DALLAS, TX -- October 1st, 2026 --Incannex Healthcare Inc. (NasdaqGM:IXHL): Stonegate Capital Partners updates their coverage on Incannex Healthcare Inc. (NasdaqGM: IXHL). IXHL’s FY26 update moves the IHL-42X story from DReAMzz preparation into active clinical execution, with first-patient dosing underway and the balance sheet providing runway for at least 12 months of planned operations. The study is evaluating approximately 120 patients across nine dose combinations and 14 U.S. sites, with completion expected in mid-2027. In our view, the next several quarters should be measured primarily by enrollment cadence, dose optimization, and whether DReAMzz supports a more clearly defined Phase 3 design rather than near-term P&L trends. This sequencing should improve confidence in dose selection and Phase 3 trial design before IXHL commits to the higher development spending associated with late-stage studies.
IHL-42X / DReAMzz Update: First-patient dosing began in August, moving the program from site activation into active recruitment and treatment. DReAMzz incorporates FDA feedback and is designed to refine the dronabinol/acetazolamide ratio before Phase 3. The study is currently enrolling across 14 U.S. sites, and management expects completion in mid-2027. Separately, IXHL secured a U.S. patent covering the IHL-42X composition and methods of treatment, with baseline protection extending to July 2040.
Results/Financing: FY26 net loss narrowed to $19.3M from $46.9M, largely reflecting lower warrant fair-value losses and the absence of prior-year financing related charges. Operating expenses declined 4% to $23.0M, with R&D down 52% to $5.2M due to timing between RePOSA completion and DReAMzz commencement, partially offset by a 36% increase in G&A to $17.8M, primarily from higher stock-based compensation. Operating cash use was $12.9M, while unrestricted cash totaled $68.4M as of September 24.
Clinical Data Foundation: RePOSA continues to provide the clinical foundation for IHL-42X. The 121-subject Phase 2 study demonstrated statistically significant reductions in AHI and oxygen desaturation index versus placebo across both low- and high-dose groups, with individual AHI reductions of up to 83%. Accordingly, DReAMzz is focused on optimizing dose selection and strengthening the registrational package rather than re-establishing the underlying efficacy signal.
Capital Position/Pipeline: IXHL received more than A$11.2M of non-dilutive Australian R&D tax funding during 2026 and repurchased 2.2M shares for $9.4M during FY26 before the $20M authorization expired in August. Management expects current resources to fund planned operations for at least the next 12 months, while R&D spending should rise as clinical development advances. We view PSX-001 as the secondary clinical focus, supported by positive PsiGAD1 data, an FDA-cleared IND and recent MHRA scientific-advice engagement, with the next clinical study design under evaluation. The IHL-675A rheumatoid-arthritis study was terminated following slower-than-anticipated enrollment, with insufficient data to support conclusions on efficacy or safety.
Valuation: We use a probability-adjusted Discounted Cash Flow Model when valuing IXHL. Our valuation model returns a valuation range of $17.97 to $20.61 with a price target of $19.22 based on a discount rate range of 13.75% to 16.25% and a current risk adjustment range of 13% to 18%. Further details on our model can be found on the valuation page of this report. We note that this model is highly levered to the out years due to the long term nature of IXHL's industry, leading to the potential for dramatic re-ratings as new information becomes available.
