Company Overview: Zelda Therapeutics Limited (Zelda), formerly Gleneagle Gold Limited, is a biotechnology company. The Company is focused on developing medicinal cannabis therapies. The Company is focused on pre-clinical programs for breast, brain and pancreatic cancers. The Company is also focused on clinical trials on sleep disorders-insomnia eczema and other dermatology indications. The Company’s medicine CANNABIS 101 contains over 85 types of cannabinoids. Cannabinoid receptors CB1 and CB2 form part of the Endocannabinoid system (ECS) and are located in the brain and central nervous system and in some peripheral organs and tissues. The ECS is involved in a variety of physiological processes including appetite, pain- sensation, mood, and memory.


ZLD Details

Targeting Areas in large patient market: Zelda Therapeutics Limited (ASX: ZLD) is the small-cap health care company with market capitalization of $74.78 Mn. The group has made significant progress in growing its clinical research programme. The group focuses on human clinical trial on sleep disorder-insomnia eczema and other dermatology indications. The group also focuses on pre-clinical research programme for breast, brain and pancreatic cancer. The company aims to build a strong portfolio and predominantly position itself in the new high growth in therapeutic & healthcare segments of breast cancer, pancreatic cancer, Glioblastoma (a brain tumour), Insomnia (approximately 35% of adults are affected by this disease), and Autism (more than 230,000 people have autism diseases in Australia). Moreover, the company has also entered into Dementia market (valued at around US$ 1 trillion) and this will provide a significant opportunity to the group in near future. The company has secured certain rights to medicinal cannabis-based formulations and treatment protocols developed over many years by a California based group – Aunt Zelda’s who has a very high profile in the USA and a growth in international market. The Company is currently reviewing its human resources requirements with a view to expanding its management and business development capabilities to strengthen its position and fully leverage its existing portfolio of activities. The group is also speculated to be finalising a new research area and make engage in partnerships with other players for any research related work.

 

Research Focus (Source: Company Reports)

Strategic Partnership in Place with World Leaders in Medical Cannabis Space: The strategic partnership with Aunt Zelda, CannPal, Chilean pharmaceutical, Fundación Daya will help to increase topline growth of the company in years to come. The objective of the partnership with Aunt Zelda is to treat the range of diseases showing strong efficacy data which will support the company’s current pre-clinical activities and clinical activities. As a part of on-going synergetic partnership event, the group has done the partnership with the prestigious Telethon Kids Institute and pancreatic cancer with Curtin University for the expansion of its pre-clinical research program to include paediatric brain cancer. Moreover, the group has also entered into a strategic partnership with CannPal Pty Ltd (CannPal), aiming to develop cannabis-based prescription and non-prescription medicines, and animal feed nutrition for the emerging global pet pharmaceutical market. The Agreement is to promote and encourage collaborative activity to improve the offerings of both CannPal and Zelda and exploit opportunities of mutual interest in both the human and animal pharmaceutical markets. Finally, we expect that these partnerships will provide synergetic benefits to the group in terms of organic and inorganic growth in the medical cannabis space.
 

Strategic Partners (Source: Company Reports)

Quarterly Activity (31 March 2018): The company released its Quarterly report for the quarter ended 31 March 2018 wherein the group had total cash of $6.17 Mn and is actively building its intellectual property portfolio to maintain its position as one of the leading research-based medicinal cannabis groups in the world. The estimated cash outflow for the next quarter will be around $0.926 Mn, comprising of R&D expenses ($0.65 Mn), Advertising and marketing expenses ($0.036 Mn), Staff cost and board remuneration ($0.12 Mn), and administration costs ($0.137 Mn). During the period, the group has received approval from the Institutional Review Board (IRB) for its study of the pharmacology of cannabinoids in the treatment of paediatric autism patients which will be conducted at the USA-based Children’s Hospital of Philadelphia (CHOP). The affirmative results will allow Zelda to grow significantly into a formal clinical trial to study the efficacy of standardized, high-quality medicines. As of now, the business strategy is on track and the group is building a platform for the next phase of its growth.


Estimated Cash Outflow for Next Quarter (Source: Company Reports)

Expansion of Pancreatic Cancer Research Programme: The group has expanded its pre-clinical pancreatic cancer research programme with Curtin University, to focus on in vivo animal studies to investigate the effect of a range of ZLD’s formulation in combination with existing chemotherapy agents - Abraxane and Gemcitabine. We expect that these studies will generate highly relevant data for potential future human clinical trials.

Completion of Insomnia Clinical Trial Update Patient Recruitment - an Opportunity: The group has now completed patient recruitment into its pioneering insomnia trial. This is the noteworthy accomplishment for the group and has the potential to introduce a safe, effective and reasonable treatment for the patients. Further, the next phase of the study will begin soon with patients experiencing baseline sleep measurements before commencing pharmaceutical dosing. The Group has several clients across the globe and it is well placed in the market and has the potentiality to move into commercialization phase based on the successful conclusion of this trial. Following this, the management expects that the preliminary results from this clinical trial will be available in late 2018. After the successful trial, the group has an intention to rapidly pursue commercialization activities for this formulation in the markets that provide a rapid path to widespread patient access. We expect that the positive results will enable Zelda to consider commercialization opportunities of cannabinoid-based medicines in jurisdictions where it has a clear pathway to market and access to distribution partners.


Strong Pipeline of Activities (Source: Company Reports)

Initiation of Diabetes-Pre-Clinical Research Programme Could be the Driver for Growth: After the end of the quarter, the Company declared the commencement of a new pre-clinical research programme exploiting the potential for certain cannabinoid formulations to reduce the impact of diabetes-associated cognitive decline. This study is in conjunction with Curtin University and leverages the existing relationship with the pancreatic cancer study. The positive result in this study can unfold a significant market opportunity in future.

Financial Performance: The company has posted consolidated revenue growth at CAGR of 54.3% over the period of FY13-17. However, Net profit after tax contracted in FY17, marking negative CAGR growth of 111.1% during the same period. This was mainly impacted by the rise in R&D and selling, General and administrative (SGA) expenses and unusual expenses during the same period. During the first half of the year, the company posted significant revenue growth of 7,782% and amounted to $ 871,792 as compared to prior corresponding period. However, net profit after tax improved to ($ 496,648) in 1HFY18 from ($ 5,047,324) in 1HFY17. Moreover, the company enjoys debt-free status along with cash & cash equivalent reserve of $6,612,219 as at 30 December 2017. The current ratio stood at 112.8x in 1HFY18, representing adequate liquidity to fulfill any shortcoming liability in near future. Besides this, account receivable turnover ratio increased from 0.1 times to 1.7 times in the six months, representing better management policy.


1HFY18 Financial Highlights (Source: Company Reports)

Establishment of US OTCQB Share Trading Facility: ZLD’s shares have been approved for trading on the OTCQB Venture Market in the United States of America under the symbol “ZLDAF”. The OTCQB is a US-based trading platform operated by Over Trade Counter (OTC) Markets Group in New York. The OTCQB Venture Market is for early-stage and developing USA and international companies. This forms part of its ongoing strategy to introduce Zelda Therapeutics to a broader international audience and this facility will provide greater visibility, better access to the US investment community, and improved convenience of trading in Zelda’s ordinary shares. Meanwhile, United States Food and Drug Administration (FDA) has recently approved the country’s first medical cannabis drug, and this can help ASX-listed stocks like Zelda that have a solid foundation.

Other Key Updates: The Group has recently changed its registered office and principle place, effective from May 28, 2018. Besides this, the group has appointed Dr. Richard Hopkins as full-time Managing Director, commencing from 1 July 2018.

Stock Performance: We expect that the company will continue to sustain its growth momentum in years to come supported by the company’s strategy of focussed innovation, expanding market base and strong footprints in traditional cannabis business to drive overall sale. Recently, the group got positive breast cancer research results wherein the research was conducted in collaboration with Complutense University to investigate the impacts of cannabinoids on cancer stem cell-like cells. The group funded observational trial using cannabis extracts to treat autism which showed positive results. Meanwhile, the stock price has risen 50% in the last one year but was down by 10% in the past one month as at June 25, 2018 and it is giving an entry opportunity at the low level (down by 8 per cent as on June 26, 2018). The fall on June 26, 2018 may be owing to mixed trading views, trade war fears impacting ASX on the whole and end of financial year sell off as many other stocks, including cannabis and technology, have pulled down. Some negative sentiments are also emanating from discussion relating to restrictions on foreign investment in US business. Nonetheless, the Canadian government’s move on legalizing the use of small amounts of recreational cannabis by adults, is a positive for the sector. We expect that this governmental support will help to push the medical cannabis sector to grow further while US is also showing favourable developments on cannabis. Based on aforesaid facts and improving financials while there is intense competition and other risks within the industry, we give a “Speculative Buy” recommendation on the stock at the market price of $ 0.091.
 

ZLD Daily Chart (Source: Thomson Reuters)

 
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