22 October 2018
MGC Pharmaceuticals is developing cannabis-based pharmaceutical
products, initially in Australia and Europe. It has cannabis-growing
operations in Europe and plans to supply cannabis-based active
pharmaceutical ingredients (API), as well as developing registered
pharmaceutical products for refractory epilepsy and dementia. MGC has
signed a binding term sheet for the sale of its MGC Derma cannabis-based
cosmetics business to Cannaglobal for up to C$15m (A$16m). We arrive at
an initial valuation of A$140m or A$0.11 per share.
Year
end
Revenue
(A$m)
PBT*
(A$m)
EPS*
(c)
DPS*
(c)
P/E
(x)
Yield
(%)
06/17
0.1
(8.5)
(0.9)
0.0
N/A
N/A
06/18
0.3
(9.0)
(0.8)
0.0
N/A
N/A
06/19e
2.2
(5.7)
(0.5)
0.0
N/A
N/A
06/20e
8.9
(6.6)
(0.5)
0.0
N/A
N/A
Note: *PBT and EPS are normalised, excluding exceptional items.
Cannabis growing and extraction in Europe
MGC is already growing medicinal cannabis crops in the Czech Republic and has
established in Slovenia one of the few fully GMP-certified resin extraction and
separation plants in Europe, in order to produce cannabis resins for use in its own
pharmaceutical products, and for sales to drug and cosmetics manufacturers. The
company plans to establish larger-scale cannabis-growing and processing
operations in Malta under a contract awarded by the Maltese government in April.
Seeking epilepsy and dementia drug approvals
The company intends to develop CannEpil and CogniCann as registered
pharmaceutical treatments for refractory epilepsy, and to improve quality of life in
dementia patients, respectively. It plans to conduct randomised, placebo-controlled
Phase II crossover studies to generate high-quality evidence to support further
development of these pharmaceutical products. It has received Therapeutic Goods
Administration (TGA) authorisation for CannEpil to be prescribed as an
Investigational Medicinal Product in Australia.
Selling cosmetics business to focus on pharma
MGC has signed a binding term sheet for the sale of its MGC Derma business to the
unlisted Canadian cannabis investment company, Cannaglobal, for up to C$15m
(A$16m), subject to shareholder approval. Consideration includes C$9m of
Cannaglobal shares up front, up to C$3.5m of potential milestones (payable as
shares), eventual repayment of a C$2.5m working capital loan and a five-year supply
agreement. The sale will allow MGC to focus fully on the pharmaceutical business.
Valuation: A$140m or A$0.11 per share
Our initial valuation is A$140m or A$0.11/share, based on a risk-adjusted net present
value (rNPV) analysis. The sales of flowers and resin from the cannabis-growing
operations contributes over 60% of our valuation, with the CannEpil and CogniCann
registered pharmaceutical products providing potential upside. Current cash of
A$9.9m should support operations into FY20.
MGC Pharmaceuticals
Initiation of coverage
Cannabis-based medicines and cosmetics
Price
A$0.07
Market cap
A$84m
€/A$ 0.66
Net cash (A$m) at 30 June 2018
9.9
Shares in issue
1,212.8m
Free float
78.9%
Code
MXC
Primary exchange
ASX
Secondary exchange
N/A
Share price performance
%
1m
3m
12m
Abs
36.0
11.5
78.9
Rel (local)
41.7
17.2
76.5
52-week high/low
A$0.12
A$0.05
Business description
MGC Pharmaceuticals (ASX: MXC) is an Australia-
headquartered specialist medical cannabis
biopharma company, which has most of its
operations based in Europe. Management has
many years of technical, clinical and commercial
experience in the medical cannabis industry.
Next events
Shareholder vote on MGC
Derma sale
November 2018
Initiate CogniCann dementia
Phase II
Q119
Initiate CannEpil epilepsy
Phase II
TBA
Analyst
Dennis Hulme
+61 (0)2 9258 1161
healthcare@edisongroup.com
Edison profile page
Pharma & biotech
MGC Pharmaceuticals is a
research client of Edison
Investment Research Limited