Medlab Clinical Limited

NanaBis™ progressing further:Medlab Clinical Limited (ASX: MDC) is aimed at developing novel nutraceuticals and medicines to treat chronic diseases. MDC identifies five key research areas in chronic illness – (a) Pain Management (b) Depression (c) Obesity (d) Chronic Kidney Disease (e) Ageing and Muscular Skeletal Health.

The company has currently three clinical trials –
 

• Intractable Pain, with NanaBis™ being trialled
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• Depression, with NRGBiotic™
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• Obesity and Diabetes, with Medlab’s T2Biotic™
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Recently, the company has updated the strong data outcome from clinical trial and approved Government Special Access Scheme (SAS) use. Key updates are - (1) Comparison of NanaBis™ data from the trial component with published data for an ARTG approved cannabis drug and result was a similar plasma level of THC and CBD with NanaBis™ being half the dose and faster rate of absorption. (2) NanaBis™ Case Studies - Summary of five individual case studies from five different doctors, which is mentioned below-


Source: Company Reports

Based on the aforesaid table, the management stated that the pooled data seems to be very encouraging, safe, tolerable, and repeatable. Also, the ongoing regulatory pathway for an approved drugis solid.

MDC in its earlier update communicated regarding the execution of a Heads of Agreements (which includes negotiating various research, regulatory and commercial milestones for NanaBis™)with Canadian pharmaceutical company, Pharmascience Inc. for further development and global distribution of NanaBis™. NanaBis™ is a highly purified CBD/THC proprietary blend using MDC’s patented sub-micron delivery platform.

On the financial front, Revenue for the company stood at $5.55 million in FY18 with strong growth of 25%. MDC incurred the costs to accelerate company’s research projects and to support NanaBis™ under the Govt’s Special Access Scheme, which led the company to record further losses in FY18 to $4.76 million as compared to $3.83 million in FY17.

MDC recorded losses of $3.76 million in 1H FY19 as compared to $2.37 million as compared for 1H FY18. Current ratio and Quick ratio significantly rose from 1.55x and 1.08x to 9.90x and 9.38x, respectively in 1HFY19, representing decent liquidity position to meet the short-term obligations. Moreover, in the recent past, the company announced that MDC stock, as per March 2019 Quarterly Rebalance of the Ordinaries S&P Dow Jones Indices, was removed from All Ordinaries, effective from March 18, 2018.

Meanwhile, the stock has generated a negative return of 31.86% on an annual basis, whereas YTD returns are merely negative at 1.28%. However, in the last one month, the stock has appreciated with the gain of 8.45% and is trading close to a 52-week low level of $0.340. It represents a decent opportunity to buy the stock at the current juncture as it has a decent outlook ahead. Hence considering the current trading level and the developments in its primary cannabis program, NanaBis™ and other factors, we give a “Speculative Buy” recommendation on the stock at the current market price of $$0.375 (down 1.316% on April 04, 2019).
 

Cann Group Limited

Midura Facility to boost topline:Cann Group Limited (ASX: CAN) is a leader in the medicinal cannabis industry in Australia, pursuing a fully integrated business model with resources and capabilities spanning R&D, cultivation and production, manufacturing, packaging and distribution, clinical evaluation, and distribution/supply to patients in both Australia and export markets. The company was listed on ASX in May 2017. Recently, CAN has entered into a non-binding Heads of Agreement (HoA) to buy a site in Mildura region for $10.75 million (+GST), which shall be used for large scale cultivation and production of medicinal cannabis. This arrangement will service both domestic as well as export markets. The facility is expected to be fully commissioned by Q3 of CY2019, with an annual production capacity of up to 50,000 kg of dry flower.
 

Mildura Facility (Sources: Company Reports)

Moreover, CAN has a manufacturing partnership with IDT Australia to provide support for cannabis-based product formulations with its excellent capabilities and experience in the manufacturing of cGMP quality pharmaceuticals. This partnership will support the overall growth of the company n years to come.

On the financial front, CAN recorded revenue of $1.50 million in FY18, recording a growth of 18,692%, whereas losses were accumulated to $4.7 million in FY18 as compared to $2.58 million in FY17. For the period of 1H FY19, CAN recorded operating losses of $4.898 million as compared to losses of $1.462 million in 1H FY18. Further, the company has reaffirmed the annual revenue guidance of $160 million - $200 million (based on the current wholesale price of cannabis dry flower), once the facilities are fully operational. Analysing the key ratio matrices, asset to equity ratio for CAN at 1.02x is largely in-line with the prior corresponding period. In 1HFY19, liquidity is also good for CAN as the current ratio and quick ratio at 49.95x and 47.97x is well above the industry median of 2.25x and 1.89x, respectively. 

Meanwhile, the share price has risen 15.05% in the past one month and is trading below the average of 52 weeks high and low level of ~$2.70. By looking at various positive news flow in the recent times, which include the supply of resin to Victorian Department of Health, pending regularity approval of IDT manufacturing, testing of export pathways with Aurora, the progress of Mildura facility, etc., leads us to take a positive stance for the company. Hence considering the aforesaid parameters and current trading level, we maintain our “Speculative Buy” recommendation on the stock at the current market price of $2.180 (up 1.869% on April 04, 2019).
 

Creso Pharma Limited

License for cultivation in Canada, major development: Creso Pharma Limited (ASX: CPH) produces hemp-derived therapeutic, nutraceutical, cannabis and lifestyle products with a wider patient and consumer reach for human and animal health. CPH has operations in Switzerland, Canada, Colombia, Israel and Australia. Recently, Mernova Medical Ltd (a wholly owned subsidiary of CPH) has received a license to cultivate by Health Canada. The development will grant CPH (through its 100% owned subsidiary) position of the only listed company on ASX that has a license to cultivate in Canada and a fifth licenced producer in Nova Scotia, Canada. The license granted to Mernova Medical allows sales of cannabis immediately on a B2B basis to TerrAscend. Management finds this development as a great achievement as demand for cannabis is currently outstripping supply in Canada. Deloitte Canada has projected Canada’s recreational cannabis market use between CAD $4.9 billion to CAD $8.7 billion. Moreover, CPH came up with a progress report, where it updated about the commercialised current product portfolio as well as a review of the new products in the pipeline. The human health range of products, including CannaQIX® 10 and CannaQIX® 50 are doing well in terms of revenue. Few new products are ready for launch targeting areas of stress, sleep and muscle revitalisation.


Product Pipeline and Brands (Source: Company Reports)

From the financial standpoint, Revenue for FY18 came in at ~$0.58 million against ~$0.24 million in FY17 with losses at ~$16.85 million in FY18 as compared to ~ $15.08 million in FY17. Net assets were valued at ~$16.50 million, including cash and cash equivalents of ~$6.39 million. The company has limited historical data being incorporated in November 2015 and listed on the ASX in October 2016.
Outlook: Medicinal CannaQIX® is likely to enter Australia and Sri Lanka in 2019. For that matter, CPH has signed a Binding Letter of Intent with Burleigh Heads Cannabis Pty Ltd to distribute its cannabis products in Australia, with a primary focus on CannaQIX®50.

CPH also intends to increase its distribution of animal product anibidiol®. For that matter, its distribution partner, Virbac Inc. has signed an agreement in Q3 FY18 to expand distribution to 15 additional countries throughout Europe and Latin America.

Meanwhile, one-year performance of the stock has been negative with a return of -34.72%, whereas the stock has run-up sharply in the last five trading sessions with a sharp appreciation of 44.62%. Hence, considering the grant of license in Canada, new product launch, expansion plans, etc., we are hopeful for business prospects going forward. With a sharp run-up in the stock witnessed in the last five trading sessions leads us to give a “Hold” recommendation on the stock at the CMP of $0.455 (down 3.191% on April 04, 2019).
 

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