Developing cannabinol (CBN)

InMed Pharmaceuticals 22 January 2020 Update
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InMed Pharmaceuticals

Developing cannabinol (CBN)

Development update

Pharma & biotech

22 January 2020

Price

C$0.36

Market cap

C$62m

C$0.75/US$

Net cash (C$m) at 30 September 2019

14.8

Shares in issue

172.3m

Free float

76.5%

Code

IN (TSX)
IMLFF (OTC)

Primary exchange

TSX

Secondary exchange

OTC Markets

Share price performance

%

1m

3m

12m

Abs

47.9

26.8

(30.4)

Rel (local)

44.1

18.5

(39.2)

52-week high/low

C$0.79

C$0.23

Business description

InMed Pharmaceuticals is a Canada-based biopharmaceutical company focused on manufacturing and developing cannabinoids. Its biosynthesis platform may be able to produce cannabinoids for less cost and with improved purity compared to currently used methods. The company is also developing a proprietary pipeline, including INM-755 for epidermolysis bullosa, a serious, debilitating orphan indication.

Next events

755-101-HV trial enrolment completion

Q120

Analysts

Maxim Jacobs

+1 646 653 7027

Nathaniel Calloway

+1 646 653 7036

InMed Pharmaceuticals is a research client of Edison Investment Research Limited

InMed has announced that the cannabinoid that is the basis for both its epidermolysis bullosa (EB) and glaucoma programs is cannabinol (CBN). This puts InMed in an attractive position (especially from an intellectual property perspective) as other medical cannabis programs are focused on either tetrahydrocannabinol (THC) and/or cannabidiol (CBD) for a variety of indications. Importantly, from a regulatory perspective, CBN is believed to have either slight or no psychoactivity, but it does have a number of beneficial effects including reducing inflammation and intraocular pressure (IOP).

Year end

Revenue (C$m)

PBT*
(C$m)

EPS*
(C$)

DPS
(C$)

P/E
(x)

Yield
(%)

06/18

0.0

(5.3)

(0.04)

0.00

N/A

N/A

06/19

0.0

(9.1)

(0.05)

0.00

N/A

N/A

06/20e

0.0

(15.6)

(0.09)

0.00

N/A

N/A

06/21e

0.0

(17.3)

(0.10)

0.00

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

CBN: A minor cannabinoid with potential

CBN makes up substantially less than 1% of the cannabis plant and is a product of THC oxidation. Although related to THC, it is a relatively weak partial agonist of both cannabinoid receptors CB1 and CB2. In studies conducted so far on CBN, it has demonstrated little to no psychoactivity. However, there is evidence of efficacy across a number of indications.

Preclinical data presented at EB World Congress

The company recently presented data at the 2020 EB World Congress in London, which indicated that CBN has an effect on pain and inflammation that will likely be important in the treatment of EB. Also, CBN may significantly upregulate the keratin K15, which may be able to compensate for a malfunctioning K14 and combine with K5 to form the necessary adhesion between the epidermis and dermis. This could potentially lead to greater skin integrity and fewer blisters in EB simplex patients with K14 mutations.

CBN in glaucoma

In cats, CBN has previously been shown to significantly reduce IOP (the goal for a glaucoma therapy). The company believes it also has potential to have an impact on protecting the optic nerve. INM-088 has completed in vitro testing and InMed has initiated multiple formulation and pharmacology studies. These studies are expected to be completed in early 2020.

Valuation: C$259m or C$1.50 per basic share

We are maintaining our valuation of C$259m or C$1.50 per basic share (C$1.24 per diluted share). We will review our probabilities of success for INM-755 and INM088 as the products progress. InMed had C$14.8m in cash and marketable securities at 30 September and we believe this provides a runway into FY21.

What is CBN?

First isolated in 1896, CBN makes up substantially less than 1% of the cannabis plant and is a product of THC oxidation (the amount of CBN in a plant increases the longer the plant is stored). CBN has a number of advantages as a development candidate. First, InMed is currently the only company with a CBN drug in the clinic. With first mover advantage, InMed should be positioned to gain broad intellectual property protection (this is especially true as CBN, while known for more than a century, was little studied). Second, in studies conducted so far on CBN, it has demonstrated little to no psychoactivity. Although related to THC, it is a relatively weak partial agonist of both cannabinoid receptors CB1 and CB2 (see Exhibit 1), although it may have efficacy through other mechanisms.1

  Zygmunt et al., Δ9-Tetrahydrocannabinol and Cannabinol Activate Capsaicin-Sensitive Sensory Nerves via a CB1 and CB2 Cannabinoid Receptor-Independent Mechanism. Journal of Neuroscience. 1 June 2002, 22 (11) 4720-4727

Exhibit 1: Binding affinity ranges of select cannabinoids to CB1 and CB2 receptors

CB1 Ki (nM)

CB2 Ki (nM)

THC

5.05–80.3

3.13–75.3

CBD

4,350–27,452

2,399–>10,000

CBN

120.2–1,130

100–301

Source: Pertwee et al., The diverse CB1 and CB2 receptor pharmacology of three plant cannabinoids: D9-tetrahydrocannabinol, cannabidiol and D9-tetrahydrocannabivarin. British Journal of Pharmacology (2008) 153, 199-215. Note: Higher levels indicate less binding affinity.

In one study in male volunteers, orally delivered CBN demonstrated no difference versus placebo with regard to psychoactivity, while THC showed a significant impact.2 In another study in 21 male volunteers, testing THC, CBD and CBN, CBN rated as slightly more psychoactive than CBD, which is not considered to be psychoactive, and only at significantly higher doses than THC.3 As a reminder, whatever psychoactivity CBN does have is not likely to be an issue for InMed as both INM-755 and INM-088 feature local administration, which minimizes systemic exposure. In preclinical testing, InMed saw no central nervous system (CNS) effects in local safety testing at 383 times the planned local dose. Systemic testing through subcutaneous injection of the drug in rats at 10,000 times the expected systemic exposure of the topical cream also indicated no CNS effects using 108 different CNS criteria.

  Karniol et al., Effects of D9-Tetrahydrocannabinol and Cannabinol in Man. Pharmacology 13: 502-512 (1975)

  Perez-Reyes et al., A comparison of the pharmacological activity in man of intravenously administered delta9-tetrahydrocannabinol, cannabinol, and cannabidiol. Experientia, 1973 Nov 15;29(11):1368-9

Finally, and more importantly, there is evidence of efficacy across a plethora of indications. Key for the treatment of EB (a rare debilitating genetic dermatologic disorder characterized by skin fragility where just wearing normal clothing can lead to wound formation), CBN has been shown in a variety of published preclinical studies to have an effect on pain,4 inflammation (due to the inhibition of the expression of cytokines)5 and bacterial infection.6 In addition, and recently presented at the 2020 EB World Congress in London, InMed has demonstrated in its own preclinical studies an effect on both pain and inflammation. In pain, InMed’s research has demonstrated a positive impact in nerve growth factor (NGF) induced pain models in rats. With regard to inflammation, CBN was tested on IL-8 and MMP-9, markers of inflammation suspected of having links with blister formation in EB simplex (both are upregulated in blisters) and in chronic cutaneous inflammation. Depending on dose, IL-8 was reduced by 35–54% and MMP-9 was reduced by 22–40%.

  Zygmunt et al., Δ9-Tetrahydrocannabinol and Cannabinol Activate Capsaicin-Sensitive Sensory Nerves via a CB1 and CB2 Cannabinoid Receptor-Independent Mechanism. Journal of Neuroscience. 1 June 2002, 22 (11) 4720-4727

  Jan et al., Attenuation of the ovalbumin-induced allergic airway response by cannabinoid treatment in A/J mice. Toxicology and Applied Pharmacology, 188 (2003), 24–35.

  Appendino et al., Antibacterial Cannabinoids from Cannabis sativa: A Structure−Activity Study. Journal of Natural Products, 2008 71(8), 1427–1430.

Also, based on InMed’s preclinical research, CBN may significantly upregulate the keratin K15. In two of three studies, K15 expression increased by 6–17 fold (in the one study that failed, there may have been an issue with the cells used). Higher K15 may be able to compensate for a malfunctioning K14 and combine with K5 to form the necessary adhesion between the epidermis and dermis. This could potentially lead to greater skin integrity and fewer blisters in EB simplex patients with K14 mutations.

InMed has initiated its clinical trial program following Clinical Trial Application (CTA) approval in the Netherlands in December 2019. The Phase I program consists of two separate trials (see Exhibit 2). Trial 755-101-HV will enrol 22 healthy volunteers with normal, intact skin and evaluate the systemic and local safety, tolerability and pharmacokinetics (PK) of two dosage strengths of INM755 cream. Trial 755-102-HV will have around eight healthy volunteers with small wounds to evaluate the local safety of the product. The small blister wounds will be created at the clinical site and will largely mimic the types of wounds typically seen in EB simplex patients. A Phase I/II in approximately 12–15 EB patients is expected to begin in early 2021 following additional IND/CTA filings globally. Note that all these trials will be double blind and vehicle controlled. Importantly, the safety studies can be used as the basis for a clinical trial program in other indications, as INM-755 may have applications in other dermatologic indications involving inflammation, pain and itch.

Exhibit 2: Expected clinical trial programme

Trial

Type of patients

Expected size

Treatment protocol

Purpose

Timing

Phase I
(755-101-HV)

Adult healthy volunteers with normal, intact skin

22

14 days on intact skin; two dosage strengths

Systemic and local safety/PK

Initiated December 2019, complete enrolment by end of Q120.

Phase I
(755-102-HV)

Adult healthy volunteers with small wounds

Around 8

Seven days on small wounds; two dosage strengths

Local safety

Initiate after 755-101-HV data are available. Enrolment expected to begin and complete in H220.

Phase I/II

EB patients (first adults, then children)

12–15

30 days on intact skin and possibly wounds; two dosage strengths

Systemic and local safety and efficacy

Initiate in Q121, following IND/CTA filings in additional countries globally.

Source: InMed Pharmaceuticals

CBN has also been shown to have efficacy in glaucoma. In cats, CBN has previously been shown to significantly reduce IOP (the goal for a glaucoma therapy) by around 27% after nine days.7 If INM-088 is able to replicate this effect in humans, efficacy would be in the realm of current therapies (see Exhibit 3), which, while efficacious, have toxicity issues and low patient compliance (estimated at 41–78% of patients8).

  Colasanti et al., Intraocular pressure, ocular toxicity and neurotoxicity after administration of cannabinol or cannabigerol. Experimental Eye Research, 1984 39(3), 251–259.

  Denis et al., Adverse effects, adherence and cost-benefits in glaucoma treatment. European Ophthalmic Review 2011;5:116–122

Exhibit 3: Glaucoma treatment landscape

Drug class

Examples

Comments

Prostaglandins

Latanoprost (Xalatan, Pfizer), Lumigan (Allergan), Travatan Z (Alcon)

Reduce IOP by 28–33% (though may take three to five weeks to reach maximum IOP lowering) by relaxing muscles in the eye's interior structure to allow better outflow of fluids. Adverse events include redness and stinging, change of eye color, change in the pigment of the eye lashes or eyelid skin, lengthening and curling of the eyelashes, reactivation of herpes infection in the cornea, and uveitis.

Beta-blockers

Timoptic XE (Merck), Istalol (ISTA), Betoptic S (Alcon)

Reduce IOP by 20–30% by decreasing fluid production in the eye; typically additive to most IOP lowering agents. Exacerbate obstructive pulmonary diseases, slows heart rate and lowers blood pressure. Not recommended in patients with life-threatening depression. Betoptic tends to be the best tolerated drug in this class but at the expense of efficacy.

Alpha-adrenergic agonists

Iopidine (Alcon), Alphagan (Allergan)

Reduce IOP by 20–30% by decreasing rate of aqueous humor production (lopidine and Alphagan) and increasing drainage (Alphagan). Adverse events include irregular heart rate, high blood pressure, fatigue and red, itchy or swollen eyes. Also, there is a high rate of allergy with lopidine, which limits its use in chronic treatment.

Carbonic anhydrase inhibitors

Eyedrops: Trusopt (Merck) and Azopt (Alcon). Oral pills: Diamox (Sigma), Neptazane (Wyeth-Ayerst) and Daranide (Merck).

Eyedrops typically reduce IOP by 15–22% while oral versions reduce IOP by 25–35%. They work by decreasing the rate of aqueous humor production. Adverse events from eye drops include stinging, burning, eye discomfort and corneal edema. Adverse events from oral versions include tingling hands and feet, fatigue, decreased libido, depression, stomach upset, memory problems, frequent urination (from pill form).

Parasympathomimetics or cholinergic agents

Pilocarpine, carbachol

Reduce IOP by 15–25% by increasing the outflow of aqueous humor from the eye. Adverse events include constriction of the pupils, possible blurred or dim vision, near-sightedness, retinal detachment, intestinal cramps and bronchospasm.

Source: InMed, Canadian Ophthalmological Society

The company believes INM-088 also has potential to protect the optic nerve. INM-088 has completed in vitro testing and the company has initiated multiple formulation and pharmacology studies. These studies are expected to be completed in early 2020.

Valuation

We are maintaining our valuation of C$259m or C$1.50 per basic share (C$1.24 per diluted share), although we will review our probabilities of success for INM-755 and INM-088 as the products progress.

Exhibit 4: InMed valuation

Program

Stage

Probability of success

Launch year

Peak sales (C$m)

rNPV
(C$m)

Biosynthesis (manufacturing)

Development

23%

2022

1,574

224

INM-755

Phase I

7.5%

2026

345

20

Total

244.4

Net cash and equivalents (as of 30 September) (C$m)

14.8

Total firm value (C$m)

259.1

Total basic shares (as of 30 September 2019, m)

172.3

Value per basic share (C$)

1.50

Options and warrants (as of September 2019, m)

37.4

Total diluted shares (as of September 2019, m)

209.7

Value per diluted share (C$)

1.24

Source: Edison Investment Research

Financials

InMed had C$14.8m in cash and marketable securities at 30 September and we believe this provides a runway into FY21. We continue to forecast the company will raise C$20m over the next two years to fund operations, which we model as illustrative long-term debt.

Exhibit 5: Financial summary

C$000s

2018

2019

2020e

2021e

Year end 30 June

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

0

0

0

0

Cost of Sales

0

0

0

0

Gross Profit

0

0

0

0

Research and development

(1,927)

(5,639)

(10,950)

(11,388)

Selling, general & administrative

(3,367)

(3,798)

(3,862)

(4,017)

EBITDA

 

 

(5,530)

(9,685)

(15,159)

(15,751)

Operating Profit (before amort. and except.)

 

 

(5,412)

(9,561)

(14,985)

(15,578)

Intangible Amortisation

0

0

0

0

Exceptionals/Other

(3,197)

(4,128)

(2,560)

(2,663)

Operating Profit

(8,609)

(13,689)

(17,546)

(18,240)

Net Interest

88

434

(626)

(1,708)

Other (change in fair value of warrants)

0

0

0

0

Profit Before Tax (norm)

 

 

(5,324)

(9,127)

(15,612)

(17,286)

Profit Before Tax (IFRS)

 

 

(8,521)

(13,255)

(18,172)

(19,948)

Tax

0

0

0

0

Deferred tax

0

0

0

0

Profit After Tax (norm)

(5,324)

(9,127)

(15,612)

(17,286)

Profit After Tax (IFRS)

(8,521)

(13,255)

(18,172)

(19,948)

Average Number of Shares Outstanding (m)

142.5

171.3

174.9

181.9

EPS - normalised (c)

 

 

(3.74)

(5.33)

(8.93)

(9.50)

EPS - IFRS (C$)

 

 

(0.06)

(0.08)

(0.10)

(0.11)

Dividend per share (c)

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

N/A

N/A

N/A

EBITDA Margin (%)

N/A

N/A

N/A

N/A

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

1,329

1,241

1,807

1,242

Intangible Assets

1,274

1,185

1,160

1,160

Tangible Assets

56

56

647

83

Other

0

0

0

0

Current Assets

 

 

26,734

18,548

12,763

5,547

Stocks

0

0

0

0

Debtors

0

0

0

0

Cash

26,477

18,039

12,474

5,258

Other

257

509

288

288

Current Liabilities

 

 

(938)

(1,563)

(1,462)

(1,462)

Creditors

(938)

(1,563)

(1,462)

(1,462)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

0

0

(10,410)

(20,410)

Long term borrowings

0

0

(10,000)

(20,000)

Other long term liabilities

0

0

(410)

(410)

Net Assets

 

 

27,125

18,226

2,698

(15,083)

CASH FLOW

Operating Cash Flow

 

 

(4,672)

(8,769)

(15,284)

(17,024)

Net Interest

0

0

0

0

Tax

0

0

0

0

Capex

(56)

(35)

(174)

(192)

Acquisitions/disposals

0

0

0

0

Financing

24,483

273

0

0

Dividends

0

0

0

0

Other

0

0

1

0

Net Cash Flow

19,756

(8,532)

(15,458)

(17,216)

Opening net debt/(cash)

 

 

(6,708)

(26,477)

(18,039)

(2,474)

HP finance leases initiated

0

0

0

0

Exchange rate movements

0

0

0

0

Other

14

94

(107)

0

Closing net debt/(cash)

 

 

(26,477)

(18,039)

(2,474)

14,742

Source: InMed Pharmaceuticals accounts, Edison Investment Research


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This report has been commissioned by InMed Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by InMed Pharmaceuticals. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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This report has been commissioned by InMed Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by InMed Pharmaceuticals. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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