InMed Pharmaceuticals — Notable launches of high-value rare cannabinoids

InMed Pharmaceuticals is a North American-based biopharmaceutical company focused on researching, developing and manufacturing cannabinoids for the therapeutic market, and also recently entered the cannabinoid commercial sales segment through its BayMedica acquisition. Through its pharma program, it is developing a proprietary pipeline of cannabinoids to treat target diseases. Its lead program is INM-755, a tropical cream using CBN for treating EB, which is currently enrolling patients for Phase II trials. It is also developing INM-088 for glaucoma, which is in a preclinical stage, and InMed is preparing for a Food and Drug Administration (FDA) pre-investigational new drug meeting (pre-IND) in Q2 CY22.

In parallel with its pharma program, it is developing its own proprietary manufacturing program IntegraSyn, an enzymatic process that uses E. coli to individually manufacture each of the c 140 cannabinoids. INM is also focusing on scaling up the IntegraSyn process to larger batch sizes in advance of commercial scale production. Furthermore, its product library of rare cannabinoid analogs creates a commercialization opportunity, while BayMedica’s aptitude in chemical synthesis and yeast biosynthesis to manufacture cannabinoids complements InMed’s capabilities in using E. coli through its IntegraSyn manufacturing platform.

With its recent acquisition of BayMedica, InMed is evolving from a pure-play firm focused on pharma R&D to a more diversified one with commercial sales in the health and wellness market, and we now expect it to exhibit near-term revenue generation combined with the longer-term value of its pharma drug development programs.

We have considered three scenarios in our risk-adjusted net present value (NPV) analysis. Our base case company valuation is US$85m, or US$6.0 per basic share, while the bull and bear scenarios are US$16.0 per basic share (US$227m) and US$1.5 per basic share (US$21m), respectively, compared to the previous US$20.53 per basic share or US$290m. The change in valuation is primarily due to a reassessment of both the base-case market share for the biosynthesis platform and the INM-755 product, as well as more conservative pricing estimates. In our model, we evaluated three scenarios where InMed could achieve different portions of its addressable market if its biosynthesis process is successfully validated and scaled to commercial levels. We also considered the market penetration InMed’s EB treatment could achieve, as well as the sales growth of the health & wellness products and potential price pressures as competitors enter the market. Given the early stage of its proprietary pipeline, the majority of the valuation stems from its biosynthesis platform, which targets a sizable and growing market for rare cannabinoids, and its potential EB treatment (INM-755).

InMed’s latest financial results (Q222, ending 31 December) were the first to include its BayMedica acquisition and reported sales of US$0.3m, all from CBC commercial sales. We expect InMed’s product launches to drive all of its near-term revenue, and in our base case, we see the company generating US$1.8m and US$10.2m of revenue in FY22e and FY23e, respectively. We expect the operating losses to continue over the next several years as InMed advances its manufacturing platform and proprietary pipelines, and invests in BayMedica. InMed ended Q222 with US$10.3m in net cash, including finance leases, boosted by its July 2021 capital raise of US$12m. We expect the cash on hand to last into FY23e, but believe that US$12m in capital or debt raises will be needed in each of FY23e and FY24e. Note also that InMed recently announced a US$4.25m at the money (ATM) facility to raise further capital.

InMed faces several key risks, beginning with the primary risk factor: its IntegraSyn manufacturing process. The company needs to show that its process can manufacture rare cannabinoids in a cost-effective manner and scale them up to commercial levels, compared to the plant-based and synthetic processes. However, management believes this risk is mitigated as it is now producing and selling through both chemical synthesis and biosynthesis. As most of its near-term sales will likely come from BayMedica’s products, the immature cannabinoids markets and uncertain demand make it difficult to estimate the levels and timing of revenues. InMed’s and BayMedica’s pipelines are at various stages of development, and the main risk for their pipelines is that of clinical development, where their therapeutic products may not succeed in clinical trials or fail to get approval. Finally, competition in the manufacturing of rare cannabinoids is heating up, which could have an impact on InMed’s ability to achieve forecasted market penetration and sales volumes.

InMed Pharmaceuticals is a North American-based biopharmaceutical company focused on researching, developing, and manufacturing rare cannabinoids for the therapeutic market as well as incorporating BayMedica’s library and commercial business. It is developing a biosynthesis process to individually manufacture each of the 140+ cannabinoids in E. coli, a bacterial strain that has previously been engineered to produce products such as insulin. INM is also developing a proprietary pipeline of cannabinoids to treat target diseases.

The company was formed in March 2014 and reverse merged with a target company to gain listing in May 2014. After being originally listed on the Canadian Stock Exchange, InMed now trades on the NASDAQ.

InMed’s strategy is to focus on producing rare non-intoxicating cannabinoids, as only a few cannabinoids, such as tetrahydrocannabinol (THC), cannabidiol (CBD) and cannabigerol (CBG), are plentiful enough to be extracted from plants in a viable fashion. Its BayMedica subsidiary, acquired in October 2021, is also focused on the commercialization of rare cannabinoids, such as CBC, CBT, CBDV and THCV. The transaction gave INM the capabilities and experience in using chemical synthesis and yeast to manufacture cannabinoids and complemented InMed’s ability to use E. coli-based biosynthesis through its IntegraSyn platform. To be clear, the combined company’s commercial strategy is to focus on high-demand, attractive-margin products like THCV and CBDV rather than others that are readily commoditized and so have lower margins like CBD. Moreover, cannabinoids are chemically complex molecules that are challenging to synthesize, and as InMed manufactures these in large quantities, it can differentiate itself from other firms that focus primarily on THC and CBD.

Key here is that some of these rare cannabinoids that InMed has launched or is evaluating for potential launches have unique properties that could treat many diseases, as shown in Exhibit 1.

Altogether, the company’s is focusing on improving its cannabinoid manufacturing technologies, developing its own internal pipeline and commercializing certain cannabinoids through either its proprietary IntegraSyn manufacturing process, biosynthesis in yeast, chemical synthesis or via a hybrid approach. Note that the choice of process depends on the target compound, desired scale, etc, and with its capabilities in all these approaches, InMed believes it can provide a purer product faster and at lower cost than competitors. Current plant-based manufacturing processes for cannabinoids are time consuming and require a high degree of purification to avoid unwanted pesticides, fungi, solvents or non-target cannabinoids. INM’s capabilities and flexibility in choosing the optimum manufacturing processes for each compound could enable it to gain market share of the non-flower wholesale market in concentrated or infused products and edibles.

Its current and near-term planned cannabinoid product launches (CBC, CBT, CBDV and THCV, see Exhibit 2) are using chemical synthesis, but as they scale up, INM has the flexibility to choose the most efficient process such as IntegraSyn, biosynthesis, etc. At this time, CBC and CBDV are being manufactured in larger batches. All of INM’s manufacturing is performed externally through third parties, and its strength lies with its access to several manufacturing processes by which compounds can be manufactured, and their related IP.

Essentially, the combined firm has multiple tools for producing rare cannabinoids at meaningful yields and potentially attractive costs. Moreover, InMed is in a solid operating position to take advantage of these growing markets. For instance, a recent report on biosynthesis discussed how the global market for consumer packaged goods and pharma cannabinoid biosynthesis products is predicted to reach C$10bn in 2025 and C$115bn by 2040, according to Raymond James (see Exhibit 3).

As Exhibit 4 indicates, InMed is making solid progress in its pharmaceutical development program, with two primary products potentially treating a variety of conditions.

EB is a rare, debilitating genetic disorder characterized by fragile skin. Unfortunately, even wearing normal clothing could lead to blistering and wounding (see Exhibit 5). In some cases, it can lead to the erosion of the epithelial lining of other organs too. Fine et al1 estimate the total EB population in the United States to be between 12,500 and 25,000, and currently there are no therapies to treat the underlying causes. Treatment is based on promoting wound healing, and controlling pain and itching. While various biotechnology firms are investigating potential therapies, no effective treatment has yet been found.

CBN is the focus of InMed’s pharmaceutical pipeline with INM-755, as there is evidence of its efficacy across a plethora of indications. It has been shown in a variety of preclinical studies to have an impact on pain,2 inflammation3 and bacterial infection.4 In September, InMed initiated a Phase II trial (755-201-EB) for INM-755 (cannabinol) cream in EB patients. The study is intended to enroll up to 20 EB patients with an anticipated treatment duration of 28 days across 13 sites in eight countries (see Exhibit 6 – Germany, France, Italy, Austria, Greece, Israel, Spain and Serbia). The study will use a within-patient, double-blind design whereby matched index areas will be randomized to be treated with either INM-755 or a vehicle cream as control. The trial will evaluate the safety of INM-755 and its efficacy in treating symptoms and wound healing. Patients with all four subtypes of EB (inherited, EB simplex, dystrophic EB, junctional EB and Kindler syndrome) are eligible for the trial. Notably, this was the first time CBN had advanced to a Phase II trial to be studied as a therapy for treating a disease. Enrolment began in December 2021 and is expected to be completed in CY22.

InMed’s earlier Phase I trials were 755-101-HV (two dosages of cream on 22 healthy volunteers) and 755-102-HV (eight healthy volunteers with small wounds) and INM-755 appeared to be safe and well tolerated on volunteers with intact skin and/or epidermal wounds. Importantly, these trials showed no systemic or serious side effects, which is vital in topical therapies, especially cannabinoids like INM-755 cream.

InMed is also developing INM-088 as a treatment for glaucoma, the leading cause of irreversible blindness globally and one that this author suffers from. Glaucoma is a group of eye diseases often caused by high intraocular pressure (IOP) that can result in nerve damage and permanent vision loss. As we discussed in our earlier note, worldwide there are about 64 million glaucoma sufferers, 3.4 million of whom are in North America, 6.8 million in Europe and 39 million in Asia. Fortune Business Insights estimated the glaucoma therapeutics market at US$6.6bn worldwide in 2019, growing at a CAGR of 6.1% through 2027. Market Scope estimated the US market, after all discounts and rebates, at over US$2bn in 2019, and Nicox5 has estimated total US prescriptions for glaucoma medications (TRx) at more than 35m annually.

The main goal of treating glaucoma is to lower IOP, and there are seven key classes of therapies in the market, as displayed in Exhibit 7. Most work by either increasing drainage or decreasing fluid production. However, these could have issues with adverse side effects as the different drugs have different side effect profiles and patient compliance can be a challenge for some patients, especially when the regimen calls for multiple drops to be taken daily. Research into cannabinoids as a treatment for glaucoma has been done since the 1970s, with various studies showing mixed results. However, research has indicated that the mechanism could be through CB1 receptors in the eye, which when targeted properly may decrease aqueous humor production and/or improve drainage. Topical administrations have been attempted, but cannabinoid’s highly lipophilic features with low water solubility makes their intraocular bioavailability low.

Importantly, recent in vivo animal data for INM-088 indicated a significant lowering of IOP at days seven and 17 compared to the vehicle treated group. In December, InMed announced that a peer-reviewed scientific article was published in Biochimica et Biophysical Acta, a leading international journal. The studies demonstrated that CBN was effective at reducing IOP in glaucoma models, outperforming several other naturally occurring cannabinoids, and may promote neuroprotection of retinal ganglion cells that are responsible for vision.

Currently, InMed is continuing to set up a larger-scale drug manufacturing progress (combining CBN and the MiDrops delivery technology from EyeCRO), with the resulting products used to support upcoming good laboratory process studies, expected to commence in mid-CY22. InMed is also completing dose-ranging studies and conducting topline clinical study design work. Finally, it is preparing for a pre-IND meeting with the US FDA in Q2 CY22 and expects to apply in H1 CY23 for regulatory permission to initiate human trials.

InMed continued to expand its patent portfolio with its recent patent application demonstrating neuroprotection using a rare cannabinoid for the treatment of various neurogenerative diseases. This could potentially treat conditions such as Alzheimer’s disease, Parkinson’s disease, etc, and is part of InMed’s strategy of pharmaceutical drug development for researching and developing rare cannabinoids as potential therapies for diseases with high unmet medical needs.

This patent also enhances InMed’s existing portfolio, which includes 12 patent families, seven of which address manufacturing technologies and five of which focus on products and formulations. Moreover, with its acquisition of BayMedica, InMed expanded its product portfolio to cover additional biosynthetic pathways and semi-synthetic production of natural rare cannabinoids and cannabinoid analogs.

Through its BayMedica subsidiary, InMed now has an extensive library of rare cannabinoid analogs. This library is aimed to boost INM’s pharma strategy of researching and developing rare cannabinoids as potential therapeutics across diverse clinical applications and for diseases with high unmet medical need. As management explained, ‘Expanding our patent portfolio to include, in addition to cannabinol (CBN), an incremental rare cannabinoid for the potential treatment of major neurodegeneration indications demonstrates our continued commitment to our pharmaceutical programs and the potential of rare cannabinoids in medicine.’

On 28 April 2022, InMed further expanded its portfolio with the publication of a patent application in North America for several cannabinoid analogs. If granted, it allows for the creation of several variations of novel cannabinoid compounds, producing a library of proprietary new chemical entities. These are expected to offer similar or improved therapeutic effects compared to their parent (naturally occurring) cannabinoid with modifications that may make them preferred candidates to treat specific diseases. In effect, this patent would expand INM’s library of proprietary analogs for pharma R&D.

In the same release, INM announced the initiation of a research collaboration with the Department of Biotechnological and Applied Clinical Sciences, University of L’Aquila (Italy), in the laboratory of Dr Mauro Maccarrone, an international expert in cannabinoid research. Dr Maccarrone’s lab will be screening InMed’s novel cannabinoid analogs to investigate pharmacological properties and potential therapeutic uses.

InMed has extended its focus towards the health and wellness market with several product launches in H1 CY22. In January, INM announced B2B sales of CBT into the health and wellness sector, launched CBDV in Q2 of CY22, and plans to launch THCV in Q2 of CY22, as shown in Exhibit 8. Inbound demand for these products has increased and management’s goal is to be a leading large-scale supplier of high-quality rare cannabinoids in the health and wellness markets with four rare cannabinoids available in H1 CY22 (CBC, CBT, CBDV and THCV).

These products are produced commercially via chemical synthesis, though the company has made them all via other methods at non-commercial scale. Furthermore, InMed may switch to biosynthesis depending on demand. At current production quantities, chemical synthesis is more economical, but as demand grows and additional scale is required, biosynthesis may become the preferred option, depending on several variables.

INM’s BayMedica subsidiary indicates that it is currently the global leader in large batch (about 200kg per production run, but with the ability to scale up to metric tons, produced at greater than 95% purity) supply of CBC, a rare non-intoxicating cannabinoid. BayMedica’s CBC products are sold primarily in North America but have also been sold internationally through external distributors. Moreover, InMed is further evaluating its international strategy. As we mentioned in our previous note on BayMedica, preclinical studies have shown CBC’s ability to inhibit the growth of cancer cells, block pain, potentially promote brain health, combat depression and inhibit acne. BayMedica currently markets its ProDiol CBC product to consumer health and wellness firms and it is sold wholesale B2B.

CBT is an ultra-rare cannabinoid and degradation product of CBC. There is little research on CBT though, aside from a study over 35 years ago by Dr Mahmoud ElSohly that found it reduced intra-ocular pressure in rabbits, implying that it could possibly be a treatment for glaucoma and similar conditions. BayMedica’s CBT products are sold primary in North America but have the ability to be sold internationally through external distributors. Importantly, CBT demonstrated InMed’s capability to produce another rare cannabinoid at larger, commercial scale, which management believes few other companies have been able to accomplish.

Future demand growth will likely be driven by R&D by InMed and other pharmaceutical firms on the health benefits of rare cannabinoids such as CBT, and its eventual inclusion into oils, tinctures, etc. Forecasting future CBT sales is difficult, and management described it as a ‘wildcard’, as its market is still immature with most sales being transaction oriented rather than long-term contracts. Management disclosed that BayMedica’s cumulative revenues were US$2.4m for the 21-month period ending 30 September 2021. Assuming that all were for CBC, then we assume that CBT sales will follow a similar run-rate.

Commercial scale production of CBDV is ongoing, while THCV is planned for Q2 CY22 and management expects both to contribute significantly more revenues than CBT. Furthermore, compared to CBT, both CBDV and THCV have substantially more data supporting their potential health benefits, with dozens of peer reviewed publications, implying potentially a larger addressable market, stronger demand and higher margins. For instance, as we noted previously, CBDV is being investigated by GW Pharmaceuticals (acquired by Jazz Pharmaceuticals in May 2021) in a number of indications, and there are ongoing trials in autism and Prader-Willi syndrome. THCV has been shown in preclinical studies to have an impact on obesity,7 epilepsy8 and Parkinson’s disease,9 and human clinical trials demonstrated its potential to improve glycemic control in Type 2 diabetes. Note that THCV is a non-intoxicating product that works quite differently from THC, which is the most abundant cannabinoid and responsible for the euphoric feeling.

Management expects to produce large-scale batches of these compounds in the next few months to meet anticipated demand. Both products are considered high-value cannabinoids, and management believes that while prices are coming down as more competitors enter the market,10 they are still being sold B2B at prices of about US$20–30k/kg. For instance, THCV is currently being marketed by many firms to help with appetite suppression and with the increase in supply, price pressures are increasing and affecting overall margins. While management has not disclosed its cost to produce each, it believes it should decrease with scale and greater manufacturing efficiencies. Nonetheless, management expects both should generate a positive gross margin from initial sales. Like CBT, they will be initially produced via chemical synthesis using third-party manufacturers. However, as they scale up, they may be manufactured via other approaches (as the combined company has capabilities and flexibility across multiple manufacturing methods and the ability to scale up based on demand) leveraging its network of third-party manufacturers, depending on factors such as costs, capex requirements and yields.

To support these project launches and further grow the pipeline, InMed is building out its sales and infrastructure team, including hiring Gerard (Jerry) P Griffin III as VP of sales and marketing. In this role, he will oversee commercializing BayMedica’s health and wellness business, including the launch of new rare cannabinoids such as CBDV and THCV.

The cannabis and cannabinoid markets are growing rapidly, reaching global sales of US$21.3bn in 2020, soaring c 50% over 2019, and are forecasted to reach US$55.9bn by 2026 according to BDSA. Furthermore, US cannabis sales are expected to be US$41bn by 2026, and a recent Edison study estimated a c US$30bn NPV market for cannabinoid biosynthesis.

The addressable market for cannabinoids is large and getting even larger, driven by changes in legislation and increased consumer acceptance. Across the United States and the world, legislation regarding cannabis and cannabinoid products is increasing, with it becoming legal in an increasing number of jurisdictions. Medical cannabis is legal in most US states (36 states, four territories as of June 2021), though this is different from the very few cannabis-derived or synthetic cannabis-related FDA-approved drugs requiring a prescription from a licensed healthcare provider. Furthermore, about 20 states have legalized cannabis for recreational use, with legal sales in the US reaching US$17.5bn in 2020, growing 46% y-o-y. Canada is also a North American market to watch, as it legalized recreational marijuana in 2018, legal cannabis sales were c US$2.6bn in 2020, and BDSA estimates it should grow to nearly US$4.6bn in 2026.

Consumer demand is also increasing for non-psychoactive cannabinoid extracts, including rare cannabinoids thought to have health and wellness properties. In fact, the stigma associated with cannabis and related extracts is falling, and cannabinoid-consumer products can be found on shelves in many stores, ranging from local grocery stores to big-box retailers. Shoppers can choose from a wide range of goods, from food and drink, beauty and skincare products, cleaning products and detergents.

While the cannabinoid demand is increasing, growing and producing cannabis can be challenging as cannabis is both literally and figuratively a weed. Traditional cannabis production using fields or greenhouses can be costly and labor intensive and have a significant environmental impact. It can be affected by weather, pests and plant-disease, all of which bear upon harvest yields, costs and final quality. Importantly, this traditional method also does not generate active pharmaceutical grade cannabinoids needed to meet pharmaceutical industry standards. Traditional methods also only have a three-month growing season and even for indoor cultivation with four to six harvests per year, the cannabinoid content can vary by up to 300% from harvest to harvest.

Plant extraction is the most common production method for cannabinoids, and once harvested, the active ingredients (eg CBD, THC, etc) must be isolated in a multi-step, chemical-solvent extraction method, which can be a difficult, complex process. Unfortunately, extracting cannabinoids with traditional methods is a low-yield process, as the cannabis plant contains about 2–5% THC and CBD, with miniscule amounts (0.1%) of the many rare cannabinoids such as CBT, THCV, CBDV and CBN. Therefore, about 95% of the plant is wasted.

As will be discussed below, chemical and biosynthesis are two other means of manufacturing cannabinoids, though each has its own pros and cons compared to plant extraction. Cannabinoid biosynthesis uses simple living organisms such as yeast or bacteria such as E. coli to produce these compounds at scale, and several firms are working to scale products up to commercial size, including InMed and Cronos (partnering with Gingko Bioworks).

A more comprehensive view of the cannabinoid synthesis industry was discussed in a prior Biosynthesis report. We also presented an overview of the competitive landscape, displaying key players in cannabinoid biosynthesis. Major companies include Cronos Group, Creo, Demetrix and Hyasynth Bio and InMed; see Exhibit 9 for the complete list.

With the BayMedica acquisition, InMed now has access to a variety of manufacturing methods, including combined fermentation and chemical synthesis, and enzymes for biotransformation. InMed has multiple avenues to select the most effective manufacturing method based on the target cannabinoid and appropriate quality specifics for its target market segment. Exhibit 10 provides an overview of these various manufacturing methods and we note that no one manufacturing approach fits all applications. For instance, when small-batch volumes or ad-hoc orders are needed, chemical synthesis is often the preferred method, while biosynthesis can be more efficient for planned deliveries or larger volumes.

BayMedica provides experience and capabilities in the use of chemical synthesis and yeast biosynthesis to manufacture cannabinoids, while InMed provides the ability to use E. coli (bacteria) for cannabinoid manufacturing through its IntegraSyn platform.

BayMedica’s platform bioengineers baker’s yeast so that it can biosynthesize cannabinoids, which are isolated and purified. However, BayMedica does not stop there. It also leverages its chemical synthesis experience to further modify these cannabinoids. These modifications allow for the creation of novel chemical entities that are subtlety different from naturally occurring cannabinoids but may have unique and pharmaceutically useful properties. As a result of its experience in chemistry, BayMedica can be agile in its approach to manufacturing. Depending on the scale and cannabinoid being produced, it can be more efficient and cost-effective to produce it by complete chemical synthesis, biosynthesis or a combination of the two.

InMed has developed a proprietary fermentation process involving bacteria instead of yeast, and it refers to this as IntegraSyn. This modular process begins with the fermentation of bioengineered E. coli to biosynthesize specific proprietary enzymes, rather than a cannabinoid. These enzymes are subsequently used to perform enzymatic transformations on chemical substrates to produce rare cannabinoids, which can be separated and purified.

Unlike typical fermentation systems, the initial fermentation step does not produce cannabinoid. Additionally, the fermented enzyme can be used in the biotransformation of multiple cannabinoid products. This makes the whole process more flexible, meaning that the production can be shifted from one cannabinoid to another when there is need to. InMed Pharmaceuticals also reports that the IntegraSyn process is 50% faster than yeast-based biosynthesis, which typically takes five to 10 days. It also states that the enzyme biotransformation process provides higher yields than traditional biosynthesis or chemical synthesis of several cannabinoids.

We have evaluated three scenarios in our risk-adjusted NPV analysis for InMed: a base case, a bear case and a bull case. The primary drivers for each scenario are described below and summarized in Exhibit 11:

Furthermore, based on discussions with management, we expect that INM will launch new cannabinoid products in the health & wellness sector across the next several years. As a result, we forecast one product launch per year from 2023–26 with sales similar in magnitude and profitability to the recent launches. We also forecast an increase in the anticipated SG&A spend to support the product launches and international expansion.

Our base case valuation is US$6.0 per basic share or a company value of US$85m (see Exhibit 12), while the bull and bear valuations are US$16.0 per basic share (US$227m) and US$1.5 per basic share (US$21m), respectively. The base scenario implies an upside of more than five times, while the bull and bear scenarios imply 1,680%+ and 62% upside, respectively.

Note that this differs from our previous method of using only one scenario, where we had valued InMed at US$290m or US$20.5 per basic share. Our revised valuation methodology reflects updates to our market share penetration rates and estimated margins on Biosynthesis manufacturing and INM-755 due to several factors, including increasing price pressures and growing competition, which affected peak sales for the biosynthesis business, and rNPV estimates. An example of the pricing pressures facing the whole cannabinoid market is in products like CBDV/THCV, which had been reaching about US$30k/kg in 2021 but now management is seeing prices fall to about US$15k/kg. Note that our INM-755 peak sales estimates have been reduced because we have revisited our assumptions and applied mildly more conservative market penetration rate forecasts and reduced our longer-term price growth assumptions. Furthermore, our updated approach is also due to the addition of the BayMedica subsidiary, especially its product launches, as well as changes in net cash and the share count.

As mentioned earlier, on 7 April 2022 InMed announced a US$4.25m ATM facility with W. C. Wainwright & Co. As it is not fully exercised yet, we are not including its impact in our valuation. However, if one assumed the ATM is fully exercised at the recent share price of US$0.96 per basic share and using the base case valuation, that would increase the total firm value to US$89m but raise the share count by about 4.4m shares. Overall, the base case firm value per share would fall to US$4.8 per basic share.

InMed’s latest financial results for Q222 were the first to include the impact of the BayMedica acquisition, with sales of US$0.3m, all from BayMedica’s CBC commercial sales. InMed reported a net loss of US$4.3m in Q222, up from a loss of US$3.0m in Q122 due to increased R&D and SG&A from the inclusion of BayMedica. We expect the losses to continue in the near term as the company advances its manufacturing platform and proprietary pipeline.

In our base case, we forecast FY22e and FY23e revenues of US$1.8m and US$10.2m, respectively, consisting of sales of CBD, CBT, CBDV, THCV and a new product launched in FY23e. We have raised our expense estimates (especially R&D and SG&A) to account for the combined firm and forecast reported net losses of US$14.8m and US$13.9m in FY22e and FY23e. We also introduce FY24 forecasts, with our base case estimating sales of US$12.1m and normalized operating losses of US$13.0m.

InMed had US$10.3m of net cash and marketable securities (including debt and financial leases) as of 31 December 2021, boosted by the US$12m private placement (890k shares and 7.2m warrants) in July 2021. As previously discussed, InMed recently announced a US$4.25m ATM facility to raise further capital, though we are not including its potential impact in our model given that it is not yet fully exercised.

Given the continuing losses, we expect the cash on hand to last into FY23e, though we believe that future capital raises will be needed. We are estimating these raises at US$12m in both FY23e and FY24e and are assuming this as illustrative debt though it could be equity. This compares to our previous funding estimate of US$11m in FY23e, with the FY24e raise estimate introduced in this note. After FY24e, we foresee a total of c US$6–10m of additional capital needed, likely in FY25e, until the company becomes self-sustaining. Furthermore, we forecast it generating a positive, recurring free cash flow by FY26e.

The primary effects of the BayMedica acquisition on InMed’s balance sheet were the increase in intangible assets (up from US$1.1m in FY21 to US$4.4m in FY22e), the addition of in process R&D (US$1.3m in FY22e) and an increase in accounts payable (from US$2.1m in FY21 to US$3.5m in FY22e).

Our analysis and valuation of InMed faces several sensitivities: