MGC Pharmaceuticals - Rapid progress

MGC Pharma is a bio-pharma company that develops and produces medicines using compounds derived from cannabis and other plant-based sources. Since our initiation report (June 22, 2021) the company has had several major news announcements, w

Proactive Published 16/09/2021

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The company recently announced that it has received a UK import permit for CannEpil+, which is MGC’s cannabis-derived therapy for refractory epilepsy, to be used initially on a compassionate access basis for a group of 10 patients. This news follows a previous announcement (June 15) that CannEpil was added to Ireland’s Primary Care Reimbursement Service, meaning that all Irish patients have the full cost of CannEpil prescriptions covered by the health service. The UK has lagged behind other European countries in providing patients access to cannabis-derived medicines, but we believe that recent developments are a step forward.

Secondly, MGC announced a distribution deal in the US with AMC Holdings Inc, for a minimum order of US$24mln over three years, covering CannEpil, as well as CogniCann (a cannabis-derived therapy for dementia) and also the non-cannabis based anti-inflammatory CimetrA (described on p2). This is the first dedicated supply agreement for MGC products in the US. We anticipate the issuance of a Clinical Trial Number within the coming weeks, which will enable the contract to get underway. The deal is incremental to our revenue forecast, and we present our increased forecasts on p3-4.

MGC also recently announced that it received government approval to import CimetrA into India as a final step towards obtaining Emergency Use Authorisation for the treatment of patients with COVID‐19. This is potentially the biggest news item for the company and could represent transformational upside to the financial outlook (not yet included in our forecasts). We present some details of the Indian COVID-19 news on p2.

Further to the news on CimetrA in India, the company has received regulatory approval for the sale of its consumer healthcare product ArtemiC in Germany. This also opens the door to the whole of the EU, a market of some 450 million people. ArtemiC is an off-the-shelf variant of CimetrA, and is designed to support the immune system. We believe that emergency use approval for CimetrA in India would likely increase consumer interest in ArtemiC in Europe.

COVID-19 programme in India, and other news developments

We are raising our revenue forecast for FY June 2022e from A$12mln to A$15mln to include the impact of the AMC deal in the USA. We are also including our first forecasts for 2023e and 2024e. We exclude any additional impact from the CimetrA news from India for the time being.

We argue that both CannEpil and CimetrA could individually be potentially worth more than the current market cap of the company. Furthermore, we note that the main current revenue-generating product line, MP Line cannabinoids, continues to achieve strong growth. We believe that additional news developments in the remainder of 2021 could drive further re-rating of the share price.

Financial forecasts

Year end Jun 30 · 2021 · Current · 2023 · 2024

Revenue (A$-000's) · 2,962 · 14,950 · 21,660 · 30,060

Gross Profit (A$-000's) · 1,310 · 6,728 · 9,747 · 13,527

EPS (AUS cents) · (0.7) · (0.2) · (0.2) · (0.1)

CimetrA is a non-cannabis based IMP targeting autoimmune conditions; conditions where the patient’s own immune system is causing the damage.

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.

CimetrA - India import licence

Cytokine storm in a COVID case

Source: Houston Methodist Hospital research papers

There is 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 can prevent these patients from becoming critically ill.

MGC is conducting phase III clinical trials in Israel for the treatment of COVID-19 patients using CimetrA, and has previously conducted Phase II double-blind trials on patients with mild to moderate COVID infection in Israel and India. Phase II results demonstrated 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.

Under the announcement made of September 2, MGC Pharma has been granted government approval to import CimetrA into India as a final step towards obtaining Emergency Use Authorisation (EUA) for the treatment of patients with COVID‐19. The EUA process is being managed on MGC’s behalf by Medopharm Private Ltd, a leading pharmaceutical player in India, which will also act as the importer of CimetrA once the EUA is granted.

To meet the potential increase in demand for CimetrA, MGC has secured agreements with two additional EU GMP certified production facilities which can be used to manufacture large quantities of CimetrA until the Company’s Malta production facility completes its commissioning and is fully operational in 2022.

With CimetrA, MGC aims to deliver:

The most effective therapy available for preventing COVID-19 patients from requiring mechanical ventilation
A highly cost-effective therapy, at a price of US$100 per course of treatment

Assuming MGC is able to proceed with a large scale deployment of CimetrA in India under Emergency Use Authorisation, this could produce a substantial body of additional data on the efficacy of the drug. This could potentially lead to a cascade effect of other countries authorising the use of CimetrA, which has already been shown to have an excellent safety profile.

At the current global infection rate of 600k new COVID infections per day, if 5% of patients received CimetrA this would equate to US$3m per day of revenue. We are not including any incremental revenues from CimetrA in our forecast at this stage.

We note that the anti-inflammatory effects of CimetrA can also potentially be applied for a wide variety of other indications besides COVID-19, meaning that the drug would still have applications even if COVID were ever to be eradicated.

Finally, we note that the ‘sister product’ ArtemiC, which is a consumer healthcare variant of CimetrA, was recently granted regulatory approval for sale in Germany. We believe that ArtemiC sales are likely to benefit from any further news regarding the clinical benefits of CimetrA.

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