A look at the Medicinal Cannabis Market

Claire Aitchison

Independent Investment Research

A look at the performance of the pharmaceutical and biotech sector over the month of October as well as a look at the medicinal cannabis market.

Sector Overview

The IIR Pharma & Biotech Index weakened in the month of October, falling 13.1%. This was in contrast to the broader market (ASX All Ordinaries Accumulation Index) which saw a 2.1% increase for the month. A number of top 10 constituents in the index experienced significant falls in share price with only four of the top 10 shares rising in October. Mesoblast (ASX: MSB) fell the most with the share price down 39.8% for the month after the FDA requested that an additional randomised, controlled study be completed for the use of the lead drug candidate, remestemcel-L in Acute Graft Host Disease. This was not the outcome from the FDA meeting that the market was expecting.

Opthea (ASX: OPT) was down 23.6% with the share price falling to be in line with the price paid for the ADRs listed on the US market during the month. The company raised US$128.2 million (gross) through the US IPO.

Mayne Pharma Group (ASX: MYX) also fell by 23.1%. The weakness came after the company announced they had received a complete response letter from the FDA regarding the abbreviated new drug application (NDA) for a generic version of Nuvaring with the FDA raising a number of issues. The company will be seeking to address these issues and receive a new target action date. MYX’s share price has been on a downward trend since hitting its peak in August 2016.

Of the top 10 stocks that performed positively in October, Pro Medicus (ASX: PME), was the best performer, up 19.7% primarily due to the company signing a 7-year contract with Ludwig-Maximilians-Universitat, one of the largest hospitals in Germany for PME’s Visage technology to be deployed throughout the hospitals imaging departments. The announcement pushed the share price through its 52-week high.

IIR Pharma & Biotech Index*

*The IIR Pharma & Biotech Index is a market capitalisation weighted index and currently includes 143 stocks across the Pharmaceutical, Biotech, Health Care Suppliers, Health Care and Equipment, Health Care Technology and Life Sciences GICs sectors. The index excludes the five largest companies in these sectors being ANN, COH, CSL, FPH and RMD.

Medicinal Cannabis Market

With the US and New Zealand (NZ) recently voting on legalising cannabis use in concert with their federal elections we thought we would take the time to have a look at the medicinal cannabis market and ASX-listed cannabis stocks.

The below graphic highlights the countries where medicinal cannabis is legal and where it is not. The medicinal cannabis industry is gaining significant momentum, however still remains in the early stages of growth. Further research is being undertaken to show the potential benefit that can be gained from the use of medicinal cannabis for a variety of conditions.

With the use of cannabis illegal for recreational use in many countries the regulations around the use of medicinal cannabis are stringent and vary significantly between countries and even states within countries such as the US.              

Legality of Medicinal Cannabis


Source: Canex

According to Imarc Group, the global medicinal cannabis market was valued at US$16.5 billion in 2019. The market is expected to grow substantially over the next five years with Prohibition Partners forecasting a market size of US$62.5 billion in 2024.North America and Europe are expected to be the largest markets in 2024, accounting for 68% of the total market. 


Source: Prohibition Partners, Cann Group Limited.

Australia legalised medicinal cannabis at a federal level in 2016 with the Australian Capital Territory (ACT) becoming the first state or territory to legalise possession and cultivation of cannabis for adult use in 2019. At this stage, there is limited support at the federal level to decriminalise the use of cannabis for recreational purposes, however, the conversation continues. Given the significant debt to pay back as a result of the coronavirus pandemic and the focus on job creation, the government’s view on the issue may change. The conversation would likely have been bolstered if legalising recreational use of cannabis had been voted in favour of in the recent referendum in NZ. The country voted against the action by the narrowest of margins, 48.4% of the voters were in favour of the change and 50.7% voted against the action.

Medicinal cannabis products in Australia are regulated by the Therapeutic Goods Administration (TGA) and the Office of Drug Control (ODC). According to the ODC, there have been 31 cultivation and production licences issued and there are 32 licensed manufacturers in Australia. We note that not all cultivators and manufacturers are named by the ODC.

Access to medicinal cannabis in Australia is granted through the Special Access Scheme (SAS) which is managed by the TGA. A request must be submitted by a medical practitioner and in addition to TGA approval states and territories impose additional steps that are required to be approved before a patient can receive medicinal cannabis. Initially, there were significant delays to the processing of requests which made gaining access to products very difficult, however, the efficiency of sign-off for requests has improved significantly. SAS approvals of medicinal cannabis has increased exponentially over the last two and a half years with more than 5,000 approvals per month since July 2020.

 Monthly SAS Approvals


Source: TGA

In September, the TGA announced the decision to down schedule cannabidiol (CBD) from a Schedule 4 to a Schedule 3 which would allow for CBD products listed on the ARTG to be able to be purchased over the counter at a pharmacy without the need for a prescription. The amendment would take effect from 1 June 2021. The amendment will increase access to CBD products. There are currently 15 cannabidiol products registered on the ARTG.

There are a number of companies listed on the ASX whose primary operations are related to the production and manufacture of medicinal cannabis. Some of the key ASX-listed players in the market include: Cann Group (ASX: CAN), Althea Group (ASX: AGH), Zelira therapeutics (ASX:ZLD), AusCann Group (ASX: AC8), THC Global Group (ASX:THC) and Little Green Pharma (ASX: LGP).

After the initial hype surrounding cannabis stocks in 2016 and 2017, a number of the cannabis stocks have weakened from those highs as revenues have not eventuated as quickly as was originally anticipated. The below table takes a look at the Cannabis stocks listed on the ASX and the share price performance of these stocks over the 1, 3 and 5 year periods to 31 October 2020.


Let’s take a look at some of the key players:

Althea Group (ASX: AGH)

AGH is the largest cannabis stock on the ASX with a market cap of $100.3 million at 31 October. AGH have 4 cannabidiol products listed on the ARTG. The company distributes its medicinal cannabis products in Australia, UK and Germany with Australia being the primary market for the company.

Revenues have grown strongly with revenue increasing five-fold in FY20 to $5.1 million, up from $0.8 million in FY19. The company had its strongest ever quarter in 1Q’FY21 with revenues of $1.5 million. We note that the company continues to report an operating cash outflow.

In October 2019, the company completed the acquisition of Canadian cannabis extraction and contract manufacturing company, Peak Processing Solutions (Peak). Total consideration included C$4.1m (AUD$5.8m) in cash (less third party debt) plus 25.85 million AGH shares. The cash payment and 6.83m shares were paid and issued upfront with the remaining shares to be provided on the basis of Peak hitting three tiers of performance targets over the proceeding 18 months. Peak will provide in-house manufacturing and production capabilities which the company believes will result in improved margins for medicinal cannabis products.

The company raised $30m in 2019 and therefore has sufficient cash reserves to pursue their growth initiatives.

Zelira Therapeutics (ASX: ZLD)

ZLD has been the best performing stock of the group for those stocks that have been listed for a five-year period, rising a total of 275% to 31 October 2020.

In December 2019, ZLD merged with Philadelphia based ILERA Therapeutics to create Zelira Therapeutics, increasing the size of the company, adding the Hope product range and injecting a highly experienced US management team.

ZLD generated its maiden revenues from its first licensing deal in the US for its Hope product range in 1Q’CY2020. With the launch of the Hope and Zenivol products in a number of markets including the US and Australia in FY21, the company is on track to commence generating meaningful revenues in this financial year.

Cann Group (ASX: CAN)

It has been a tumultuous ride for CAN shareholders with the share price down 70.3% for the 12 months to 31 October 2020. The share price declined significantly after the company raised capital at $0.40 per share in July, a more than 50% discount to the trading price leading into the capital raising.

CAN’s existing facilities in Melbourne currently have the capacity to produce 1,200kg p.a. The company is seeking to expand its production capacity through the construction of a facility in Mildura. Stage 1a of the facility is expected to include the capacity to produce 12,500kgs of dry flower. Under the expanded facility, full production capacity is expected to be 70,000kgs of dry flower per annum. The facility was forecast to be completed by 4Q’CY2020, however, the coronavirus pandemic has led to delays.

In August 2019, CAN announced a five-year offtake agreement with its largest shareholder, Aurora Cannabis Inc, a Canadian based cannabis company. Post the capital raising, CAN announced that Aurora Cannabis had exited its shareholding in the company. There has been no suggestion that this has had an impact on the offtake agreement.

CAN has seven executed supply/offtake agreements at present both domestically and internationally with a number of contracts under negotiation. The company is forecasting FY21 revenue of $15 million, a significant increase on FY20 sales of $0.65 million.

THC Global Group (ASX: THC)

THC has operations in Australia and Canada across the value chain. The company has growing capacity across multiple cultivation sites in Australia and a biomanufacturing facility in Southport. The Southport manufacturing facility can process up to 120,000kg of cannabis biomass.

The company has launched medicinal cannabis products in 2020, which will see it generate its first medicinal cannabis revenues. Up until this year, revenue has been generated from the hydroponics equipment supply business, Crystal Mountain based in Canada.

The company expanded its distribution channels with the acquisition of Tetra Health in May 2020. Tetra Health is a leading clinic network in Australia that facilitates access to medicinal cannabis. Tetra Health has a network of over 600 referring physicians, 30 prescribing physicians and a network of dispensing pharmacies. At the time of the acquisition, Tetra Health had over 1,100 active patients in Australia.

The company recently announced they are undertaking a strategic review and rebranding of the business. As part of the review the company has stated that it will be seeking to move away from operating as primarily an ‘own brand’ manufacturing facility and instead expand into toll and contract manufacturing. The company has the potential to ramp up production to support 1 million + patients p.a with its existing facility. The company is also reviewing the value in continuing to cultivate its own cannabis in Australia. The company has suspended activities at the Bundaberg facility and other cultivation sites will not proceed during the review period.

Little Green Pharma (ASX: LGP)

LGP is a leader in the medicinal cannabis market in Australia and was the first company to produce locally-grown medicinal cannabis products. LGP currently produces a range of oil-based medicinal cannabis products.

In October 2020, the company announced it had been granted a TGA GMP licence for its manufacturing facilities. The licence enables the company to manufacture GMP-grade medicinal flower products in addition to the cannabis oils, which it will be seeking to supply to the European market. The company has also completed the expansion of its cultivation facility which now has the capacity to produce 110,000 bottles of cannabis oil, or 175,000 x 10g units of cannabis flower, or a combination of the two.

The company continued to experience growth in sales in the Australian market in the September quarter, reporting quarterly sales of $1.29 million with over 8,500 units sold. This represents 41% increase on the previous quarter. If you were to apply a back of the envelope calculation of revenue potential based on September figures, 110,000 bottles of cannabis oil would equate to in excess of $16 million in revenue per annum.

Company News

Below we look at stocks in the IIR Pharma & Biotech Index that made notable announcements during the month that were received well by the market. These include: Global Health Limited (ASX: GLH), Cogstate Ltd (ASX: CGS), Anteotech Limited (ASX: ADO), Noxopharm Limited (ASX: NOX), and Patrys Limited (ASX: PAB).

Global Health Limited (ASX: GLH)

GLH’s share price was up 69.6% to $0.39 per share in October. The share price was buoyed by the announcement of the partnership with Asthma Australia. The partnership will see Asthma Australia promote the use of GLH’s Lifecard consumer health platform to assist asthma sufferers better manage their health and well-being. Lifecard helps manage your health information by tracking key measurements and storing copies of important records including a history of your prescriptions. These records can then be shared with health professionals and emergency contacts to improve medical care.

During the month, the company also provided a business update for the September quarter. Monthly recurring revenue from SaaS platforms was up 13% with underlying customer revenue up 21% to ~$1.5 million. EBITDA was up over 315% to $0.262 million and NPBT was up 188% to $0.225 million. The increased used of digital technology by healthcare providers to improve their service delivery through the Covid-19 pandemic has provided new opportunities for GLH. The company’s MasterCare EMR solution is currently involved in over $4 million of proposals, the outcomes of which are expected to be delivered in the coming months.

While the share price performed well in October with improved volumes, it’s important to note that there has historically been limited liquidity with this stock.

Cogstate Ltd (ASX: CGS)

CGS shares were up 54.9% in October, with the company announcing it had entered into an agreement with pharmaceutical company, Eisai Co Ltd, to exclusively distribute CGS’s digital cognitive assessment technologies in healthcare and other markets worldwide. The agreement excludes clinical trials, where CGS will continue to market its offering independently.

The initial term of the agreement is 10 years with Eisai making reasonable efforts to make its first commercial sale in the US within one year. Under the terms of the agreement, Eisai will provide an upfront payment of $15 million to CGS and pay CGS a minimum of US$30 million in royalties over the term of the agreement, unless terminated earlier. The royalties will be paid quarterly and will not total less than US$10 million in the first five years. Provided the agreement is not terminated earlier, royalties for the remaining term of the initial agreement will not be less than US$20 million. The agreement provides a significant boost to the company’s financials with sales of $23.7 million in FY20.

Anteotech Ltd (ASX: ADO)

ADO’s positive share price momentum continued in October, with the share price rising 43.8%. The share price is up 433.8% YTD.

During the month, the company announced that it had received the results of an independent validation study of the rapid antigen test using stored patient samples. The study results demonstrate the high sensitivity of ADO’s Covid-19 rapid antigen test. The company is working to generate more data that will enable them to accurately determine the lower limit of detection settings to finalise the design and enable the company to progress to clinical trials. The company believes the commercialisation process for the rapid antigen test is on track to be complete in 1Q’2021.

Noxopharm Limited (ASX: NOX)

NOX shares continued to increase in October, up 28.2% for the month. Since March-end the share price is up 304.4%. During the month, the first patient was treated in the Phase I clinical study of Veyonda in blocking the rapid progression of Covid-19 from moderate to severe. The aim of the study is to test the ability of Veyonda to stop the deterioration in high-risk patients both safely and effectively.

The trial is being conducted in a number of hospitals in Eastern Europe. The first patient is hospitalised in the Republic of Moldova. The trial will enrol up to 40 patients, with enrolment expected to be completed by the end of the year. Patients will be treated with Veyonda between 14-28 days depending on the clinical response using a two-step dose-escalation and-expansion trial design. The company anticipates releasing interim clinical response data over the coming months.

During the month, the company also announced that the final patient in the LuPIN study had been treated. The LuPIN study is a Phase1b/2a study examining the combination of Veyonda and LuPSMA-617 in late stage prostate cancer. The trial has been conducted on 56 patients. The study is a dose-response study involving varying doses of Veyonda with a constant does of LuPSMA-617 dose. Interim data on the first 32 patients with the two lower doses of Veyonda have produced encouraging data with impressive tumour response outcomes. Data from the final 24 patients which received the highest dose is expected to be reported in 1Q’2021.

LuPSMA-617 is currently an experimental therapy that is anticipated to come to market next year as an approved therapy for late-stage prostate cancer. Positive dose-response data from the LuPIN study should position Veyonda to be considered as a combination therapy to improve the response to the LuPSMA-617 therapy.

Patrys Limited (ASX: PAB)

PAB is a biotech company focused on antibody technologies for the treatment of cancer. In October, the share price rose 60% to $0.024. The company announced it had been granted a patent in Australia covering the use of its novel Deoxymab platform for the targeted delivery of anticancer drugs using nanoparticles.

The patent expands on the company’s IP portfolio, which includes five patents covering the unconjugated form of PAT-DX1 in a number of countries, however, this is the first patent to be granted that covers the use of PAT-DX1 conjugated to a diverse range of noncarriers which will allow for the targeted delivery of anticancer drugs and imaging agents to multiple types of cancer.

The CEO and MD, James Campbell stated in the announcement “Our PAT-DX1 antibody is unique in that it binds to the DNA that is released from many solid cancers which results from the high turnover of cells in solid tumours. This means it can be used as a targeting agent for a range of cancers, regardless of their type. We have combined this broad-spectrum, tumour-targeting approach with nanoparticles that are able to carry a payload anti-cancer drugs that are toxic to the cancer. This combination allows us to specifically deliver cancer drugs to multiple types of cancer while having minimal impact on normal, healthy cells in the body. Unusually for an antibody, PAT-DX1 is also able to cross the blood brain barrier (BBB), opening up the potential to use it in patients with glioblastoma (primary brain cancer) or metastases that have spread to the brain from other cancers such as breast cancer.”

The company has subsequently commenced a $7.3 million capital raising program to fund the expanded Deoxymab program including the anticipated Phase I in-human clinical trial of PAT-DX1 which is expected to commence in or before 1H’2022.

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The views here are not recommendations and should not be considered as investment advice.

Claire Aitchison
Head of Equities & Funds Research
Independent Investment Research
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