Fiscal Q319 results

InMed Pharmaceuticals 22 May 2019 Update
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InMed Pharmaceuticals

Fiscal Q319 results

Development update

Pharma & biotech

22 May 2019

Price

C$0.43

Market cap

C$74m

C$0.74/US$

Net cash (C$m) at 31 March 2019

20.4

Shares in issue

172.1m

Free float

96.0%

Code

IN

Primary exchange

TSX

Secondary exchange

OTC Markets

Share price performance

%

1m

3m

12m

Abs

(11.3)

(25.9)

(58.3)

Rel (local)

(10.3)

(27.8)

(58.9)

52-week high/low

C$1.08

C$0.31

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

INM-755 Phase I initiation

H219

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 recently reported results for the third quarter of FY19 and is on track to be in the clinic to treat epidermolysis bullosa (EB) in the second half of this year (consistent with prior guidance for a CTA filing in H219 with entrance into clinic by year-end 2019). In March, it announced that instead of developing a combination cannabinoid product for EB, it would go with a single agent (INM-755) as it discovered in its testing that by increasing the dose of one of the components, efficacy was the same as the combination. This greatly simplified the regulatory process as there are extra hurdles for a combination of two investigational drugs in one product.

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

(8.4)

(0.05)

0.00

N/A

N/A

06/20e

0.0

(13.9)

(0.08)

0.00

N/A

N/A

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

Entering the clinic in the second half of 2019

InMed is on track for initiation of the Phase I study in healthy volunteers in H219. Importantly, the company has selected a contract manufacturing organization to produce drug product for the clinical trial, which provides further confidence in timelines for the trial. Enrolment is expected to occur quickly so results should be released sometime in the first half of 2020.

Biosynthesis development progressing

InMed completed the technology transfer to the National Research Council Canada (NRC) to support scale-up activities. The precursors were successfully converted into a specific cannabinoid using the correct construct in E. coli. Additionally, ‘downstream process’ (DSP) activities related to purification process development have begun.

Significant interest in biosynthesis of cannabinoids

Interest in the biosynthesis sector continues to grow with two partnerships recently announced. In March, Amyris announced a $300m agreement to produce cannabinoids in yeast with LAVVAN. In April, Zenabis Global announced a three-year supply agreement with Farmako for cannabidiol (CBD) biosynthesized in tequila bacteria, with a stated goal to begin supplying it in Q419, though this may be aggressive given the early stage nature of Farmako’s process.

Valuation: C$255m or C$1.48 per basic share

We have slightly adjusted our valuation to C$255m or C$1.48 per basic share (C$1.14 per diluted share), from C$257m or C$1.51 per basic share (C$1.16 per diluted share), principally due to lower net cash. InMed had C$20.4m in cash at 31 March and we believe this provides a runway through FY20.

An update on EB and biosynthesis

InMed continues to be on track for initiation of the Phase I study in healthy volunteers in H219. As a reminder, the company previously stated that it 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-755 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-755 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).

Importantly InMed has already selected both the clinical research organization (CRO) to run the human clinical trials and the 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 have now been completed, including the transfer of the gene construct containing the coding sequence for the enzymes responsible for cannabinoid production. Fermentation scale-up activities have also begun.

Biosynthesis industry activity increasing

Additionally, there have been some big announcements related to cannabinoid biosynthesis lately, though it is unclear at what stage these companies are at in developing a fermentation process for cannabinoids. As a reminder, in September 2018, Ginkgo Bioworks announced a deal with Cronos Group in which Cronos will pay Ginkgo up to $122m to develop a biosynthesis process for eight target cannabinoids. Of this $22m will be to fund R&D and foundry expenses with the rest of the potential payout related to hitting milestones, namely achieving a production cost of less than $1,000 per kilogram at a scale of greater than 200 liters. It is unclear whether this is achievable due to the large amount of expensive inputs. In March 2019, Amyris announced a $300m agreement to produce cannabinoids (starting with CBD), also in yeast, with LAVVAN, a cannabis-focused company formed in the previous month with undisclosed backing or capitalization. Most of the agreement was backend loaded, but $10m was received within the first month and an additional $10–20m is expected by the end of 2020. In April, Zenabis Global announced a three-year supply agreement with Farmako for CBD biosynthesized in tequila bacteria, with a stated goal to begin supplying it in Q419. This goal may be aggressive as Farmako only moved into its own laboratory space in April. It is also unclear if any upfront funding was provided.

InMed has stated that it has been approached by potential partners but that it is going to wait until the process is more advanced (or ideally, finalized) in order to maximize its return.


Valuation

We have slightly adjusted our valuation to C$255m or C$1.48 per basic share (C$1.14 per diluted share), from C$257m or C$1.51 per basic share (C$1.16 per diluted share), principally due to lower net cash. We expect to re-adjust our valuation following advancement of INM-755 into the clinic and as the biosynthesis process approaches commercialization.

Exhibit 1: InMed valuation table

Program

Stage

Probability of success

Launch year

Peak sales (C$m)

rNPV (C$m)

Biosynthesis (manufacturing)

Development

23%

2020

1,574

$222

INM-755

Preclinical

5.0%

2026

345

$13

Total

$234.4

Net cash and equivalents (As of 31 March) (C$m)

$20.4

Total firm value (C$m)

$254.7

Total basic shares (as of December 2018, m)

172.1

Value per basic share (C$)

$1.48

Options and warrants (as of December 2018, m)

50.5

Total diluted shares (m)

222.6

Value per diluted share (C$)

$1.14

Source: Edison Investment Research

Financials

InMed reported an operating loss of C$3.6m in Q3 of FY19 (the quarter ending 31 March 2019), up from C$2.2m for the same period a year ago. R&D expenses were C$1.6m in Q319, up from C$0.6m in the same quarter last year. We have increased our R&D estimates by C$0.4m in FY19 and by C$0.9m in FY20 as the spending was a bit higher than we had expected.

The company had C$20.4m in cash, cash equivalents and short term investments at 31 March and had an operating cash burn of C$6.4m through the first three quarters of FY19. As we expect R&D expenditures to accelerate in the coming quarters, we believe its cash level provides a runway through 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)

(4,967)

(9,934)

Selling, general & administrative

(2,321)

(3,367)

(3,759)

(3,834)

EBITDA

 

 

(3,263)

(5,530)

(8,978)

(14,020)

Operating Profit (before amort. and except.)

(3,165)

(5,412)

(8,852)

(13,894)

Intangible Amortisation

0

0

0

0

Exceptionals/Other

(1,309)

(3,197)

(4,120)

(4,284)

Operating Profit

(4,474)

(8,609)

(12,971)

(18,178)

Net Interest

0

88

410

0

Other (change in fair value of warrants)

0

0

0

0

Profit Before Tax (norm)

 

 

(3,165)

(5,324)

(8,441)

(13,894)

Profit Before Tax (IFRS)

 

 

(4,474)

(8,521)

(12,561)

(18,178)

Tax

0

0

0

0

Deferred tax

0

0

0

0

Profit After Tax (norm)

(3,165)

(5,324)

(8,441)

(13,894)

Profit After Tax (IFRS)

(4,474)

(8,521)

(12,561)

(18,178)

Average Number of Shares Outstanding (m)

96.8

142.5

171.5

178.4

EPS - normalised (C$)

 

 

(0.03)

(0.04)

(0.05)

(0.08)

EPS - IFRS (C$)

 

 

(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

1,263

1,227

Intangible Assets

1,365

1,274

1,205

1,205

Tangible Assets

27

56

58

22

Other

0

0

0

0

Current Assets

 

 

6,945

26,734

18,280

4,409

Stocks

0

0

0

0

Debtors

0

0

0

0

Cash

6,708

26,477

17,554

3,683

Other

237

257

726

726

Current Liabilities

 

 

(370)

(938)

(668)

(668)

Creditors

(370)

(938)

(668)

(668)

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

18,876

4,969

CASH FLOW

Operating Cash Flow

 

 

(3,076)

(4,672)

(9,137)

(13,782)

Net Interest

0

0

0

0

Tax

0

0

0

0

Capex

(25)

(56)

(60)

(90)

Acquisitions/disposals

0

0

0

0

Financing

9,755

24,483

205

0

Dividends

0

0

0

0

Other

0

0

0

0

Net Cash Flow

6,654

19,756

(8,991)

(13,871)

Opening net debt/(cash)

 

 

(54)

(6,708)

(26,477)

(17,554)

HP finance leases initiated

0

0

0

0

Exchange rate movements

0

0

0

0

Other

0

14

68

0

Closing net debt/(cash)

 

 

(6,708)

(26,477)

(17,554)

(3,683)

Source: InMed Pharmaceuticals accounts, 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.

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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.

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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.

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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

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

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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