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Special report: Shares in cannabis player MGC Pharmaceuticals are a bargain compared to what the business is actually worth, says a researcher.

Edison Investment Research has put a price tag of $140 million on the medical cannabis biopharma company (ASX:MCX).

That works out at 11c a share, or about 66 per cent higher than where the stock is now.

Edison’s view is based on flowers and resin sales from the cannabis-growing operations — about 60 per cent of the valuation — and the “upside” comes from the budding pharmaceuticals business.

Pharmaceuticals as a way into cannabis dominance

With Latin America dominating the volume cannabis cultivation market, marijuana players are beginning to diverge into lifestyle products, such as Coke’s apparent plan for cannabis-infused wellness drinks and pharmaceuticals.

The latter is harder to break into because of the higher regulatory hurdles it takes to get a drug approved, but is potentially much more lucrative for that very reason: formulations are protected by patent and by the cost of making new effective alternative drugs.

MGC’s current pharmaceutical products are CannEpil, an orally-administered medical cannabis treatment for drug-resistant (or refractory) epilepsy, and CogniCann, a treatment to improve quality of life in dementia patients.

A number of prescribing specialist neurologists have recently received formal authorisation to prescribe CannEpil in Australia under the Authorised Prescriber Scheme.

“CannEpil’s formulation is supported by the results of a retrospective study of 74 patients with refractory epilepsy, which reported that 51 per cent of children with refractory epilepsy experienced at least a 50 per cent reduction in seizures when they were treated with a cannabis oil containing the same 20:1 CBD/THC ratio as CannEpil,” Edison noted.

MGC’s second pharmaceutical candidate CogniCann is targeting the estimated 50 million people worldwide who have Dementia, a number that is expected to triple to 152 million by 2050.

A clinical trial in July 2018 of a synthetic cannabinoid drug found that THC can reduce agitation in Dementia sufferers and improve quality of life, cognition and overall neuropsychiatric symptoms.

MGC plans to conduct Phase 2 studies of both medications, as a first step towards gaining approval as registered pharmaceutical products in Europe and Australia.

It also recently signed a binding term sheet to sell its MGC Derma cosmetics business to Canadian cannabis investment company, Cannaglobal, for up to$C15m ($16m), freeing up MGC to focus entirely on its pharmaceutical business.

Growing to meet medical cannabis demand

MGC has operations in central and southern Europe, focusing on supplying cannabis-based active pharmaceutical ingredients (API) and finished medicines in Australia and Europe.

It has established licensed growing operations in the Czech Republic and Slovenia, a fully GMP certified resin extraction plant in Slovenia, and approval from the Maltese government to build a medical cannabis cultivation and production facility.

Edison notes the company has already harvested 400kg of medicinal cannabis biomass from its Prague 1100 sq m outdoor greenhouse space in 2017, and a second crop is expected to be harvested in this current quarter.

Edison says the global marijuana market was worth about $US11.4 billion in 2015 and is forecast to hit $US55 billion by 2025 as more territories legalise medical cannabis.

It reckons MGC can grab a sizeable chunk of the European market.

“We estimate the underlying demand for medical cannabis in [the eight European countries with more liberal medical marijuana laws] to be equivalent to 14,000kg of resin per year,” the Edison report said.

“We model MGC’s API production in 2023 to be equivalent to 500kg of resin, which is approximately 3 per cent of estimated underlying demand in these eight countries.”

 

 

MGC Pharmaceuticals is a Stockhead advertiser.

This advice has been prepared without taking into account your objectives, financial situation or needs. You should, therefore, consider the appropriateness of the advice, in light of your own objectives, financial situation or needs, before acting on the advice. If this advice relates to the acquisition, or possible acquisition, of a particular financial product, the recipient should obtain a disclosure document, a Product Disclosure Statement or an offer document (PDS) relating to the product and consider the PDS before making any decision about whether to acquire the product.