CannEpil trial due to start in June 2022
MCG sells medicinal cannabis products in the UK, Ireland, and Australia. Sales in the third quarter of the year to the end of March 2022 (Q3FY22) were A$550k, taking the fiscal year to date (YTD) total up to A$1.8mln. Sales of an anti-inflammatory, plant-based food supplement (ArtemiC) marketed for the relief of respiratory infections were A$1.1mln YTD; although the contracted annual value to distributor Swiss PharmCan is A$4mln, we do not expect further sales in FY22. A deposit from US partner AMC of A$1.1mln (US$750k) received in Q2FY22, is classed as a deferred payment against future US sales; however, Proactive does not expect any FY22 ArtemiC US sales. The AMC payment is part of a US$24mln three-year deal. No FY22 ArtemiC sales into India are expected.
MGC is planning clinical development programmes for cannabis extracts to treat childhood epilepsy and alleviate the symptoms of dementia. The Phase 2 epilepsy study using CannEpil (MGCND00EP1), NCT04406948, may start in June 2022 and run until mid-2023. Trial centres in Israel are confirmed; a clinical trial application for Slovenia is not yet approved. A small study of dementia sufferers conducted in Australia has just reported results. AMC may seek to run US studies at some point which will require an investigational new drug (IND) application to be filed with the US Food 7 Drug Administration (FDA).
Two clinical trials with CimetrA, a plant-based formulation to give a faster resolution of COVID-19 symptoms, are running. The trial with the original formulation is ongoing. The Phase 2 dose-ranging study with the simplified formulation (NCT05037162) is ongoing in Israel. AMC plans to seek FDA approval to run a US arm of this study at the University of South Florida.
MGC acquired a medical cannabis clinic and a clinical trial organisation in the second half (H2) of FY21. Sales from these in H1FY22 totalled A$258k. The Maltese plant is near completion and will add major additional manufacturing capacity.
Steady sales development with higher cash burn
We have lowered our sales forecast for FY22 from A$15mln to A$4.5mln. The revenue estimate includes medicinal cannabis sales of about A$3mln, service sales of A$0.5mln and a single ArtemiC order of A$1.1mln. MGC reported YTD operational cash costs to 31 March of A$14.2mln offset by payments, including the AMC deposit, totalling A$4.8mln. The YTD cash burn was A$10.7mln. To offset cash burn, MGC raised a net A$9.3mln in Q2FY22. This took 31 March 2022 cash to A$4.0mln down from A$5.4mln on 30 June 2021. Although MGC raised A$10.7mln gross in December 2021, we expect that further funding will be needed. MGC has a remaining A$9.8mln convertible loan funding arrangement with Mercer and may need to draw on this. The prospective June 2022 enterprise value (EV)/sales ratio is about 13-fold. We have put FY23 forecasts on hold pending FY23 management guidance.
Financial forecasts
Year end Jun 30 · 2020 · 2021 · 2022
Revenue (A$-000's) · 2,079 · 2,962 · 4,560
Cash(AUD$, 000's) · 1,873 · 5,433 · 989
EBITDA, € - 000s · (11,436) · (11,421) · (13,022)
MGC, unlike many development-stage pharmaceutical businesses, has a significant revenue stream from product sales.
A wide range of plant-based products
CannEpil, Exhibit 1, adds the psychoactive molecule THC (Delta-9-tetrahydrocannabinol to chemists) to cannabidiol, a non-psychoactive molecule known to control epilepsy in certain rare childhood conditions. The concept is that the THC, at a 1:20 ratio with cannabidiol, will improve the efficacy.
Exhibit 1 - CannEpil
Source: MGC Pharma
A Phase 2b study is planned to start in summer 2022 and take a year to run. CannEpil is sold as a medicinal cannabis product and is reimbursed in Ireland by the health service.
CogniCann is a natural cannabis extract using a 3:2 blend of THC and CBD, Exhibit 2. It aims to alleviate the symptoms of dementia. A small trial in Australia should yield some anecdotal data in H2 2022. MGC has noted that the oral spray was well tolerated.
Exhibit 2 - CongniCam
Source: MGC Pharma
A pilot study of CogniCann (25 mg/ml THC, 17 mg/ml CBD) for the treatment of agitation/aggression in mild Alzheimer’s disease has just been reported. The study tested a dose determined by tolerability that was titrated up from 2.5mg/day up to a maximum of 50mg/day over 28 days and then fixed for the last 14 days for a 42-day treatment period. The proposed study was described in a 2019 scientific paper (https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7023743/).
The study was conducted on 22 patients (five male and 17 female). It had originally been expected to enrol 50 but this was reduced because of logistical difficulties and time delays associated with conducting it during the Covid pandemic. Note that at this size, it is not possible to conduct a statistical analysis.
The study has a cross over design meaning that patients are randomised to either CogniCann or placebo for the initial (42 day) period and then, after a “wash-out” of two weeks, they are then crossed over to placebo or drug for a second 42-day period. The study was double-blind (both physicians and patients do not know to what arm they have been allocated at what time).
The study is primarily designed to show safety in elderly dementia patients and provide some preliminary evidence of efficacy. Since all patients are at different times on the drug and placebo, this can be done efficiently with a small number.
Australian study of CogniCann
All patients enrolled were already living in a residential aged care facility and had a diagnosis of mild dementia, as determined by a score ≥ 20 on the Mini-Mental State Examination [MMSE], a common tool for this. All patients enrolled had to meet other inclusion/exclusion criteria, including the absence of any other neurological conditions (Parkinson’s/epilepsy etc).
All had to be 65 years or older; however, the median age was in fact 85, which is quite impressive if patients ranged between say 80-90 years — few studies are typically conducted on patients of this age.
The study had three efficacy endpoints: NPI-NH Score and the Cohen-Mansfield Agitation Inventory (CMAI) and the CMAI Aggressive subscale. These were scored at baseline (day zero), days 19 and 44 for all patients on both treatment periods.
NPI-NH (Neuropsychiatric Inventory — Nursing Home Version provides a composite score based on responses from participants and their caregivers to various questions. It is designed to characterise the neuropsychiatric symptoms and psychopathology of patients specifically tailored to those living in nursing homes.
CMAI is a composite score based on 29-items to measure agitation, each of which is rated on a seven-point scale ranging from “Never” to “Several times per hour”. It is completed by the caregiver (not the patient). Agitation prevalence ranges from 30-50% in dementia patients.
The CMAI-aggression sub-scale is one part of the CMAI. It measures aggressive behaviour, which is a common cause for a psychiatric referral, admission to hospital and drug treatment in dementia patients.
Inclusion/exclusion criteria/endpoints
The drug arm showed a stable score on NPI-NH of 5.8, whereas the placebo group showed an increase (worsening) in the score from 5.8 to 6.6.
CMAI showed an improvement from 69 to 57 for CogniCann and from 66 to 63 on placebo. This suggests the drug conferred an 8-9% placebo-adjusted effect over the six-week treatment period.
The CMAI aggression scale saw a decline from 13.2 to 11.5 (or 13%) on drug (green) and 13.9 to 13.4 (4%) on placebo (red), suggesting a 9% placebo adjusted affect. This could be an important finding as it suggests a potential for improved quality of life for caregivers (since CMAI is rated by them).
All three efficacy endpoints appear to show a trend suggestive of efficacy, although we note that with just 22 patients, it is also possible that a single outlier result could have a disproportionate effect. The results would also seem to be broadly in line with expectations based on the body of evidence from several studies also showing THC:CBD mixtures to have an impact on the aggression/agitation features of Alzheimer’s disease.
The study showed evidence that supports the continued development of CogniCann for symptoms of aggression/anxiety associated with Alzheimer’s. Note there is no scientific hypothesis to suggest that THC/CBD has an impact on the underlying causative biochemical mechanisms of Alzheimer’s (which are still poorly understood in any case). MGC believes the aggression data is suggestive that it would improve further over time and it plans future clinical trials to confirm this in the next trials.
Although the focus is likely to be on the evidence of efficacy, an important finding in our view is the safety of CogniCann in the elderly, as these patients can metabolise drugs differently and/or experience side effects differently to younger patients (on whom most drugs are typically tested).
Conclusions
These are similar products, Exhibit 3, but ArtemiC is positioned and sold online in the EU as a food supplement. It has Support and Rescue formulations. CimetrA is positioned as a candidate pharmaceutical and so needs to undergo full clinical studies. MGC has noted positive data form a small Phase 2 study.
ArtemiC and CimetrA
Exhibit 3 - Artemic and CimetrA
Source: MCG Pharma
To sell medicinal cannabis and to run clinical studies, MGC needs very high product quality to Good Manufacturing Practice (GMP) standard. MGC has a facility in Slovenia and a new facility in Malta is to open in H2 2022, Exhibit 4.
Exhibit 4 - GMP production
Source: MGC Pharma
The revised estimates for FY22 (30 June year-end) are shown below: Profit and Loss Table 1, Cash Flow Table 2, Balance Sheet Table 3. We will update these estimates once the preliminary FY22 results are presented in September. The Q4 cash flow statement is due in late July. We have withdrawn our FY23 forecasts pending updated company guidance.
As noted, the sales forecast has been reduced in line with H1 statement and the Q3 cash flow estimate.
Table 1 - Revised Profit and Loss
Source: MGC reports, ProActive estimates
Given that cash, Table 2, depending on working capital movements, is likely to be tight by the end of June 2022, we note that the remaining A$9.75mln Mercer convertible loan facility is available as noted in the Q3F22 cash flow statement. We envisage a significant extra funding requirement in FY23 — but this depends on revenue development and order timings.
Table 2 - Cash flow
Source: MGC reports, ProActive estimates
The Balance sheet, Table 3, shows the significant intangible assets from acquisitions of an Australian medical cannabis clinic and a clinical trial organisation made in FY21. The investments in Slovenia and Malta are also apparent. The Maltese grant, to construct the new manufacturing plant, included in non-current assets, will be progressively recognised from FY23, though the profit & loss (P&L) as a non-cash item. There is also A$1.1mln of payment from AMC against future US sales. Cash resources are the main feature as MGC needs to invest to grow the business.
Table 3 - Balance sheet
Source: MGC reports, ProActive Estimates
Investment conclusion
MGC offers a diverse, plant-based portfolio of nutritional and medicinal products. The ArtemiC range is innovative, with a patented (in Slovenia) formulation of well known, natural ingredients using nano-technology from Graft Polymer. The pharmaceutical version of this, CimetrA, has a revised formulation and is in clinical development for the relief of COVID-19 infection symptoms with dose-ranging studies underway.
CannEpil is an interesting product combining psychoactive THC with proven Cannabidiol aimed at controlling refractory epilepsy. Cannabidiol is already marketed for rare, severe epilepsies as a single agent by Jazz Pharma with strong US sales of over U$500mln. CannEpil should start a Phase 2 in Israel and possibly Slovenia in mid-2022. Clinical data might be available by autumn H2 2023 if the trial ends as MGC expects in June 2023.
MGC has been investing, with grant support of over €3mln from the Maltese government, in a new production facility. This should come on stream in H2 2022 after completion and plant validation and certification.
The main issues for investors are the gradual pace of clinical development, particularly of the CannEpil epilepsy product, where there is a clear US market, and the reduced FY22 ArtemiC consumer sales, expected to be higher and so offsetting investment into pharmaceutical products. Medicinal cannabis sales are growing steadily but the need for complex administration of early access prescriptions and the lack of robust clinical evidence — and so no full pharmaceutical approval will always limit sales. Hence, the CannEpil trial starting in H2 2022 is especially crucial.