MGC Pharmaceuticals - Initiation Report
MGC Pharma is a bio-pharma company that develops and produces medicines using compounds derived from cannabis and other plant-based sources. The company has two separate product categories:
The first category are ’phytotherapeautics’, health-promoting products derived from plant-based sources. There are two separate product lines within the phytotherapeutics category:
- MP Line cannabinoid products are MGC’s range of medical cannabis products. These are provided for patients under special access schemes in Australia, with initial sales also underway in Brazil, and other markets to be targeted going forward.
- ArtemiC Rescue and ArtemiC Support are non-cannabis based health supplements, which have achieved rapid sales acceleration.
The other product category is ‘phytomedicines’, pharmaceutical drugs derived from plant-based sources. The company has a pipeline of drug candidates in development at various stages of clinical and preclinical trials:
- CimetrA is a pharmaceutical application for the prevention of systemic inflammation and is scheduled to begin Phase III clinical trials in the coming months. This product combats an inflammatory event called cytokine storm that can occur as a result of viral infections, including COVID-19. Further successful results from this trial programme could act as a major potential value driver for the shares during the next 12 months in our view.
- CannEpil is a cannabis-derived therapy for refractory epilepsy, which is currently undergoing Phase II trials.
- CogniCann is a therapy for improving the quality of life for patients with dementia and Alzheimer’s. This is currently undergoing Phase II trials.
- MXOT01GB01 is a drug being developed for the treatment of glioblastoma, an aggressive form of brain cancer. This is a preclinical development making strong progress.
We examine these programmes in detail on p4-10. The programmes increase MGC’s addressable market from around £3bn to £60bn by our estimates. Furthermore, we believe that programme milestones within the next 12 months could serve as significant catalysts for the MGC share price.
A leader in plant derived medicines
We argue that MGC offers a compelling investment proposition for shareholders based on continuing revenue growth from the phytotherapeautic product lines, as well as the potential for outsized value creation from the clinical trial portfolio. The company benefits from a strong suite of capabilities to deliver on the strategy, in terms of personnel, facilities, and external relationships, and we examine these on p10-12.
During the next 12 months we believe that there are a number of potential catalysts to drive the MGC share price, including progress on the CimetrA programme for COVID-19 and the other trial drugs, and continued revenue growth and progress towards break-even profitability. Our full financial forecasts are on p15-17.
Investment conclusion
Year end Jun 30 · 2020 · Current · 2022
Revenue (A$-000's) · 2,079 · 2,680 · 11,950
Gross Profit (A$-000's) · 175 · 804 · 5,378
EPS (AUS cents) · (1.4) · (0.6) · (0.3)
MGC Pharma is a biopharma company focussed on developing and supplying phytomedicines — medicines derived from plant sources. The company was founded in 2015 and listed on the ASX in 2016. MGC then attained a dual listing on the London Stock Exchange in 2021, becoming the first LSE-listed cannabis company and raising £6.5mln in an overbooked listing (featuring two institutional investors: Premier Miton and Chelverton Funds Management). The company has its main operations in Slovenia, Australia, the UK, Israel, and Malta.
The company’s strategy is based on five areas of capability:
1) Genetics; 2) Extraction and isolation; 3) Clinical trial programmes; 4) Product development; and 5) Distribution, covering UK, EU, Australia, New Zealand, Latin America and the Middle East & North Africa.
The company has several commercial products already generating revenue, as well as a pipeline of drug candidates including three investigational medicinal products (IMPs) that are in various stages of clinical trials. MGC is in a unique position of being able to provide early patient access to clinical research products. This means MGC is generating revenues from these product pipelines, moving towards operational break-even (expected in 2021).
MP Line cannabinoids :
Cannabinoids are a family of compounds derived from cannabis that have various medicinal applications. MGC markets a range of cannabinoid formulations under the brand name MP Line. The main market for MP at present is Australia, where the products are prescribed under special access programmes for a variety of conditions.
Investment summary
ArtemiC:
ArtemiC is a food supplement containing four natural active ingredients – Artemisinin, Curcumin, Boswellia serrata, and vitamin C. This product is currently sold as a food supplement and is also part of the clinical trial programme (details on p8-9) leading to MGC’s CimetrA IMP.
Both of these product lines have achieved strong commercial momentum in recent months, and we expect strong growth in both revenue streams in the next 12 months. The following chart shows our revenue forecast for MGC Pharma, broken down by product.
ArtemiC is set to make an increasing revenue contribution in the period to Dec 2021 and beyond
Revenue by product line - 6 month periods
Source: Proactive Research
These two existing revenue drivers provide a strong initial platform for further growth, and also take the company to profitability break-even on a pre-research & development basis by the end of year 2021 (operational break-even) according to our forecasts (details on p13).
However, we argue that the bigger value driver for shareholders will come from the clinical trial programmes. These do not generate revenue in our forecasting timeframe ending FY (fiscal year) June 2022, but could potentially begin generating revenues during the calendar year 2022. Furthermore, milestones in the trial programmes during 2021 and 2022 are potentially significant catalysts for the MGC share price.
The importance of the pharmaceutical drug pipeline is that it potentially greatly expands the market opportunity for MGC Pharma. The following diagram illustrates.
The drug pipeline transforms the addressable market size for MGC Pharma
Expanding the addressable market
Source: Proactive Research
Development milestones could act as significant share price catalysts
Given the potential step-up in revenue opportunity and also in profitability for MGC, we believe the market is likely to pay close attention to the milestones in these programmes. The following diagram illustrates our expectation for the pathway for each of the three programmes through to final marketing authorisation (MA).
Drug pipeline
Source: Proactive Research
CimetrA is the pharmaceutical brand name that is being used for MGC’s ArtemiC product CimetrA has been able to benefit from a fast-track trial process because its effect on autoimmune conditions can be applied to arrest the progression of COVID-19. The COVID-19 application has also enabled MGC to obtain European grant funding. We expect this programme to enter Phase III trials during the calendar year 2021, which could lead to marketing authorisation in calendar year 2022.
Patent applications have been filed relating to CimetrA
The company has filed patent applications for CimetrA including the use of a self-nano-emulsifying drug delivery system (SNEDDS) developed by partner company Graft Polymer. This system delivers active ingredients more effectively in higher concentrations to the cells, improving the bioavailability and synergy of the natural ingredients.
CannEpil and CogniCann also offer potential value-triggers for the MGC share price in the medium term. These drug candidates offer potential new therapies for under-addressed conditions, and both are currently in Phase II trials. We note that mid-phase updates can offer a significant share price catalyst during phase II trials for companies in this space, and we provide an example of this on p6.
We next consider the revenue drivers and development programmes separately.
Cannabinoids - MP Line
Cannabinoids are a family of compounds derived from the cannabis plant, which have been increasingly used in medical applications in recent years. Important cannabinoids include tetrahydrocannabinol (THC) which is an intoxicating compound but which also has valuable medical properties, and also cannabidiol (CBD) which is non-intoxicating. Cannabinoids are being prescribed for a variety of medical conditions in countries including the USA, Canada, Brazil, Israel, Australia, and increasingly in the EU.
A wide range of conditions being addressed by cannabinoid therapies
The main market for MGC Pharma at present is Australia. Cannabinoids are prescribed in Australia for a range of conditions including, but not limited to:
- Chemotherapy-induced nausea
- Refractory paediatric epilepsy
- Palliative care
- Cancer pain
- Neuropathic pain
- Spasticity and neurological conditions
- Anorexia and wasting associated with chronic illness
Cannabinoids are prescribed to patients in Australia via special access schemes administered by the Therapeutic Goods Administration, which approves patients for access to cannabinoids based on their physician’s recommendation. The main route for patient access is a scheme called SAS-B.
The following chart shows the number of patient approvals per month under this scheme.
Increasing numbers of Australian patients approved for cannabinoid treatments
Australian SAS-B approvals for medical cannabis
Source: Therapeutic Goods Administration (Australian Government)
MGC Pharma produces a range of five phytotherapeautic products that offer consistent and accurate levels of active cannabinoids to suit the needs of a wide range of different patients. The company has achieved strong revenue growth in the last 12 months, and in its last update reported that May 2021 was a record month for the company with 2,400 units sold.
Compelling growth strategy for MP Line
We expect continued strong growth in MGC’s Australian cannabinoid business during the remainder of 2021 and through 2022, driven by:
- The appointment of a global head of sales, Nicole Godresse, who brings more than 20 years of experience, at companies including Johnson & Johnson and Eli Lilly
- Building a dedicated Australian sales team
- Continued growth in the Australian market
- An expanded sales and marketing presence in place for MGC. This includes a new marketing presence through the acquisition of Medicinal Cannabis Clinics in November 2020, as well as organic expansion of the sales force during the last six months
- A growing base of physicians achieving good patient outcomes using MGC products
- Holding the whole distribution chain from manufacturing through to patients allows MGC to lower costs and increase revenues
The company also has the potential to expand its presence in cannabinoids outside of Australia; it is currently already supplying patients in Brazil, will be entering the UK market in the near term, and will be expanding the global footprint for its products on an ongoing basis.
Developmental drug (pipeline product) - CannEpil for epilepsy
Epilepsy is one of the few conditions that is already being treated in several major jurisdictions using cannabis-derived products in the form of a fully approved pharmaceutical drug, as opposed to special access programmes. A drug called Epidiolex was approved in 2018 by the Federal Drug Administration (USA) for the treatment of two rare forms of epilepsy.
Epidiolex was developed by a company called GW Pharmaceutical, which was one of the early leaders in cannabis-based pharmaceutical research. The GW Pharmaceutical share price performed very strongly during the drug approval process, and now has a market cap of over US$6.9bn. The following chart shows the GW share price. GW was acquired in May 2021 by Jazz Pharmaceuticals for US$7.6bn, reflecting the value of the Epidiolex product and other cannabis-based medicines in the GW pipeline.
Clinical trial programmes can trigger dramatic share price moves
GW Pharmaceutical share price
Source: NASDAQ data
MGC Pharma has a proprietary formulation called CannEpil that is currently undergoing phase IIb trials, and which is already available for prescription in the UK, Ireland and Australia under early access programmes. CannEpil takes the form of an oral oil solution containing both THC and CBD, derived from specifically bred genotypes of cannabis with a stable and specific ratio of cannabinoids.
CannEpil differs from Epidiolex (the GW Pharma product) in two important regards — CannEpil, which has THC, uses the entourage effect to achieve efficacy and is designed to target a broad base of patients with drug-resistant (refractory) epilepsy, whereas Epidiolex (CBD only) is only approved for two specific conditions; Dravet’s Syndrome and Lennox-Gastaut.
The following chart illustrates the prevalence of drug-resistant epilepsy compared with Dravets or Lennox-Gastaut.
CannEpil addresses a much wider market segment compared with existing approved medicines from cannabis
Number of patients with different types of epilepsy (UK data)
Source: Proactive Research, medical journal sources
CannEpil is currently undergoing Phase IIb trials at Israel’s leading children’s hospital, the Schneider Medical Centre with three additional sites to be added, one in the UK, and two in Israel, as the trial progresses. We expect the results of the Phase IIb trial during 2022; however, the interim data could be published during 2021 (our expectation) which could serve as a significant catalyst for the MGC share price.
Developmental drug (pipeline product) - CogniCann for dementia treatment
Another cannabis-based drug in MGC’s clinical trial portfolio is CogniCann, a medication for alleviating the symptoms associated with dementia and Alzheimer’s.
Dementia is a very active field of pharmaceutical research, with current drugs being unable to adequately address some important patient needs. The market for dementia drugs is approaching £5bn and with an annual growth trend of 8-10%. The following chart illustrates.
A growing market for drugs treating dementia symptoms
Dementia drugs market
Source: Proactive Research, from various market sources
CogniCann is an oromucosal spray, which is designed to improve the quality of life of patients with mild dementia. The formulation contains both THC and CBD, produced from two proprietary cannabis genotypes that have been bred to produce stable ratios of the active cannabinoids.
Current drugs only partially address the many symptoms of dementia
Individuals with dementia (and Alzheimer’s disease) are often prescribed many drugs such as off-label antipsychotics, sedative/hypnotics, anxiolytics, acetylcholinesterase inhibitors, and antidepressants to mask the symptoms; however, only a few drugs have shown a benefit as unclear guidelines are provided for administration resulting in some medications being prescribed for a longer duration than recommended. Although pharmacological management of dementia is the most common option, several substantial side effects often occur including an increased rate of stroke and mortality. One alternative that promises to improve aggression and agitation is medicinal cannabis as it is safer to prescribe compared to pharmacotherapies, and the associated adverse effects are often minimal.
The therapy would initially target a population of 950,000 mild dementia patients in Europe and Australia, with an estimated yearly cost of A$7,800 per patient. Marketing authorisation could be achieved in the 2024-26 timeframe, with significant development milestones to arise in the calendar years 2022 and 2023. The addressable patient population increases from 950,000 to around five million once the entire global market is being served.
Autoimmune conditions, including COVID progression
CimetrA is a non-cannabis based IMP targeting autoimmune conditions - conditions where the patient’s own immune system is causing the damage.
CimetrA is the upgraded, pharmaceutical version of ArtemiC, with CimetrA being a pharmaceutical product currently in Phase iii clinical trial and ArtemiC, as a food supplement, currently available for sale worldwide. The development of CimetrA was accelerated during 2020 due to the emergence of an application in combatting the effects of COVID-19. In particular, there is a significant amount of research suggesting that the more severe symptoms of COVID are often the result of a mechanism called the cytokine storm. This is caused by the overproduction of a group of proteins called cytokines by the immune system, leading to serious tissue damage. The following diagram illustrates.
Cytokine storm triggered by COVID-19 leads to multiple forms of organ damage
Cytokine storm in COVID case
Source: Houston Methodist Hospital research papers
There is a growing body of evidence that in many individuals who progress from moderate COVID symptoms to severe, it is the cytokine storm that is responsible, and that arresting the cytokine storm would prevent these patients from becoming critically ill.
Encouraging results from MGC's trials for CimetrA against cytokine storm
MGC has already released some results from Phase II double-blind trials on patients with mild to moderate COVID infection, conducted in Israel and India. These trials showed a statistically significant improvement in clinical recovery, including no patients requiring additional oxygen, mechanical ventilation or intensive care among the treatment group, versus 23.4% among the placebo group.
The following graph illustrates the results in terms of the NEWS2 (National Early Warning Score 2), which is an FDA metric for measuring the patients response:
Clinical trial data for CimetrA
Source: MGC Pharma
The clinical trial programme has advanced to Phase III trials
The company has advanced to an MOH approved Phase III clinical trial in Israel, and has filed patent applications for CimetrA including the use of a self-nano-emulsifying drug delivery system (SNEDDS) developed by partner company Graft Polymer.
CimetrA also has varied potential applications, to other medical conditions and infectious diseases. The COVID application has provided an accelerated pathway to potential approval for CimetrA, and also offers a large initial target market for the drug. We believe that CimetrA could achieve marketing approval during calendar year 2022.
Pre-clinical pipeline
In addition to the three clinical trial programmes, MGC has a pipeline of seven candidate drugs at pre-clinical stages of development. These are focussed on neurological conditions, oncology, and autoimmune conditions. The following table summarises the pipeline.
Drugs under development to address neurological conditions, cancer and related side effects, and inflammatory disorders
Pre-clinical pipeline
Source: MGC Pharma
The lead drug candidates for advancement to clinical trials in calendar year 2021 is MXOT01GB01:
Potential new treatment for a life-threatening form of cancer
MXOT01GB01, for Glioblastoma – lead product for clinical pipeline
Glioblastoma is an aggressive form of brain cancer that affects around 18,000 people per year in Europe, and has a 5-year survival rate of only 10-20% (age-dependent). MGC Pharma has developed a proprietary formulation based on cannabigerol or CBG (not to be confused with cannabidiol, CBD) which has been shown to eliminate therapy-resistant glioblastoma stem cells in-vitro.
The study is being conducted in collaboration with the National Institute of Biology (NIB) and the Neurosurgery Department at the University Medical Centre in Ljubljana, Slovenia. The programme tests cannabinoids alone and in combination with chemotherapeutic temozolomide. The objective of the pre-clinical in-vitro research is to develop novel formulations to define the clinical protocols for clinical trials for the treatment of high-grade brain tumours with cannabinoids. This study has been expanded to include testing the effect of cannabidiol (CBD) and CBG on tumour cells when delivered via a nanoparticle delivery system.
The preliminary results of these tests have been peer-reviewed and published in the MDPI Medical Journal. The company is now proceeding with an expanded pre-clinical study, and we believe that Phase I clinical trials could begin during the second half of 2021.
Manufacturing
In order to support its development programmes and current commercial activities, MGC has established world-class facilities for the production and testing of investigational new drugs and for the manufacturing of commercial products. The company has two EU-GMP certified facilities in Europe:
Europe-based GMP certified facilities
In Slovenia, MGC operates an EU-GMP certified facility with the capacity to produce up to 12,000 prescription products per month. This facility is focussed on investigational medical products (IMPs).
In Malta, MGC is developing a facility for the manufacture of CimetrA. This project has been allocated an EU grant worth A$5mln and is expected to become operational in October 2021. The plant will have the capacity to produce 10,000 doses per day of liquid medicine under EU-GMP compliant conditions and will create a European manufacturing hub for ArtemiC with the ability to scale production.
Modes of collaboration
In addition to maintaining high levels of in-house capability, MGC has also built a strong network of external partnerships — academic, medical and commercial. These relationships span several areas of engagement, from clinical partnerships in the development of new treatments, technological partnerships in the development of new delivery systems, academic collaborations in pursuit of more global research and commercialisable opportunities, and distribution — focussed on creating a seamless global platform to facilitate regulated, consistent and cost-effective arrival of medicines into patients’ hands. We chose to highlight two of these relationships, RMIT/HUJI, and Lenis Pharma in Slovenia.
Research relationships with two leading global institutions
RMIT/HUJI – Key research relationships
MGC has a longstanding umbrella agreement with the Royal Melbourne Institute of Technology, where students are assisting MGC’s preclinical agenda and engaging in pure research into cannabindoids and their potential applications, as well as technological platforms for further research, delivery systems and more. MGC was one of the first companies to create this kind of academic platform, which led to the creation of CannaHub , a joint academic venture between RMIT, Hebrew University of Jerusalem (a global leader in cannibanoid research) and MGC.
Recently, this consortium has been granted an exclusive REDI Marie Curie Grant from the EU, allowing for five years of funding for doctoral students researching cannabinoids, with the commercialisation rights going to MGC from any emergent research.
As the future of the emerging phytopharma industry depends on more research and an expanding knowledge base, MGC’s efforts in this direction are directly contributing to the development of the market within which the company intends to become a significant participant.
Partnerships
Source: Proactive Research
The other major partnership we would highlight is the commercial agreement with Lenis Pharm.
Lenis Pharm – Distributing as Pharma from Day one
A specialist pharma-focussed distribution partner
Since its granting of a GMP licence in Slovenia, MGC has worked with Lenis as its wholesaler. With experience working with companies such as Gilead Sciences and other leading global pharmaceutical companies, Lenis provides top-level logistical and regulatory support, and provides a familiar face to its global distribution network, offering first to market phytocannabinoid products to European markets.
The early positioning of Lenis as MGC’s representative wholesaler demonstrates the foresight the company has put into its rapidly expanding phytomedicine offering, and ensures that these products are not forced to travel along less than dependable logistical and distribution pathways to patients, ensuring a pharma level consistency to MGC’s global operations from the first shipment of Cannepil two years ago.
Key people
In addition to having the right external relationships and GMP certified facilities, the execution of MGC’s strategy depends on having a strong executive team, in terms of both scientific and commercial experience.
The following summaries outline some of the key people:
Roby Zomer, chief executive and co-founder
Following 10 years of experience in the biotech and agrotech sectors alongside running large scale projects, Zomer joined MGC Pharmaceuticals as executive director & chief technology officer. His extensive business contacts, scientific and engineering skill-set have helped ensure MGC’s position as a leader in research and development, as well as ensuring top performance from the company’s global operations.
Brett Mitchell, executive chairman and co-founder
With over 20 years of experience in the founding, financing and management of both private and publicly listed companies, Mitchell is responsible for the corporate strategy, capital markets and financial management of the company, and is integrally involved in assisting in building a new industry from the ground up in Australia.
Dr Nadya Lisodover
Dr Lisodover has 15 years of domestic and international experience in academic and clinical studies in the pharmaceutical, diagnostic and medical devices industry. Dr Lisovoder is a regulatory expert and has been a clinical adviser to public biotech companies as well as incubator companies. She has managed clinical trials and has been leading the Israeli government's biomedical research in seven hospitals in northern Israel in cooperation with universities, international Pharma companies, global contract research organisations and biotech companies.
Dr Jonathan Grunfeld, chief medical officer
Certified in Israel, with clinical experience at the MD Anderson Cancer Center, Dr Grunfeld has spent the last twenty years focusing on neuro-oncology, with a focus since 2010 on cannabis as a treatment for oncological palliative care. He has been involved in the licensing of care including direct clinical monitoring of circa 5,000 medical cannabis patients in Israel, giving him a unique insight into questions of dosing, patient groups and developing treatment methodology.
Amir Polak, chief technology officer
Polak is a scientist who, for the last 15 years, has been working within the chemical industry in various fields including pharmaceutical, fuel, bio-fuel and 3D printing, from inception through to release to market. Polak has an MSc in Chemistry from the Hebrew University (Jerusalem).
Nicole Godresse, global chief sales officer
Godresse has over 20 years of experience in the pharmaceutical/healthcare industry, holding senior roles with major multi-national companies including Eli Lilly, Johnson & Johnson, Schering-Plough, Merck Sharp & Dohme and most recently Tilray. In her most recent roles as general manager ANZ (Australia & New Zealand) and director of emerging markets at Tilray, she was involved in launching the first medical cannabis brand legally in both Australia and New Zealand, launching one of the first medical cannabis clinics in Australia, delivering some of Australia's first government-funded cannabis clinical trials and negotiating major exclusive government supply agreements.
Financials
Based on our expectations for the MP cannabinoid product line and for ArtemiC and Cimetra we are forecasting strong revenue growth for MGC Pharma in the financial years to June 2021 and 2022. This in turn drives our forecast of break-even profitability pre-R&D (research & development) for the second half of FY June 2022. The following chart summarises our forecasts (full forecasts on p15-17).
Reaching operational break-even by the 6-month period ended June 2022
Convergence to profitability pre-R&D - in 6 month time periods
Source: Proactive Research
These forecasts do not include any revenues for the drug candidates currently in clinical trials. We believe that CimetrA could begin generating revenue by the second half of the calendar year 2022, and CannEpil and CogniCann to enter revenue generation in the 2024-2026 timeframe.
Our cost estimates include expenses relating to the development projects, including:
- A$3.2mln for Cimetra Phase III, spread over Q2 2021 — Q1 2022 (calendar periods)
- A$1.2mln for CogniCann Phase II, spread over Q2 2021 — Q1 2022
- A$0.8mln for CannEpil Phase II, spread over Q3 2021 — Q1 2022
Based on our forecasts, we believe that MGC has a modest requirement for additional capital in order to bring the current pipeline to maturity. Our forecasts include one new capital raise, in addition to the raise that was completed alongside the LSE listing in Q1 2021. We have assumed the next equity issue takes place during FY June 2022.
The following chart summarises our cash flow expectations for MGC.
Cash position
Source: Proactive Reseearch
Our full financial forecasts are detailed on p15-17.
Conclusion
We argue that MGC offers a compelling investment proposition for shareholders based on:
A compelling investment opportunity with unique differentiators
- Continuing revenue growth from ArtemiC and from MP Line cannabinoids
- Potential for outsized value creation from the clinical trial portfolio — CimetrA, CannEpil, and CogniCann
- A strong suite of capabilities to deliver on the strategy, in terms of personnel, facilities, and external relationships
During the next 12 months, we believe that there are a number of potential catalysts to drive the MGC share price, including:
- Potential for CimetrA to make progress towards full approval for use as a treatment for COVID patients
- Project milestones and mid-phase data releases from the CannEpil and CogniCann programmes
- Financial performance converging towards pre-R&D break-even
Forecasts
The following tables summarise our financial forecasts for MGC Pharma
Income statement
Source: Proactive Research
Balance sheet
Source: Proactive Research
Cash flow
Source: Proactive Research