Medlab Clinical — Novel drug delivery and synthetic cannabinoids

Medlab Clinical (ASX: MDC)

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Research: Healthcare

Medlab Clinical — Novel drug delivery and synthetic cannabinoids

Medlab is a drug delivery biotechnology company with a proprietary platform, NanoCelle, which is a patented nanomicellar formulation that can improve the delivery of drugs. With the growing appreciation of the medicinal properties of cannabis, Medlab’s lead product became NanaBis, a THC:CBD (1:1) cannabis extract encapsulated in NanoCelle particles, which enable a convenient buccal spray delivery. The most recent breakthrough was Medlab’s announcement that it had successfully produced a synthetic version of NanaBis, thus significantly streamlining the regulatory pathway. Once the product reformulation is done (current guidance is eight to 10 months), NanaBis will re-enter clinical development (potentially Phase III) as a fully synthetic, non-opioid pain relief drug optimised with proprietary delivery technology aimed at a vast market.

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Healthcare

Medlab Clinical

Novel drug delivery and synthetic cannabinoids

Pharma & biotech

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1 June 2021

Price

A$0.18

Market cap

A$62m

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Share details

Code

MDC

Listing

ASX

Shares in issue

342.2m

Business description

Medlab is an Australian biotechnology company that is developing therapeutics using its proprietary delivery platform NanoCelle. The most advanced programme is in cancer pain management with its lead drug candidate NanaBis, a medicinal cannabis product for cancer-related bone pain. Medlab is now developing a synthetic THC/CBD analogy of NanaBis, which should significantly streamline the regulatory approval pathway. A pivotal Phase III study could start within the next 12 months.

Bull

Synthetic cannabinoids will help streamline interactions with regulators.

Proprietary, patented delivery technology.

A buccal spray not only provides convenient dosing, it has many other advantages compared to ingestion (eg it has a faster onset of action and avoids first pass metabolism).

Bear

The COVID-19 pandemic, although increasingly under control in developed markets, can still affect clinical trials (which is true for all drug developers).

R&D risk is unavoidable in the development of novel therapies.

The transition to a synthetic product introduced additional work, although the guided delay to previous timelines is less than a year.

Analyst

Dr Jonas Peciulis

+44 (0)20 3077 5728

Medlab is a drug delivery biotechnology company with a proprietary platform, NanoCelle, which is a patented nanomicellar formulation that can improve the delivery of drugs. With the growing appreciation of the medicinal properties of cannabis, Medlab’s lead product became NanaBis, a THC:CBD (1:1) cannabis extract encapsulated in NanoCelle particles, which enable a convenient buccal spray delivery. The most recent breakthrough was Medlab’s announcement that it had successfully produced a synthetic version of NanaBis, thus significantly streamlining the regulatory pathway. Once the product reformulation is done (current guidance is eight to 10 months), NanaBis will re-enter clinical development (potentially Phase III) as a fully synthetic, non-opioid pain relief drug optimised with proprietary delivery technology aimed at a vast market.

A drug delivery technology company at its core

Historically Medlab had developed a large portfolio of consumer health products using its NanoCelle delivery technology with established nutraceuticals and several medicinal cannabis extract products available via special access programmes. Sales grew to A$8.1m and A$5.8m in 2019 and 2020. However, the clinical development of NanaBis (Phase I/II completed; observational study ongoing, n=2,000) delivered such attractive data in pain management that Medlab decided to focus on drug development and now aims to divest its consumer health business.

Synthetic cannabinoids mean clear regulatory path

As Medlab announced in May 2021, it has successfully produced with its suppliers two synthetic cannabinoids, THC and CBD, which will replace the botanical extract in its lead drug candidate NanaBis. Although the transition to a new formulation will require additional work, the guided delay to previous R&D timelines is less than a year. The advantage that a synthetic formulation offers is significant, as regulators typically prefer synthetic compounds. The initial indication is cancer-related bone pain, but this could be expanded to general chronic pain. With the opioid crisis unravelling, the support for non-opioid pain killers from various stakeholders (regulators, patient and physician groups, investors, etc) will only grow, we believe.

Valuation: EV of A$47.8m

As a drug developer Medlab has loss-making operations, so a relative valuation is not feasible. At the end of calendar Q121, Medlab had a cash position of A$14.0m and A$198k in debt (implied EV of A$47.8m). Synthetic NanaBis development progress, any news on consumer health portfolio divestment and any potential NanoCelle partnering updates are the main near-term catalysts.

Financial highlights

Year end

Revenue (A$m)

PBT (A$m)

EPS (A$)

DPS (A$)

P/E (x)

Yield (%)

06/19

8.1

(8.2)

(0.04)

0.0

N/A

N/A

06/20

5.8

(13.5)

(0.06)

0.0

N/A

N/A

Source: Refinitiv

Medlab Clinical is a research client of Edison Investment Research Limited

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General disclaimer and copyright

This report has been commissioned by Medlab Clinical and prepared and issued by Edison, in consideration of a fee payable by Medlab Clinical. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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