Entering the clinic by the end of the year

InMed Pharmaceuticals 14 February 2019 Update
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InMed Pharmaceuticals

Entering the clinic by the end of the year

Development update

Pharma & biotech

14 February 2019

Price

C$0.58

Market cap

C$99m

C$0.76/US$

Net cash (C$m) at 31 December 2018

23.0

Shares in issue

170.9m

Free float

96.0%

Code

IN

Primary exchange

TSX

Secondary exchange

OTC Markets

Share price performance

%

1m

3m

12m

Abs

11.5

(3.3)

(50.9)

Rel (local)

6.6

(6.4)

(52.1)

52-week high/low

C$1.9

C$0.3

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-750 for epidermolysis bullosa, a serious, debilitating orphan indication.

Next events

INM-750 CTA filing

H219

INM-750 Phase I initiation

YE19

Analysts

Maxim Jacobs

+1 646 653 7027

Briana Warschun

+1 646 653 7031

InMed Pharmaceuticals is a research client of Edison Investment Research Limited

InMed recently reported results for the second quarter of FY19 and is on track to bring INM-750 for epidermolysis bullosa (EB) into the clinic by the end of the year. The company recently completed two topical seven-day dose-ranging studies in pigs; the trials evaluated skin irritation, pharmacokinetics, histology and skin/drug concentrations and InMed is on the verge of selecting the contract manufacturing organization that will produce the topical cream necessary for the Phase I trial. Progress on biosynthesis continues as the company has initiated technology transfer activities to the National Research Council Canada (NRC), which will support fermentation scale-up.

Year end

Revenue (C$m)

PBT*
(C$m)

EPS*
(C$)

DPS
(C$)

P/E
(x)

Yield
(%)

06/17

0.0

(3.2)

(0.03)

0.00

N/A

N/A

06/18

0.0

(5.3)

(0.04)

0.00

N/A

N/A

06/19e

0.0

(8.0)

(0.05)

0.00

N/A

N/A

06/20e

0.0

(13.0)

(0.07)

0.00

N/A

N/A

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

INM-750 continues to progress through testing

InMed recently completed two topical seven-day dose-ranging studies that evaluated skin irritation, pharmacokinetics, histology and skin/drug concentrations. Importantly, the studies showed there were no drug-related adverse effects on the skin and systemic cannabinoid exposure was minimal after topical administration despite a dosing level 100- to 1,000-fold higher than the anticipated clinical dose.

CTA filing on track for H219

Given the positive results of the recent preclinical dose-ranging studies for INM-750 InMed continues to believe it is on track for a Clinical Trial Application (CTA) filing in H219 with initiation of the Phase I study by the end of the calendar year. The final selection of a contract manufacturing organization to produce drug product for the clinical trial is expected by the end of February and will help bring further confidence to expected timelines.

Biosynthesis development continuing

InMed initiated technology transfer activities to the NRC to support scale-up activities in late 2018. The company will soon begin the portion of the process that relates to the transfer of the gene construct containing the coding sequence for the enzymes responsible for cannabinoid production. Parameter optimization for fermentation scale-up activities will begin once this process is completed.

Valuation: C$257m or C$1.51 per basic share

We have adjusted our valuation from C$232m or C$1.36 per basic share (C$1.05 per diluted share) to C$257m or C$1.51 per basic share (C$1.16 per diluted share) mainly due to rolling forward our estimates, although this was mitigated by lower net cash. InMed had C$23.0m in cash at 31 December and we believe this provides a runway through to FY20.

Q2 FY19 results and R&D update

InMed recently reported its Q2 FY19 results and provided a development update. The company continues to run a series of preclinical studies for INM-750 for the treatment of EB. InMed recently completed two topical seven-day dose-ranging studies, which evaluated skin irritation, pharmacokinetics, histology and skin/drug concentrations in pigs. Importantly, the studies showed there were no drug-related adverse effects on the skin and systemic cannabinoid exposure was minimal after topical administration despite a dosing level 100- to 1,000-fold higher than the anticipated clinical dose. InMed plans to initiate stability studies and other regulatory enabling studies prior to a CTA filing in H219 (specifically, the company is guiding for a filing in the fall).

The company expects to initiate the Phase I trial by the end of the calendar year. Currently the company expects to enrol approximately 30 patients in total for the trial and for it to be a two-part study that will test two different drug concentrations in each part. The first cohort will evaluate the safety, tolerability and PK of INM-750 cream once daily for 14 days in healthy volunteers with normal, intact skin. In a second cohort of healthy volunteers, the company will test the local safety and tolerability of applying INM-750 cream to small wounds once daily for seven days (the small wounds will be created at the clinical site and will largely mimic the types of wounds typically seen in EB simplex patients). All that said, the final design of the study may be influenced by regulatory feedback.

Importantly InMed has already selected a clinical research organization (CRO) to run the human clinical trials and is on the verge of selecting a contract manufacturing organization that will produce the topical cream necessary for the Phase I trial, which provides us with additional confidence that the current timelines will be met. With regards to the timing of the Phase I trial itself, it will likely enrol quickly (the company expects the enrolment period to be “a matter of weeks”) so results should be released sometime in the first half of 2020.

With regards to biosynthesis, InMed previously announced in October that it had entered into a development agreement with the National Research Council of Canada (NRC), the primary research and technology organization of the Canadian government, for biofermentation development and scale-up processes at the NRC’s dedicated facility in Montreal. Technology transfer activities to the NRC began in late 2018 and the company has already completed the transfer of the protocols for high-performance liquid chromatography. InMed will soon begin the portion of the process that relates to the transfer of the gene construct containing the coding sequence for the enzymes responsible for cannabinoid production. Parameter optimization for fermentation scale-up activities will begin once this process is completed. Additionally, the company signed a master service agreement with a contract development and manufacturing organization (CDMO) for downstream purification processing. The processes will be optimized in parallel at both the NRC and the CDMO and then later combined with larger-scale batches, expected by the end of the year. Commercial-scale batches are likely to occur in 2020.


Valuation

We have adjusted our valuation from C$232m or C$1.36 per basic share (C$1.05 per diluted share) to C$257m or C$1.51 per basic share (C$1.16 per diluted share) mainly due to rolling forward our NPVs, although this was mitigated by lower net cash.

Exhibit 1: InMed valuation table

Program

Stage

Probability of success

Launch year

Peak sales
(C$m)

rNPV
(C$m)

Biosynthesis (manufacturing)

Development

23%

2021

1,574

222

INM-750

Preclinical

5.0%

2026

345

13

Total

234.4

Net cash and equivalents (as of 31 December 2018) (C$m)

23.0

Total firm value (C$m)

257.3

Total basic shares (as of December 2018, m)

170.9

Value per basic share (C$)

1.51

Options and warrants (as of December 2018, m)

51.2

Total diluted shares (m)

222.1

Value per diluted share (C$)

1.16

Source: Edison Investment Research

Financials

InMed reported an operating loss, excluding the gain from foreign exchange, of C$2.9m in Q2 of FY19 (the quarter ending 31 December 2018), up from C$1.5m for the same period a year ago. R&D expenses were C$0.9m in Q219, up from C$0.4m in the same quarter last year. We have increased our R&D estimates by C$0.7m in FY19 and by C$1.3m in FY20 as the spending was a bit higher than we had expected.

The company had C$23.0m in cash at 31 December and had an operating cash burn of C$3.6m through the first half of FY19. As we expect R&D expenditures to accelerate in the coming quarters, we believe its cash level provides a runway through to FY20.

Exhibit 2: Financial summary

C$000s

2017

2018

2019e

2020e

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

(746)

(1,927)

(4,525)

(9,051)

Selling, general & administrative

(2,321)

(3,367)

(3,716)

(3,865)

EBITDA

 

 

(3,263)

(5,530)

(8,494)

(13,168)

Operating Profit (before amort. and except.)

(3,165)

(5,412)

(8,368)

(13,042)

Intangible Amortisation

0

0

0

0

Exceptionals/Other

(1,309)

(3,197)

(3,956)

(4,114)

Operating Profit

(4,474)

(8,609)

(12,324)

(17,156)

Net Interest

0

88

385

0

Other (change in fair value of warrants)

0

0

0

0

Profit Before Tax (norm)

 

 

(3,165)

(5,324)

(7,983)

(13,042)

Profit Before Tax (IFRS)

 

 

(4,474)

(8,521)

(11,939)

(17,156)

Tax

0

0

0

0

Deferred tax

0

0

0

0

Profit After Tax (norm)

(3,165)

(5,324)

(7,983)

(13,042)

Profit After Tax (IFRS)

(4,474)

(8,521)

(11,939)

(17,156)

Average Number of Shares Outstanding (m)

96.8

142.5

172.2

179.0

EPS - normalised (c)

 

 

(3.27)

(3.74)

(4.64)

(7.28)

EPS - IFRS ($)

 

 

(0.05)

(0.06)

(0.07)

(0.10)

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

 

 

1,392

1,329

1,264

1,229

Intangible Assets

1,365

1,274

1,228

1,228

Tangible Assets

27

56

36

1

Other

0

0

0

0

Current Assets

 

 

6,945

26,734

18,469

5,492

Stocks

0

0

0

0

Debtors

0

0

0

0

Cash

6,708

26,477

18,064

5,087

Other

237

257

405

405

Current Liabilities

 

 

(370)

(938)

(550)

(550)

Creditors

(370)

(938)

(550)

(550)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

0

0

0

0

Long term borrowings

0

0

0

0

Other long term liabilities

0

0

0

0

Net Assets

 

 

7,966

27,125

19,183

6,171

CASH FLOW

Operating Cash Flow

 

 

(3,076)

(4,672)

(8,419)

(12,885)

Net Interest

0

0

0

0

Tax

0

0

0

0

Capex

(25)

(56)

(61)

(91)

Acquisitions/disposals

0

0

0

0

Financing

9,755

24,483

11

0

Dividends

0

0

0

0

Other

0

0

0

0

Net Cash Flow

6,654

19,756

(8,469)

(12,977)

Opening net debt/(cash)

 

 

(54)

(6,708)

(26,477)

(18,064)

HP finance leases initiated

0

0

0

0

Exchange rate movements

0

0

0

0

Other

0

14

56

0

Closing net debt/(cash)

 

 

(6,708)

(26,477)

(18,064)

(5,087)

Source: InMed Pharmaceuticals reports, Edison Investment Research

General disclaimer and copyright

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 Edison analyst 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.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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.

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The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

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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

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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

General disclaimer and copyright

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 Edison analyst 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.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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.

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

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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