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InMed continues to make progress on its biosynthesis platform, optimizing the genes that lead E. coli to express the cannabinoids and scaling up the fermentation process, both crucial steps needed to achieve commercial scale to address the market. InMed is also optimizing the formulation for INM-750 for epidermolysis bullosa (EB). A final formulation is expected by the end of 2018. The company is also conducting pharmacology, toxicology and other pre-clinical studies in preparation for detailed discussions with regulatory authorities, which it expects to occur in H119. InMed is on track for an IND filing in H219.
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InMed Pharmaceuticals |
Progressing their programs |
Financial update |
Pharma & biotech |
20 September 2018 |
Share price performance
Business description
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InMed Pharmaceuticals is a research client of Edison Investment Research Limited |
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InMed continues to make progress on its biosynthesis platform, optimizing the genes that lead E. coli to express the cannabinoids and scaling up the fermentation process, both crucial steps needed to achieve commercial scale to address the market. InMed is also optimizing the formulation for INM-750 for epidermolysis bullosa (EB). A final formulation is expected by the end of 2018. The company is also conducting pharmacology, toxicology and other pre-clinical studies in preparation for detailed discussions with regulatory authorities, which it expects to occur in H119. InMed is on track for an IND filing in H219.
Year end |
Revenue (C$m) |
PBT* |
EPS* |
DPS |
P/E |
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 |
(7.5) |
(0.04) |
0.00 |
N/A |
N/A |
06/20e |
0.0 |
(11.5) |
(0.06) |
0.00 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Increased interest in biosynthesis strategy
Cronos Group, a c US$2bn Nasdaq-listed cannabis grower and marketer, recently signed an agreement with Ginkgo Bioworks to synthesize eight cannabinoids in yeast, helping validate InMed’s strategy as Cronos believes “biosynthesis is a potentially disruptive and cost effective means to produce cannabinoids at a commercially viable scale with limited CapEx.” Cronos expects to commit US$22m in research and foundry funding and will issue equity upon the achievement of certain milestones. That equity is currently valued at US$170m.
INM-750 progressing in EB
InMed is developing INM-750, a topical cannabinoid cream, for EB, a debilitating genetic disorder characterized by skin fragility leading to blistering and wounding. The company believes the product could provide symptomatic relief in all patients and potentially treat the underlying disease in a subset of patients, and expects to file an IND in H219 following regulatory discussions in H119.
Funding secured into FY21
On 21 June 2018, InMed raised net proceeds of C$13.5m. 16.6m units were issued at $0.90 per unit with each unit consisting of a common share and a warrant. The warrants are exercisable at $1.25 for a period of 24 months. The company had C$26.5m in cash at 30 June and we believe this provides runway into FY21.
Valuation: C$234m or C$1.37 per basic share
We have adjusted our valuation from C$221m or C$1.45 per basic share (C$1.20 per diluted share) to C$234m or C$1.37 per basic share (C$1.05 per diluted share). The total value increased due to a higher level of net cash while the per share value decreased because of a larger number of shares outstanding. Otherwise, our valuation estimates are unchanged.
FY18 results and development update
InMed recently reported its FY18 results and provided a development update. With regards to the biosynthesis platform, the company continues to work on optimizing the genes to get E. coli to express the cannabinoids and scaling up the fermentation process – the crucial steps needed to achieve commercial scale to address the market. On the earnings call, the company suggested that it will be able to start talking to growers about supplying cannabinoids in about 12 months, which is approximately in-line with our estimates.
INM-750 for EB remains on track for an IND filing in H219. Formulation studies are ongoing and a final topical formulation is expected by the end of 2018. The company is also conducting pharmacology studies to assist its understanding of the roles of each of the two cannabinoids that comprise INM-750. These, as well as other pre-clinical studies that the company is conducting, such as toxicology and dose-finding studies, will help prepare InMed for detailed discussions with regulatory agencies, which it expects to occur in H119. Following these discussions, the company expects to conduct another set of pre-clinical studies following guidance from regulators.
Cronos-Ginkgo Bioworks deal
We believe that the recently announced deal between Cronos Group and Gingkgo Bioworks helps to validate Inmed’s stated strategy of developing cannabinoids in its biosynthesis platform. Cronos Group is a Nasdaq-listed cannabis grower and marketer with a c US$2bn market capitalization and a presence in four continents. While it uses traditional growing methods, Cronos believes “biosynthesis is a potentially disruptive and cost effective means to produce cannabinoids at a commercially viable scale with limited CapEx.” Per the agreement, Cronos will fund R&D related to the biosynthesis of cannabinoids in yeast (as opposed to InMed’s E. coli based platform) and foundry expenses at Ginkgo, which are expected to be US$22m. Cronos will also issue tranches of common shares once target cannabinoids can be produced for less than US$1,000 per kilogram at a scale of greater than 200 liters (see Exhibit 1). As a comparison, the wholesale price of cannabis flower in Washington State is US$2,530 per kilogram as of September 2017 (source: TopShelfData). At the closing price on 18 September, the value of those shares is equal to US$170m despite only covering eight cannabinoids. The value of a platform that could synthesize 90+ cannabinoids would likely be much higher, in our view.
Exhibit 1: Cronos-Ginkgo deal milestones
Target Cannabinoid |
Milestone shares |
Value of shares ($m) |
THC(A) |
2,934,981 |
33.9 |
CBD(A) |
2,201,235 |
25.4 |
CBC(A) |
1,467,490 |
17.0 |
CBG(A) |
1,467,490 |
17.0 |
THCV(A) |
2,201,235 |
25.4 |
CBGV(A) |
1,467,490 |
17.0 |
CBDV(A) |
1,467,490 |
17.0 |
CBVC(A) |
1,467,490 |
17.0 |
Total |
14,674,901 |
169.6 |
Source: Cronos Group. Value of shares based on closing price at 18 September 2018
With regards to Ginkgo competing with InMed, it is unclear when Ginkgo started researching biosynthesizing cannabinoids but it is possible that InMed has as much as a three-year head start. Also, while InMed has the freedom to operate in E. coli, the patent landscape to use yeast is more crowded (Teewinot Life Sciences and Librede both have patents to manufacture cannabinoids in yeast) and it may prove challenging for Ginkgo to find a way through. Also, at present, the cost of starting materials to produce cannabinoids in yeast are believed to be higher than $1,000 per kilogram, so it is unclear whether Ginkgo will be able to hit its cost-efficiency target.
Valuation
We have adjusted our valuation from C$221m or C$1.45 per basic share (C$1.20 per diluted share) to C$234m or C$1.37 per basic share (C$1.05 per diluted share). The total value increased due to a higher level of net cash as a result of the placement, while the per share value decreased because of a larger number of shares (and options in the case of the diluted share value) outstanding. Otherwise, our valuation estimates remain unchanged.
Exhibit 2: InMed valuation table
Program |
Stage |
Probability of success |
Launch |
Peak sales (C$m) |
rNPV |
|||
Biosynthesis (manufacturing) |
Development |
23% |
2020 |
1,574 |
$196 |
|||
INM-750 |
Preclinical |
5.0% |
2026 |
345 |
$11 |
|||
Total |
$207.0 |
|||||||
Net cash and equivalents (As of 30 June 2018) (C$m) |
$26.5 |
|||||||
Total firm value (C$m) |
$233.5 |
|||||||
Total basic shares (as of June 2018, m) |
170.9 |
|||||||
Value per basic share (C$) |
$1.37 |
|||||||
Options and warrants (as of June 2018, m) |
50.5 |
|||||||
Total diluted shares (m) |
221.4 |
|||||||
Value per diluted share (C$) |
$1.05 |
|||||||
Source: Edison Investment Research
Financials
InMed reported an operating loss of C$8.5m for its fiscal 2018 (year ending 30 June 2018) up from C$4.5m for FY17. R&D expenses were C$1.9m in FY18, up from C$0.7m in FY17. We have made only slight adjustments to our estimates following this earnings release and have also introduced our FY20 numbers. We expect losses to increase steadily (to C$10.8m in FY19 and C$14.9m in FY20) as the company advances its manufacturing platform and proprietary pipeline with projected R&D spending of C$3.9m in FY19 and C$7.7m in FY20.
On 21 June 2018, the company raised net proceeds of C$13.5m. 16.6m units were issued at a price of $0.90 per unit with each unit consisting of a common share and a warrant. The warrants are exercisable at $1.25 for a period of 24 months. The company had C$26.5m in cash at 30 June and we believe this provides runway into FY21.
Exhibit 3: Financial summary
C$'000s |
2016 |
2017 |
2018 |
2019e |
2020e |
||
Year end 30 June |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
0 |
0 |
0 |
0 |
0 |
Cost of Sales |
0 |
0 |
0 |
0 |
0 |
||
Gross Profit |
0 |
0 |
0 |
0 |
0 |
||
Research and development |
(379) |
(746) |
(1,927) |
(3,854) |
(7,709) |
||
Selling, general & administrative |
(1,337) |
(2,321) |
(3,367) |
(3,502) |
(3,642) |
||
EBITDA |
|
|
(1,890) |
(3,263) |
(5,530) |
(7,592) |
(11,586) |
Operating Profit (before amort. and except.) |
(1,803) |
(3,165) |
(5,412) |
(7,474) |
(11,469) |
||
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals/Other |
(574) |
(1,309) |
(3,197) |
(3,324) |
(3,457) |
||
Operating Profit |
(2,377) |
(4,474) |
(8,609) |
(10,799) |
(14,926) |
||
Net Interest |
0 |
0 |
88 |
0 |
0 |
||
Other (change in fair value of warrants) |
0 |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(1,803) |
(3,165) |
(5,324) |
(7,474) |
(11,469) |
Profit Before Tax (IFRS) |
|
|
(2,377) |
(4,474) |
(8,521) |
(10,799) |
(14,926) |
Tax |
0 |
0 |
0 |
0 |
0 |
||
Deferred tax |
0 |
0 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(1,803) |
(3,165) |
(5,324) |
(7,474) |
(11,469) |
||
Profit After Tax (IFRS) |
(2,377) |
(4,474) |
(8,521) |
(10,799) |
(14,926) |
||
Average Number of Shares Outstanding (m) |
60.2 |
96.8 |
142.5 |
178.1 |
185.2 |
||
EPS - normalised (c) |
|
|
(2.99) |
(3.27) |
(3.74) |
(4.20) |
(6.19) |
EPS - IFRS ($) |
|
|
(0.04) |
(0.05) |
(0.06) |
(0.06) |
(0.08) |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
N/A |
N/A |
N/A |
N/A |
N/A |
||
EBITDA Margin (%) |
N/A |
N/A |
N/A |
N/A |
N/A |
||
Operating Margin (before GW and except.) (%) |
N/A |
N/A |
N/A |
N/A |
N/A |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
1,464 |
1,392 |
1,329 |
1,281 |
1,295 |
Intangible Assets |
1,459 |
1,365 |
1,274 |
1,274 |
1,274 |
||
Tangible Assets |
5 |
27 |
56 |
8 |
21 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Current Assets |
|
|
188 |
6,945 |
26,734 |
19,303 |
7,870 |
Stocks |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
0 |
0 |
0 |
0 |
0 |
||
Cash |
54 |
6,708 |
26,477 |
19,046 |
7,613 |
||
Other |
133 |
237 |
257 |
257 |
257 |
||
Current Liabilities |
|
|
(590) |
(370) |
(938) |
(938) |
(938) |
Creditors |
(590) |
(370) |
(938) |
(938) |
(938) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
0 |
0 |
0 |
0 |
0 |
Long term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
0 |
0 |
0 |
0 |
0 |
||
Net Assets |
|
|
1,062 |
7,966 |
27,126 |
19,646 |
8,227 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
(499) |
(3,076) |
(4,672) |
(7,356) |
(11,350) |
Net Interest |
0 |
0 |
0 |
0 |
0 |
||
Tax |
0 |
0 |
0 |
0 |
0 |
||
Capex |
(1) |
(25) |
(56) |
(75) |
(83) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
0 |
||
Financing |
388 |
9,755 |
24,483 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
(112) |
6,654 |
19,756 |
(7,431) |
(11,433) |
||
Opening net debt/(cash) |
|
|
(167) |
(54) |
(6,708) |
(26,477) |
(19,046) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Exchange rate movements |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
14 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(54) |
(6,708) |
(26,477) |
(19,046) |
(7,613) |
Source: Edison Investment Research, company accounts
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