Commercial License in Pharmaceutical Sector for EnWave Corp

EnWave Corp (TSXV:ENW – $1.06 CAD & OTC:NWVCF – $0.72 USD) has again expanded its horizons, as the first commercial scale powderREV machine will be taken into production next year at the facilities of Sutro Biopharma Inc.

So far, EnWave has sold several commercial nutraREV and quantaREV machines that dehydrate food items. But now, a powderREV unit, which is specifically designed to dehydrate materials such as enzymes, probiotics, pharmaceuticals, and non-regulated biologicals, will be up and running in a few months.

powderREV is ideally suited to replace the expensive and time consuming process of tray freeze drying, which takes place in a high heat environment and damages sensitive organisms. Moreover, laboratory tests have shown that the potential benefits of powderREV over freeze drying include less capital cost due to faster dehydration times, smaller plant footprints, and lower energy and labor costs.

First Operational powderREV

Sutro Biopharma, located in South San Francisco, develops best-in-class antibody drug conjugate and multi-specific antibody-based therapeutics for cancer therapy, including Immuno-Oncology therapies. In addition to developing its own drug candidate pipeline, Sutro is collaborating with select biotech companies, such as Celgene and EMD Serono, to discover and develop novel therapeutics.

The biopharmaceutical company will use EnWave’s Radiant Energy Vacuum (REV) dehydration technology to dry and store cell-free extracts, as it simplifies storage conditions and improves product stability.

Sutro commenced tests with a lab-scale powderREV machine in September 2012. After validating the efficacy and stability of cell-free extracts, it signed a commercial royalty-bearing license and machine purchase agreement in May 2014. Shortly thereafter, EnWave delivered an 8kW prototype powderREV machine to Sutro to conduct a series of process optimization tests.

These tests must have been successful, as Sutro now ordered a commercial scale powderREV machine. The installation of the customized unit, at Sutro’s GMP manufacturing facility in San Carlos, California, is scheduled for the first half of 2016.

Good Manufacturing Practices (GMP) are the practices required in order to conform to guidelines for manufacture and sale of food, drug products, and active pharmaceutical products. These guidelines provide minimum requirements that a pharmaceutical or food products manufacturer must meet to assure that the products are of high quality and don’t pose any risk to the consumer or public.

Good manufacturing practices, along with good laboratory practices and good clinical practices, are overseen by regulatory agencies in the United States, Canada, Europe, China, and other countries.

Sutro has already deposited an initial milestone payment, and will make additional ones during the manufacture and commissioning of the equipment. Once the machine is in operation, EnWave will receive an undisclosed royalty on all products manufactured. Knowing that pharmaceutical products are usually quite costly, we foresee a nice income for the Company.

Third Quarter Financials

	Three Months Ended June 30		Nine Months Ended June 30
Amounts in $000’s	2015	2014	2015	2014
Net Sales	3,663	1,392	11,647	2,462
Direct Costs	3,606	528	9,176	2,218
Gross Profit	57	864	2,471	244
Expenses	5,845	1,432	9,512	5,827
Net Income (Loss)	(5,788)	(568)	(7,041)	(5,583)
Earnings (Loss) Per Share	(0.07)	(0.01)	(0.09)	(0.06)
Shares Out. – Diluted	84,523	81,916	84,446	82,250
Most important income statement data for the quarters and nine months ending June 30, 2015 and June 30, 2014. Source: Company Filing

Revenue has increased mostly due to Binder’s success in securing machine-building contracts, which are now at an advance stage of construction. Also contributing to the revenue is EnWave’s success in securing machine building contracts during the current fiscal year, and NutraDried’s significantly increased sales of cheese snacks as demand and the number of buying customers grow.

Binder’s revenues represent approximately 66% of total sales in the third quarter, while EnWave accounts for about 19% and NutraDried for approximately 13% of sales.

Direct costs were exceptionally high mainly because of NutraDried, as it stocking up Moon Cheese snacks in advance of expected orders.

Also note that the goodwill allocated to Enwave’s German subsidiary Hans Binder Maschinenbau was fully impaired during the quarter and resulted in an impairment charge of $3,855,602. Without this charge, the loss during the third quarter would have been approximately $1.97 million.

Amounts in $000’s	June 30, 2015	September 30, 2014
Cash and Cash Equivalents	1,225	5,851
Restricted Cash	1,492	972
Accounts Receivable	2,632	1,660
Due from Customers	906	81
Inventories	1,989	1,243
Total Current Assets	9,076	10,642
Property and Equipment	3,652	2,877
Intangible Assets	3,430	4,491
Goodwill	–	3,923
Total Assets	16,158	21,932
Accounts Payable	2,863	1,679
Total Current Liabilities	4,636	4,359
Long Term Debt	572	1,136
Total Liabilities	5,208	5,495
Total Stockholder Equity	10,950	16,438
Most important balance sheet data for the periods ending June 30, 2015 and September 30, 2014. Source: Company Filing

The Company’s increased efforts in its core business increased the consumption of its cash reserves. Incremental funds were used for marketing initiatives, equipment construction, installation and commissioning of new equipment and parts and machine inventory.

Although these efforts are now displaying returns in the form of new research agreements, new purchase orders, and a general acceleration of the business – hence the sharp increase in Accounts Receivable and Due from Customers – they also caused the cash and cash equivalents position to decline to $1.22 million.

If additional machine purchase orders were to be announced in the coming months, which in our opinion will occur, EnWave will have to increase its working capital so that it can order all the necessary parts. We believe that in the Company’s current state, a substantial revolving loan agreement at an attractive interest rate is available and in the best interest of shareholders.

New Chief Financial Officer

Earlier this week, EnWave appointed Mr. Daniel Henriques as its new Chief Financial Officer. Mr. Henriques is a Chartered Accountant and brings extensive experience in finance effectiveness and financial reporting to his role at EnWave.

Prior to joining EnWave, Mr. Henriques was a manager in the Assurance group at PricewaterhouseCoopers LLP, and supported numerous mid-market companies, including companies listed on the Toronto Stock Exchange, TSX Venture Exchange and the New York Stock Exchange, with financial reporting and compliance. While at PwC, Mr. Henriques provided clients in the manufacturing and technology sectors professional services in the areas of financial audits, financial reporting and tax.

Conclusion

It’s very encouraging to see that EnWave’s new commercial license in the pharmaceutical sector is with a company that’s developing a promising new technology with high growth prospects.

The very fact that Sutro orders a commercial scale powderREV after conducting tests for three years, indicates to us that they already have products in mind to manufacture.

EnWave is growing at a substantial rate, as indicated by its financials. Looking at the huge amount of research agreements and commercial license deals that the Company closed in recent months, its growth is clearly still accelerating.

For important disclosures, please read our disclaimer.

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