InMed Pharmaceuticals — Acquiring BayMedica

InMed Pharmaceuticals (US: INM)

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Research: Healthcare

InMed Pharmaceuticals — Acquiring BayMedica

InMed has announced that it has entered into a definitive agreement to acquire BayMedica, a private US-based company that is focusing on the manufacture and commercialization of rare cannabinoids. This is an all-stock transaction in which InMed will issue 1.78m shares to BayMedica’s equity and convertible debt holders. At the current stock price, this values BayMedica at approximately US$4m. Following the closure of the transaction, the combined company will have expertise in both yeast and bacteria biosynthesis as well as chemical synthesis of cannabinoids. Additionally, it will be a commercial company with cumulative revenues of over US$2.5m since December 2019 stemming from the sale of cannabichromene (CBC). The acquisition is expected to close in the coming weeks.

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Written by

Healthcare

InMed Pharmaceuticals

Acquiring BayMedica

Development update

Pharma & biotech

20 September 2021

Price

US$2.0

Market cap

US$24m

Net cash (US$m) at 31 March 2021 + offering

20.5

Shares in issue

12.1m

Free float

82.9%

Code

INM

Primary exchange

Nasdaq

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(10.0)

(31.6)

(46.5)

Rel (local)

(9.6)

(34.9)

(59.5)

52-week high/low

US$6.8

US$2.0

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 II initiation

Q3 CY21

Analysts

Maxim Jacobs

+1 646 653 7027

Jyoti Prakash

+91 981 880 393

InMed Pharmaceuticals is a research client of Edison Investment Research Limited

InMed has announced that it has entered into a definitive agreement to acquire BayMedica, a private US-based company that is focusing on the manufacture and commercialization of rare cannabinoids. This is an all-stock transaction in which InMed will issue 1.78m shares to BayMedica’s equity and convertible debt holders. At the current stock price, this values BayMedica at approximately US$4m. Following the closure of the transaction, the combined company will have expertise in both yeast and bacteria biosynthesis as well as chemical synthesis of cannabinoids. Additionally, it will be a commercial company with cumulative revenues of over US$2.5m since December 2019 stemming from the sale of cannabichromene (CBC). The acquisition is expected to close in the coming weeks.

Year end

Revenue (US$m)

PBT*
(US$m)

EPS*
(US$)

DPS
(US$)

P/E
(x)

Yield
(%)

06/19

0.0

(9.2)

(1.77)

0.00

N/A

N/A

06/20

0.0

(9.0)

(1.73)

0.00

N/A

N/A

06/21e

0.0

(10.2)

(1.55)

0.00

N/A

N/A

06/22e

0.0

(10.9)

(0.90)

0.00

N/A

N/A

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

A leading manufacturer of rare cannabinoids

The combined company will have multiple tools to produce rare cannabinoids at meaningful yields and at attractive costs. BayMedica provides expertise in the use of chemical synthesis and yeast to manufacture cannabinoids while InMed provides expertise in using E. coli (bacteria) through its IntegraSyn platform.

A growing commercial product

BayMedica is currently the global leader in large batch (currently 200kg but with the ability to scale up to metric tonnes) supply of CBC, a rare non-intoxicating cannabinoid. It is currently being marketed to consumer health and wellness companies focused on nutraceuticals, cosmetics, functional food/beverages and animal health. Cumulative revenues since the launch in December 2019 are over US$2.5m.

Additional rare cannabinoids scaling up

Besides CBC, which is already at commercial scale, BayMedica is currently scaling up on tetrahydrocannabivarin (THCV), cannabidivarin (CBDV) and cannabinol (CBN). Each has its own set of benefits and once manufactured at scale will likely have meaningful margins, in our view.

Valuation: US$242m or US$20.03 per basic share

We have adjusted our valuation to US$242m or US$20.03 per basic share, from US$236m or US$29.27 per basic share. The total valuation rose due to higher net cash following a US$12m (gross) calendar Q221 financing, while the per-share value decreased due to a higher number of shares outstanding.

Becoming a leading rare cannabinoid manufacturer

InMed has announced a definitive agreement to acquire BayMedica, a company it had previously signed a collaboration with in November 2020 and for which it announced a non-binding letter of intent to acquire in June of this year. The combined company will have multiple tools to produce rare cannabinoids at meaningful yields and at attractive margins. BayMedica provides expertise in the use of chemical synthesis and yeast to manufacture cannabinoids while InMed provides expertise in using E. coli (bacteria) through its IntegraSyn platform. This acquisition put InMed in an attractive position to take advantage of the biosynthesis market. As mentioned in the recent Edison report on biosynthesis (‘Biosynthesis – Taking the cannabinoid market to new heights‘), the global market for consumer packaged goods (CPG) and pharma cannabinoid biosynthesis products is predicted to reach C$10bn in 2025 (~US$8bn) and C$115bn (~US$90bn) by 2040 according to Raymond James.

The need to find alternative methods to manufacture cannabinoids, especially rare cannabinoids, is clear. Plant-based extraction of cannabinoids is time consuming (it takes three to 10 months just to cultivate the plant), which also requires a high degree of purification as otherwise the product would likely have unwanted pesticides, molds, fungi or bacteria, residual solvents, and non-target cannabinoids. For example, it was noted during the FDA advisory committee meeting to discuss the potential approval of GW Pharmaceuticals’ Epidiolex (CBD) for pediatric epilepsies that there was as much THC in its pharmaceutical grade compound as some of the lower doses of dronabinol, an FDA-approved THC product. Additionally, only a few cannabinoids, such as THC and CBD, are plentiful enough in the plant to be extracted in an economically viable fashion.

BayMedica has already demonstrated an ability to manufacture rare cannabinoids at scale. BayMedica is currently the global leader in large batch (currently 200kg but with the ability to scale up to metric tonnes) supply of CBC, a rare non-intoxicating cannabinoid. Preclinical studies have shown its ability to inhibit the growth of cancer cells,1 block pain,2 potentially promote brain health,3 combat depression4 and inhibit acne.5 It is currently being marketed to consumer health and wellness companies focused on nutraceuticals, cosmetics, functional food/beverages and animal health. The company has indicated that cumulative revenue since the December 2019 launch was US$2.5m. However, we do not have information on the burn rate or cash needs of BayMedica.

  Ligresti et al., Antitumor Activity of Plant Cannabinoids with Emphasis on the Effect of Cannabidiol on Human Breast Carcinoma. Journal of Pharmacology and Experimental Therapeutics, 2006 318(3), 1375–1387.

  Maione et al., Non-psychoactive cannabinoids modulate the descending pathway of antinociception in anaesthetized rats through several mechanisms of action. British Journal of Pharmacology, 2011 Feb;162(3):584-96.

  Shinjyo et al., The effect of cannabichromene on adult neural stem/progenitor cells. Neurochemistry International. 2013 Nov;63(5):432-7.

  El-Alfy et al., Antidepressant-like effect of delta9-tetrahydrocannabinol and other cannabinoids isolated from Cannabis sativa L. Pharmacology, Biochemistry and Behavior. 2010 Jun;95(4):434-42.

  Olah et al., Differential effectiveness of selected non-psychotropic phytocannabinoids on human sebocyte functions implicates their introduction in dry/seborrhoeic skin and acne treatment. Experimental Dermatology 2016 Sep;25(9):701-7.

Besides CBC, which is already at commercial scale, BayMedica is currently scaling up on THCV, CBDV and CBN with an expectation to launch additional products in the next six to 12 months. THCV has been shown in preclinical studies to have an impact on obesity,6 epilepsy7 and Parkinson’s disease.8 Additionally, human clinical data demonstrated the potential for THCV to improve glycemic control in Type 2 diabetics.9 CBDV is being investigated by GW Pharmaceuticals (acquired by Jazz Pharmaceuticals in May 2021) in a number of indications. A Phase IIa study in adults with focal seizures did not meet its primary endpoint but trials are ongoing in autism and Prader-Willi Syndrome. GW/Jazz has also indicated interest in the treatment of Rett syndrome.

  Riedel et al., Synthetic and plant-derived cannabinoid receptor antagonists show hypophagic properties in fasted and non-fasted mice. British Journal of Pharmacology (2009), 156, 1154–1166

  Dos Santos et al., Phytocannabinoids and epilepsy. Journal of Clinical Pharmacy and Therapeutics 2015, 40, 135–143

  Garcia et al., Symptom-relieving and neuroprotective effects of the phytocannabinoid Δ⁹-THCV in animal models of Parkinson's disease. British Journal of Pharmacology 2011 Aug;163(7):1495-506.

  Jadoon et al., Efficacy and Safety of Cannabidiol and Tetrahydrocannabivarin on Glycemic and Lipid Parameters in Patients With Type 2 Diabetes: A Randomized, Double-Blind, Placebo-Controlled, Parallel Group Pilot Study. Diabetes Care 2016 Oct;39(10):1777-86.

With regards to CBN, it has been the focus of InMed’s pharmaceutical pipeline with INM-755, which is entering Phase II for epidermolysis bullosa (EB) and INM-088, in preclinical development for glaucoma. Broadly, 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,10 inflammation (due to the inhibition of the expression of cytokines)11 and bacterial infection.12 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 regards 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 IL-8 and MMP-9 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.

CBN has also previously been shown to have efficacy in glaucoma. In cats, CBN has previously been shown to significantly reduce intraocular pressure (IOP) by around 27% after nine days.13 Also, InMed recently disclosed in vivo animal data for INM-088 at the H.C. Wainwright Ophthalmology Virtual Conference, which indicated a significant lowering of IOP at days 7 and 17 compared to the vehicle treated group.

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

BayMedica also has an extensive suite of new naturally occurring rare cannabinoids and cannabinoid analogs which can be developed as pharmaceutical products. This may potentially strengthen InMed’s pipeline going forward.

With regards to the current pipeline, InMed has filed Clinical Trial Applications in multiple countries for the Phase II of INM-755 in EB (Germany, France, Italy, Austria, Israel, Greece and Serbia) and anticipates the trial will begin in Q321.

Valuation

We have adjusted our valuation to US$242m or US$20.03 per basic share from US$236m or US$29.27 per basic share. The total valuation rose due to higher net cash following a calendar Q221 financing (described below), while the per-share value decreased due to a higher number of shares outstanding. We have not made any adjustments to our model yet to take into account the BayMedica acquisition, but may do so once it closes in the coming weeks.

Exhibit 1: InMed valuation model

Program

Stage

Probability of success

Launch year

Peak sales (US$m)

rNPV
(US$m)

Biosynthesis (manufacturing)

Development

23%

2022

1,243

$198

INM-755

Phase II

10%

2026

313

$24

Total

$221.8

Net cash and equivalents (as of 31 March plus offering) (US$m)

$20.5

Total firm value (US$m)

$242.35

Total basic shares (as of 7 September 2021, m)

12.10

Value per basic share (US$)

$20.03

Options and warrants (m)

7.4

Total diluted shares (as of 7 September 2021, m)

19.5

Value per diluted share (US$)

$12.43

Source: Edison Investment Research

Financials

InMed is acquiring BayMedica in an all-stock transaction in which InMed will issue 1.78m shares to BayMedica’s equity and convertible debt holders. At the current stock price, this values BayMedica at approximately US$4m. This may be reduced in the event that BayMedica’s net liabilities exceed a certain negotiated threshold at the closing of the transaction. BayMedica’s equity and debt holders will also receive Series A warrants to purchase up to 800,000 shares with an exercise price equal to 125% of the 20-day volume-weighted average closing price of InMed shares prior to the third business day before the closing of the proposed transaction (the ‘Deal Price’) and Series B warrants to acquire up to 800,000 common shares of InMed priced at 200% of the ‘Deal Price’.

InMed reported a net loss of US$3.1m in Q321 (the period ending 31 March 2021), up from US$2.0m in the same period in the prior year due to higher R&D and SG&A expenses. R&D expenses were US$1.8m in the quarter compared to US$1.3m a year ago thanks to preparations for the INM-755 Phase II clinical trial. G&A was US$1.3m, up from US$0.9m in Q321. Our R&D estimates for FY21 and FY22 are now US$5.5m and US$6.3m, respectively (as compared to US$4.3m and US$5.0m previously). Our SG&A estimates are substantially unchanged.

InMed had US$9.5m in cash and marketable securities at 31 March and subsequently (in July 2021) raised approximately US$12m in gross proceeds (US$11m net) from a private placement of 4.036m units, priced at US$2.973 per unit, with a unit including a common share and a warrant (the warrants have an exercise price of US$2.848 per share, are exercisable immediately after issuance and have a term of five years).

Based on the cash level following the offering, we believe InMed has funding into FY23. However, the exact level of funding requirement will depend on the expense level for the combined companies. We will update our financial model once the acquisition closes and we have some clarity on cash needs.

Exhibit 2: Financial summary

US$'000s

2019

2020

2021e

2022e

Year end 30 June

US GAAP

US GAAP

US GAAP

US GAAP

PROFIT & LOSS

Revenue

 

 

0

0

0

0

Cost of Sales

0

0

0

0

Gross Profit

0

0

0

0

Research and development

(5,126)

(5,811)

(5,465)

(6,285)

Selling, general & administrative

(4,297)

(3,227)

(4,305)

(4,477)

EBITDA

 

 

(9,423)

(9,038)

(9,770)

(10,762)

Operating Profit (before amort. and except.)

 

 

(9,542)

(9,151)

(9,890)

(10,882)

Intangible Amortization

0

0

0

0

Exceptionals/Other

(34)

82

65

68

Operating Profit

(9,576)

(9,069)

(9,825)

(10,814)

Net Interest and financial expense

328

130

(345)

0

Other (change in fair value of warrants)

0

0

0

0

Profit Before Tax (norm)

 

 

(9,215)

(9,021)

(10,235)

(10,882)

Profit Before Tax (IFRS)

 

 

(9,248)

(8,939)

(10,170)

(10,814)

Tax

0

0

0

0

Deferred tax

0

0

0

0

Profit After Tax (norm)

(9,215)

(9,021)

(10,235)

(10,882)

Profit After Tax (IFRS)

(9,248)

(8,939)

(10,170)

(10,814)

Average Number of Shares Outstanding (m)

5.2

5.2

6.6

12.1

EPS - normalized (US$)

 

 

(1.77)

(1.73)

(1.55)

(0.90)

EPS - GAAP (US$)

 

 

(1.78)

(1.71)

(1.54)

(0.89)

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

 

 

1,264

1,490

1,442

1,345

Intangible Assets

1,221

1,087

1,086

1,086

Tangible Assets

43

403

341

245

Other

0

0

15

15

Current Assets

 

 

14,173

6,312

7,885

8,788

Stocks

0

0

0

0

Debtors

65

45

70

70

Cash

13,784

5,848

6,488

7,391

Other

324

419

1,327

1,327

Current Liabilities

 

 

(1,194)

(1,676)

(1,714)

(1,714)

Creditors

(1,194)

(1,676)

(1,714)

(1,714)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

0

(248)

(216)

(216)

Long term borrowings

0

0

0

0

Other long term liabilities

0

(248)

(216)

(216)

Net Assets

 

 

14,243

5,878

7,396

8,202

CASH FLOW

Operating Cash Flow

 

 

(6,624)

(7,375)

(10,776)

(10,074)

Net Interest

0

0

0

0

Tax

0

0

0

0

Capex

(27)

(43)

(21)

(23)

Acquisitions/disposals

0

0

0

0

Financing

205

(31)

10,938

11,000

Dividends

0

0

0

0

Other

0

1

0

0

Net Cash Flow

(6,446)

(7,448)

141

903

Opening net debt/(cash)

 

 

(20,179)

(13,784)

(5,848)

(6,488)

HP finance leases initiated

0

0

0

0

Exchange rate movements

(17)

416

(495)

0

Other

69

(905)

994

0

Closing net debt/(cash)

 

 

(13,784)

(5,848)

(6,488)

(7,391)

Source: company reports, 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.

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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.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

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Germany

London +44 (0)20 3077 5700

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United Kingdom

New York +1 646 653 7026

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United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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NSW 2000, Australia

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Research: TMT

Mondo TV — Production value well ahead

Mondo TV’s interims show a big step up in production value to €17.5m at end June (+36% y-o-y), with delivery of 26 episodes of Disco Dragon from Mondo TV France a large element. The regular stream of newsflow of sales and licensing agreements continued through H1, underpinning forecast progress for FY22. The newer deals give a broader international reach, reducing the weighting of Asia in the mix. The €10.5m funding from Atlas Special Opportunities has secured the balance sheet, allowing for the associated investment. The rating remains modest, given the continuing strong demand for original content and the proliferation of platforms.

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