Company Overview: Medlab Clinical Limited is engaged in the sale of nutraceutical products and pharmaceutical research. The Company operates through two segments: Nutraceutical and Pharmaceutical Research. Its Manuka-C is scientifically formulated to support optimal immune system function and includes evidence-based ingredients containing a blend of over three ascorbates combined with glutathione and Manuka honey powder. Its NOS NITRIC OXIDE SUPPORT is a pre-exercise sports food containing a selection of evidence-based ingredients combined to support and optimize exercise performance. Its Saccharomyces cerevisiae ssp. boulardii (SB) 5B is a probiotic yeast that helps to maintain gastrointestinal function and integrity by supporting a healthy gut microbial profile; by increasing the production of secretory Immunoglobulin A (sIgA), short-chain fatty acids (SCFAs) and helping to promote the activity of brush border disaccharide enzymes. It also offers Mg Optima and BioClean EPA:DHA + CoQ10.


MDC Details

Medlab Clinical Ltd (ASX: MDC), is another cannabis based health care company that has joined the league of AusCann and Cann Group. Though a junior player, MDC is engaged in the sale of nutraceutical products and pharmaceutical products and operates through two segments - Nutraceutical and Pharmaceutical Research.  Its key range of products include Manuka-C for boosting immune system and NOS (NITRIC OXIDE SUPPORT) for optimizing exercise performance. The group has started focusing on cannabis based drugs as well. MDC has a NanoCelle platform (drug delivery system) that is based on nanotechnology and is currently used in various medicines of the company, including NanaBis and NanaBidial. The key aspects relate to stability, and inexpensive nature of NanoCelle. The key milestones would be trial success and improved presence in market through commercialization routes and external relationships.

Successfully completed stage 1 of the NanaBis Cancer Trial at RNS: MDC has recently completed stage 1 of the NanaBis (a Medlab’s cannabis-based medicine) human trial on the cancer patients at Royal North Shore Hospital (RNS). The company has now received formal approval from the Independent Data Safety Monitoring Board (DSMB) to proceed to Stage 2 of the human cancer trial. In Stage 2 of the Clinical Trial, the company will continue to focus on the further safety but will also evaluate tolerance and dose escalation. Therefore, in Stage 2, the company will continue with cancer patients but this time with unmanaged pain. The RNS trials are being carried out in two broad stages. The Stage 1 represented a safety and tolerability phase where the patients were admitted to the hospital for 48 hours, were prescribed NanaBis (a low and high dose) and subjected to undergo frequent blood draws. These patients have all been diagnosed with cancer that have managed pain. For the commencement of stage 2, the successful completion of stage 1 is a prior requirement. The Stage 2 is a dose escalation phase where the patients diagnosed with advanced cancer and suffering with acute intolerable pain are selected. Their pain is unmanaged, and the second stage dosage escalation model is set to show tolerance, as well as continuing the safety profiles. From the stage 1, the data showed that NanaBis is safe, and is effective up to nine hours after a single dose is administered, and the medicine levels detected at first blood draw at 30 minutes, are at maximum concentration (also known as Tmax*) in the plasma, based on 1 dose, in as little as 1.25 hours. Early indications confirmed that NanaBis helps with pain reduction. Therefore, the company received an extremely encouraging result from all aspects of the data that the company were looking for. Moreover, the results of the NanaBis confirmed and validated the original hypothesis and provide a best alternative to current pain medications that the company was looking for. Now the company is looking to get the encouraging results from the data of Stage 2. Although the pain measurement was not a key part of Stage 1 clinical trial, however the early results of pain reduction while being administered NanaBis were very encouraging for the company.

Status of getting Regulatory Approvals: US Food and Drug Administration (FDA) meeting on pathway for registration of NanaBis is complete. The fast-track process is available and the pathway is understood and deliverable. Further, European Medicines Agency (EMA) meeting on pathway for the registration of NanaBis is also complete. The company is expecting conditional approval, while the pathway is understood and deliverable and the company has already negotiated regarding significant fee reduction.

License to Export Cannabis: MDC has been granted the license to export Cannabis by the Office of Drug Control (ODC) Canberra, Australia, and the same is related to 2 of its pioneering cannabis-based medicines, NanaBis and NanaBidial. However, this License needs to be renewed annually. The Export License will allow Medlab to undertake more formal overseas trade conversations with confidence and will allow the Company to legally supply its products overseas. Meanwhile, NanaBis is a whole plant 1:1 extract of CBD and THC; and NanaBidial is a whole plant extract of CBD and THC (predominantly CBD). Both the products will utilise Medlab’s patented NanoCelle delivery platform which further allows the delivery of nano particles of the active pharmaceutical ingredients into the side of the cheek. Further, the license will allow Medlab to research, manufacture, conduct research trials, supply within Australia, and now, the company is looking for the right partner in the foreign markets.


Patents Scenario (Source: Company Reports)

Independent research from University of Sydney validated the science around Medlab’s NanoCelle: MDC early-on received preliminary results from research conducted by the University of Sydney’s Nano Institute, School of Pharmacy, to review the company’s patented delivery platform, NanoCelle. The University of Sydney Research is a scientific characterization project of NanoCelle that has been conducted using MDC’s cannabis-based medicines, NanaBis and NanaBidial. The research has concluded positively that molecules of the medicines, NanaBis (1:1 CBD:THC) and NanaBidial (18:2 CBD:THC), have showed a consistent uniform pattern in nanoparticle form. Therefore, independent research from University of Sydney has validated science around Medlab’s NanoCelle. This type of work is critical as MDC had to further its research endeavors for accepted, approved pharmaceuticals. Meanwhile, the NanoCelle platform has been designed to bypass traditional routes of delivery such as the gastrointestinal/hepatic, ingested route. Moreover, the results provided a significant level of confidence in Medlab’s NanoCelle platform and will further confirm specific proposed functions for Medlab’s cannabis medicines. These results are done in conjunction with the early positive feedback from doctors prescribing NanaBis under the TGA’s Special Access Scheme, which gives MDC the confidence in its NanoCelle research.

Reported Loss in FY 18: At the end of the September quarter, MDC has cash and cash equivalents of $18.4 million. For FY 18, MDC reported 25% growth in revenue from ordinary activities and has posted 24% rise in Q1 2018 revenue from ordinary activities against Q1 2017. MDC’s net loss for FY 18 increased to $4.76m due to the costs incurred in accelerating the Company’s research projects (in some cases, projects are 12 to 18 months ahead of schedule) and costs related to supporting NanaBis under the Government’s Special Access Scheme. Further, in FY 18, there has been an increase of cash receipts from customers by 47%, and 26% rise in sales from nutraceuticals; while EBIT loss attributed to the nutraceutical business declined by 21% and the group received research and development refund of $927k. Meanwhile, MDC in one year has used cash to increase the bandwidth of commercial people and has currently recruited 2 people for Nutraceutical business in Australia, for Nutraceutical export, for NanaBis export, for NanoCelle licencing to 3rd parties, to fund significant Nutraceutical inventory increase to support 2 trade deals, estimating additional 1200 Australian pharmacies, to fund significant heightened promotional/logistic capabilities for the company, to fund future development for NanaBis (Pain), to fund regulatory filings for NanaBis and to fund regulatory/scientific dossier and subsequent filings for NRGBiotic (Depression).


FY 18 Financial Performance (Source: Company Reports)

Future Outlook: MDC is focusing on nine key areas. These comprise of progressing the research agenda, moving NanaBis into being a provisionally approved drug in Australia, moving NanaBis into being a conditionally approved drug in Europe, get Investigative New Drug (IND) authorisation with FDA for secondary trials and compassionate use and partnering NanaBis with one of the current multinationals (discussions underway).


Outlook (Source: Company Reports)

Stock Recommendation: MDC stock has fallen 18.39% in three months as on November 29, 2018 to A$0.38. The stock has support at $0.34 and has first resistance around $0.45. Meanwhile, MDC currently has three clinical trials in progress, that include, First, Intractable Pain, with NanaBis being trialed at Royal North Shore Hospital with seriously ill cancer patients. Secondly, Depression, with the company’s NRGBiotic being used in combination with standard depression medicine in a Phase 2a trial at QUT. Thirdly, Obesity and Diabetes, with Medlab’s T2Biotic, which has completed a Phase1a trial and the group is preparing for a Phase2a trial. In all three trials, MDC’s products, processes and methods are protected by patents, in which some are granted and others are pending. While the company has reported loss in FY 18, MDC expects to improve its financials through success of R&D and clinical trials. Group’s return on equity has been up from -113.7% in FY17 to -34.2% in FY18. The debt to equity levels have reduced from 0.08 to 0.02 while gross margin has improved to 63.6% from 61.2%. Based on the foregoing while keeping the risks related to clinical trials in mind, we give a “Speculative Buy” recommendation on the stock at the current price of $ 0.38 (up 7% on November 30, 2018), ahead of the Medlab Open Day scheduled in December 2018.
 

MDC Daily Chart (Source: Thomson Reuters)

 
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