquilizer used by veterinarians?
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That is the common perception, yes. Right. So why is the United States Department
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of Defense handing over $41 million
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to fund the final phase three clinical trials for a ketamine wafer?
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It just sounds completely counterintuitive. Well, the public perception of ketamine
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is definitely skewed by its illicit recreational use.
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But in the medical community, it actually has a remarkably long and established
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track record of safety when it is administered correctly. Really? Yeah.
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Biologically, ketamine operates as an NMDA receptor antagonist.
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So if you picture your nervous system like a busy highway carrying pain signals
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from your injured body up to your brain. Okay.
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Tracking with you. Ketamine essentially acts as a physical roadblock on that highway.
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It literally stops the electrical pain signals from ever reaching the brain's receptors.
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So the military is not looking at this for, you know, recreational impairment.
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They are aggressively pursuing it for severe battlefield trauma.
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OK, let's stick a pin in the battlefield application for just a second,
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because we need to look at this from the financial side first.
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Fair enough. That $41 million from the Department of Defense is what the industry
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calls non-dilutive funding.
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Right. For an investor, this is the absolute dream scenario.
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Oh, it is the holy grail of biotech financing.
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IX Biopharma is getting the cold, hard cash they desperately need to execute
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phase three clinical trials, which, by the way, are notoriously the most expensive
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part of the drug development life cycle.
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Yeah, that makes sense. But crucially, because it is a military grant and not
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an equity investment, the company does not have to surrender a single percentage
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point of ownership in the drug.
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So no more watering down the soup. Exactly. They do not have to water down the
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soup anymore by issuing new shares.
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They retain total control over the asset, while the United States government
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essentially foots the entire research and development bill.
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They bypass the ruthless venture capitalists entirely.
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That is a massive win for the balance sheet. Huge win. But surely the Department
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of Defense is not handing out $41 million just to be generous.
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There have to be a desperate need. Why is this specific ketamine wafer so critical?
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You really have to look at the alternative, which is currently a massive global crisis.
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The market for treating acute short-term pain is estimated at roughly $13 billion globally.
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Okay. And right now, the absolute standard of care across the medical field
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relies heavily on opioids.
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In the United States alone, studies indicate that about 80 percent of all surgical
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patients receive opioid-level painkillers.
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And the economic fallout from that reliance is just staggering.
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The sources note that the opioid crisis costs the United States economy around
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$1.5 trillion every single year.
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It is unbelievable. We are talking about addiction treatment,
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long-term health care costs, criminal justice expenses, and just a massive hemorrhage
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in workplace productivity. It is an economic black hole.
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Exactly. Now, transpose that problem onto a combat environment.
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Imagine a soldier wounded in the field. They're experiencing severe trauma,
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and they need instantaneous pain relief.
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Right. First, trying to find a viable vein to insert an intravenous needle in
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a chaotic, high-stress battlefield is incredibly difficult and dangerous for
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a medic. I cannot even imagine.
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Second, if you hand that wounded soldier an opioid pill, you risk immediate
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cognitive impairment, respiratory depression, and obviously the well-documented
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risk of long-term addiction. Right.
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WaferMind solves both of these massive problems simultaneously. You do not need a needle.
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The medic just places the wafer under the tongue. And because of that sublingual
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absorption we talked about, it works incredibly fast.
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The pain relief hits within 10 to 20 minutes. Wow.
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Let's compare that speed to what else is out there, because the report mentions
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a new non-opioid competitor drug called Jernavex. Yes, Jernavex.
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Jernavex recently secured approval from the United States health regulator,
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and it is a big deal because it avoids opioids.
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But it is a traditional oral tablet.
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Right. The data shows it takes one to two hours to start working,
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and its overall pain-relieving effectiveness is classified only as moderate.
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Waves for Mine, on the other hand, offers that rapid onset in 10 to 20 minutes,
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and its effectiveness is classified as strong. Exactly.
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When you are dealing with severe trauma, whether on a battlefield or recovering
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from major surgery, sitting in agony for two hours waiting for a pill to digest
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is simply unacceptable.
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Speed and efficacy are the defining competitive advantages here.
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So the investment thesis is essentially this.
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Iopharma is not just trying to bring a marginally better headache pill to the market.
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No, not at all. They are trying to carve out a massive piece of a $13 billion
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market by offering a fast-acting alternative that could help solve a $1.5 trillion
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economic opioid crisis.
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That is the ceiling of the investment, yes.
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But any seasoned biotech investor knows that potential means absolutely nothing
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without surviving the timeline. Ah, right.
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The dreaded timeline. Because even with the Department of Defense fully funding
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these final trials, full approval from the Food and Drug Administration is not
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expected until early 2029.
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Right. Four years is a lifetime for a small company. If they are currently leasing
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$10 million a year, how on earth do they survive the long winter between now
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and 2029 without watering down the soup again?
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Well, the management team recognized that exact vulnerability.
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They have engineered a complex bridge to generate revenue long before 2020.
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They expect cash to start flowing significantly around early 2027,
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and they are doing this utilizing two very distinct strategies.
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Okay, I'm looking at the first strategy here, and it leverages their relationship with the military.
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The military is not going to wait for the general public to get access.
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Right. They plan to purchase wafer mine under emergency use authorization.
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And this is a specific legal mechanism designed solely for immediate battlefield
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deployment and operational medical use. Philip Capital estimates these initial
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orders could start in early 2027 and bring in around $3 million.
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I mean, that feels like a drop in the bucket. It is relatively small,
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yeah, but you have to understand the conservative nature of that estimate.
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That $3 million figure assumes a tiny 2% initial adoption rate among active-duty
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United States Army and Marine personnel. Oh, just 2%. Right.
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Even a slight increase in adoption across other branches' scales that revenue up significantly.
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But you are right, it is not enough on its own. Which brings us to their second,
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much larger revenue bridge.
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What is that? They are pivoting hard into the United States compounding pharmacy
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market, which is currently valued at roughly $6 billion.
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OK, I need you to explain this because I see compounding pharmacies on like
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street corners, but I do not understand how a company developing battlefield
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trauma narcotics fits into that space. It is an interesting pivot.
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Compounding pharmacies exist to serve a very specific legal and medical loophole.
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Historically, if a patient is allergic to, say.
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A specific red dye used in a mass-produced, factory-made pill,
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a local pharmacist needs the legal authority to custom mix a safe version of
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that drug from scratch for that specific patient. That makes sense.
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Because these are personalized, one-off medications, they do not have to go
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through the decade-long Food and Drug Administration approval process required
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for mass-manufactured drugs. Oh, I see where this is going. Yeah.
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In late 2025, IX Biopharma partnered with a United States company called Orion Specialty Labs.
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This allows them to use that legal framework to manufacture and sell custom
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mixed medications directly to consumers.
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Wait, I need to stop you there. They are teaming up with telehealth platforms
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to sell directly to consumers.
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Yes. The report says they are going to use their wafer technology to deliver
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over-the-counter wellness supplements, specifically anti-aging compounds like,
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let me make sure I pronounce this right, nicotinamide adenindinucleotide. You got it.
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From an investor standpoint, this sounds like a dangerously unfocused distraction.
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You have a company doing high-stakes military trials for severe pain,
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and suddenly they're pivoting to selling anti-aging vitamins on the internet. How is that a good thing?
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I completely understand the skepticism. It looks like a wild loss of focus,
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but financially, it is actually a brilliant risk mitigation strategy. How so?
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By utilizing the compounding pharmacy loophole, they can monetize their proprietary
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wafer technology right now.
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Wellness supplements do not require the agonizingly slow regulatory approvals that narcotics do.
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Right, right. This allows them to generate immediate high margin cash flow.
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That cash flow pays the factory workers, it keeps the lights on,
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and sustains their core operations, entirely eliminating the need to issue more
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shares while the massive wafer mine clinical trial runs quietly in the background.
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Okay, so the anti-aging vitamins are essentially just a financial engine to
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protect the shareholders from dilution while they wait for the military drug to finish.
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I see your point. It lowers the immediate financial risk.
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So assuming this bridge holds up and they make it to 2029, we need to look at
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the endgame. The fun part.
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Right. If I am buying shares today based on Philip Capital's target price of
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one dollar, how does this company eventually cash out on that 13 billion dollar acute pain market?
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Well, once phase three trials successfully conclude, the company faces a major strategic crossroads.
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Philip Capital outlines three distinct financial pathways, and each one has
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different risk profiles.
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Okay, what is the first one? The first option is they decide to commercialize it themselves.
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They try to build out a massive global sales force, secure complex distribution
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networks, and just fight hand-to-hand to capture a 10% slice of that market.
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Which is incredibly expensive and labor-intensive. Riley. Most small biotechs
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fail miserably when they try to become global sales organizations.
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What is the alternative?
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The far more common route is out licensing.
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Okay. Instead of building an army of salespeople, they partner with a massive
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established pharmaceutical giant that already has the global infrastructure in place.
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Let them do the heavy lifting. Exactly. Under this scenario,
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the report estimates IX Biopharma could receive a staggering $250 million upfront
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cash payment the moment the drug is approved.
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Wow. Plus, they would collect a 15% royalty on every single wafer sold worldwide in perpetuity.
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That sounds infinitely more appealing than trying to do it themselves.
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Much less risky, yeah. But there is a third option, a total exit.
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Exactly. A trade sale. An outright buyout. Think about all the massive pharmaceutical
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companies currently relying on opioid revenues.
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They see the writing on the wall. They know the future holds nothing but tighter
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regulations and massive lawsuits. For sure.
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One of those giants might simply buy iX Biopharma in its entirety just to acquire
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WaferMine, allowing them to replace their own toxic opioid portfolios with a
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fast-acting, non-addictive alternative.
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That is the dream scenario that justifies the buy rating. But,
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you know, as an investor, you can never just look at the ceiling.
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You have to obsess over the floor. We have to talk about the risks,
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and they are substantial.
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Even with the military funding the trial, this company is still heavily reliant on bank borrowings.
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If that vitamin compounding business fails to gain traction with consumers,
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they could find themselves facing a severe cash crunch again very quickly.
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Yeah, cash flow is a constant threat.
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The ultimate unavoidable risk in this sector is the science itself. Right.
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Clinical trials are notoriously cruel and unpredictable.
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It is what we call binary risk.
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Now, to be fair, the earlier phase two trials for wafer mine provided exceptional data. They did, yeah.
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They tested the wafer on patients recovering from bunion surgeries,
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which causes excruciating bone pain, and tummy tuck surgeries,
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which causes severe soft tissue pain.
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Ouch. In both of those very different scenarios, the wafer demonstrated profound pain reduction.
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And because phase 3 will replicate similar post-operative environments,
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the probability of scientific success is actually considered quite high.
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But the reality remains, if phase 3 fails for any unforeseen biological reason,
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the entire thesis collapses.
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If wafermine does not get approved...
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The value of this investment crashes down to the baseline value of our manufacturing
19:52
facility in Australia and, well,
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whatever revenue they can scrape together selling telehealth vitamins.
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The dream of disrupting the trillion-dollar opioid crisis simply vanishes.
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And that is the harsh reality of biotech investing. You are constantly weighing
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the potential for tremendous societal impact and massive financial reward against
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the very real binary risk of a clinical trial failure.
20:17
Yeah. The United States military evaluated the data and decided the science
20:21
was sound enough to risk $41 million.
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Now, the individual investor has to decide if they're willing to take that same leap of faith.
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It is a remarkable turnaround story, regardless of how it ends.
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I mean, going from struggling to keep the factory open to being actively backed
20:36
by the Department of Defense to solve one of the most destructive medical crises
20:39
of our generation. It really is fascinating.
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And as we wrap up, it leaves you with a really provocative thought to chew on.
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We have spent this entire deep dive analyzing the military and surgical applications
20:51
of this fast-acting, under-the-tongue painkiller.
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But think about the broader implications for everyday life. Oh, absolutely.
20:58
If this sublingual wafer technology proves successful and safe on the battlefield,
21:03
completely bypassing the stomach for instant relief, how long until that technology
21:08
trickles down to the consumer market? That is a great question. Right.
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How long until the standard first aid kit in our own homes stops relying on
21:16
swallowing traditional pills that take an hour to work and shifts entirely to
21:20
rapid absorbing wafers?
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It might not just be the future of combat medicine. It could very well be the
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future of your own medicine cabinet.
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This content is intended to serve strictly and only as an informational,
21:31
independent, objective summary of recent events and should in no way be interpreted,
21:35
construed, or relied upon by any party as inside information or financial advice. Thank you.