Alternative medicine is a tiny but growing business on the Australian Securities Exchange (ASX), as a number of very small companies advance the case for the use of both medicinal cannabis and the psychedelic substances, 3,4-Methylenedioxymethamphetamine (MDMA) – also known as “ecstasy” – and psilocybin, in human therapies.
It goes without saying that in some formulations, these substances are potentially harmful drugs. But in other formulations, they are emerging as possible treatments.
In medicinal cannabis, both the two main cannabis species, cannabis sativa and cannabis indica, produce tetrahydrocannabinol (THC) — the psychoactive ingredient found in marijuana that gets you stoned — and cannabidiol (CBD). CBD doesn’t contain THC, and it may (the modal verb gets a heavy workout when dealing with medicinal cannabis) help in treating (or at least, reducing the symptoms of) a wide range of conditions, ranging from anxiety and depression, post-traumatic stress disorder (PTSD)-related symptoms, neurological disorders, heart health issues, chronic pain, rheumatic diseases such as fibromyalgia, auto-inflammatory diseases like rheumatoid arthritis, and cancer-related symptoms and side effects related to cancer treatment
Medicinal cannabis was legalised in Australia in October 2016, when the Australian Government changed the law to allow organisations to grow cannabis for research and to make pharmaceutical products. The Therapeutic Goods Administration (TGA) rescheduled medicinal cannabis from Schedule Nine to Schedule Eight: Schedule Nine means it’s a prohibited drug that can be used in approved clinical trials, but Schedule Eight means it’s a controlled substance that can be legally prescribed: the TGA recognises that it is a drug of dependence, but also that the substance can be a prescription medicine that has a recognised therapeutic need. All medicinal cannabis products in Australia must be prescribed by a doctor and approved by the TGA.
In effect, the TGA balances the therapeutic benefit – and patients’ access to it – with the higher risk of misuse and abuse. Medicinal cannabis products must be prescribed by a doctor to treat the symptoms of a medical condition or, the side effects of a medical treatment (for example, chemotherapy). Medicinal cannabis preparations allowed include tablets, oils, tinctures and other extracts.
In February, the same rescheduling occurred with psilocybin and MDMA, to enable prescribing by authorised psychiatrists to treat certain mental health conditions. From July 1, the TGA has permitted the prescribing of MDMA for the treatment of PTSD, and psilocybin for treatment-resistant depression. These are the only conditions where the TGA believes there is currently sufficient evidence for potential benefits in certain patients; but the MDMA and psilocybin products have not undergone safety, efficacy and tolerability evaluation.
With the change of classification of psilocybin and MDMA, Australia became the first country in the world to recognise psychedelics as legally prescribed medicines.
There is a small group of stocks operating in this field, and while profits do not yet exist, there are promising signs for investors who are prepared to do their research – particularly on quarterly cash consumption versus inflows – and who are interested in this area. I suspect this may be one of those industries in which personal knowledge, such as the medical experiences of family members or friends, might be the driver of interest.
For such people, here are three companies that I think are well worth a deeper look.
- Emyria (EMD, 7.5 cents)
Market capitalisation: $14 million
12-month total return: –67.2%
Three-year total return: –1.9% a year
Estimated FY24 dividend yield: no dividend expected
Analysts’ consensus valuation: n/a
Emyria describes itself as “a clinical-stage biotech that is accelerating treatment development for unmet neuroscience and mental health needs.” It is involved in both medicinal cannabis and psychedelic substances.
Emyria has three main business arms:
- Drug development: the company is developing multiple, proprietary, ultra-pure CBD medicines, suitable for registration and clinical use against multiple indications, and a range of MDMA-inspired medicines. The company has three proprietary dose forms of CBD in preclinical and clinical trials, led by its lead candidate first dose form, EMD-RX5. In MDMA, Emyria has been working with unique analogues of MDMA with its partner, the University of Western Australia, for several years, and the partners are developing one of the world’s largest libraries of MDMA-like compounds; Emyria believes some of these have broad potential in a range of neuropsychiatric conditions.
- Clinical-care delivery: Emyria owns Emerald Clinics, which has physical locations in New South Wales, Victoria and Western Australia, and also cares for patients via telehealth around Australia. Emerald Clinics puts together a team of medical doctors, clinical researchers and data scientists, who deliver evidence-based healthcare through its clinics and collaborating partners. Last month, Emyria added to this business by acquiring the Perth-based Pax Centre, which specialises in treating individuals grappling with the psychological impacts of traumatic experiences, addressing mental health issues including PTSD, depression, anxiety disorders and substance abuse.
- Data: Emyria uses world-class data collection to find solutions to unsolved medical problems and develop new treatments and therapies for people “who have run out of options.” Its data is sourced from the real world and its own health service’s patients and their experiences. In 2021, Emyria joined Palantir’s Foundry Builders Program, run by major software company Palantir Technologies, a scheme that gives selected companies access to powerful and highly secure data integration and analysis software that’s typically only available to major enterprises. Emyria is leveraging the platform as the backbone of its real-world evidence program, to improve its care models and support its distinct therapy and drug development initiatives.
The priority for Emyria is work on anxiety disorders with proprietary dose forms of cannabinoids and MDMA-assisted therapy (MDMA-AT) for complex and chronic PTSD. As PTSD shares substantial symptom overlap with depression and chronic pain, EMD believes its approach has the potential to positively impact these adjacent mental health conditions. But given the recent TGA changes and the expertise of its existing multidisciplinary team, Emyria is starting with MDMA-AT for PTSD. The company says about one million Australians develop PTSD annually, with about 400,000 of them potentially suitable for MDMA-AT.
The priority is to deliver MDMA-AT for PTSD, to improve the health of patients with chronic and severe PTSD, while showing cost-effectiveness compared to the current standard-of-care, such that Health insurers and governments are convinced to pay for MDMA-AT. After that comes developing novel MDMA treatments, and expanding into psilocybin and ketamine treatments, with “side bet” clinical trials of CBD treatments.
In the recently completed FY23, Emyria reported a net loss of $5.13 million, down from $7.33 million in the previous year. Sales revenue fell 12.6%, to $1.59 million, while the company ended the year with cash and cash equivalents of $2.73 million, down 30% from $3.88 million at the end of FY22.
During the financial year, Emyria mounted two share placements, worth $5.5 million in total, and secured a cash refund of more than $2 million through the government’s R&D tax incentive. While independent auditor Stantons flagged “material uncertainty” over the group’s ability to continue as a going concern, the company said that its cash flow forecasts indicate that it can continue to operate with “headroom.” And last month, Emyria launched an entitlement offer to raise $3.1 million.
This is a very small stock – and I don’t often talk about a company about which its auditor uses phrases like “material uncertainty” – Emyria makes a compelling argument that the recent landmark decision by Australia to legalise the use of MDMA and psilocybin for PTSD and treatment-resistant depression places it “at least a year ahead of the rest of the world,” and gives Emyria a “unique opportunity to lead the psychedelic-assisted therapy landscape,” harnessing its strengths in clinical service delivery, real-world data collection, and therapy development.
- Little Green Pharma (LGP, 16.5 cents)
Market capitalisation: $60 million
12-month total return: –35.3%
Three-year total return: –15.7% a year
Estimated FY24 dividend yield: no dividend expected
Analysts’ consensus valuation: 28 cents (Stock Doctor/Refinitiv, one analyst)
Also, Perth-based, medicinal cannabis company Little Green Pharma was the first ASX-listed company to grow and produce medical cannabis products locally, and to export these products. It cultivates its medicinal cannabis plants in accordance with stringent Australian quality standards in the south-west of Western Australia and manufactures its oil and flower products in a Good Manufacturing Practices (GMP)-certified facility in Perth.
LGP prioritised the European market, exporting its products, but in July 2021, it grabbed the chance to ramp-up its growth in this market, when it learned that Canada’s Canopy Growth Corporation was looking to close its operation in Odense, Denmark. LGP was able to pick up the facility for $20 million, considered to be a fraction of what Canopy Growth had invested in it, and less than the value of the land and assets.
At a stroke, the company acquired one of Europe’s largest and most advanced EU-GMP certified medical cannabis facilities, including a 21,500-square-metre cultivation site and 4,000-square-metre post-harvest manufacturing site as a hub for its European operations. The company has also imported flower products from Denmark for the Australian market.
LGP has several deals with distributors in Germany, one of the world’s largest consumers of medicinal cannabis. In France, LGP was awarded a commercial tender in July to supply up to €1 million ($1.6 million) of its CBD50 product to an official French medicinal cannabis trial, which will conclude in 2024. In Italy, LGP has won a government tender to fill shortfalls in the government’s own production. It also sells into the UK, Belgium, Poland, Portugal and Sweden This gives LGP access to more than 75% of EU and UK citizens and makes it the most prolific Australian medicinal cannabis supplier in Europe.
LGP is also taking advantage of the Australian legislation on psychedelics. In March 2023, the company’s psychedelics-focused subsidiary Reset Mind Sciences received ethics approval for a Phase II clinical trial into the use of psilocybin-assisted therapy to treat refractory chronic depression that has not responded to traditional treatment. The trial is recruiting patients, up to its target of 60, and is expected to run for approximately 12 months: it will be conducted at the Harry Perkins Institute of Medical Research in Perth.
That trial approval coincided with the commissioning at its Perth facility of a purpose-built mushroom cultivation facility to enable the production of psilocybin active pharmaceutical ingredients.
Also in March, LGP (through Reset Mind Sciences) entered a strategic alliance with Perth-based Health Insurance Fund (HIF) to establish a Reset-owned-and operated proof-of-concept mental health care facility that will deliver psychedelic-assisted psychotherapy to eligible patients and generate real-world treatment data.
In addition, LGP and Curtin University are progressing the third stage of a trial examining the ability of selected cannabinoids to induce secretion of a powerful hormonal mediator known to induce satiety, slow down digestion, lower blood sugar and ultimately, promote weight loss, and possibly, diabetes reversion. LGP also has a Phase 3 clinical trial underway in support of its CBD product registration for stress reduction and improved quality of sleep. The company is also a cornerstone participant in the
The Quality of life Evaluation Study (QUEST Initiative), which is being conducted by researchers at Perth’s Curtin University and aims to be the world’s largest longitudinal clinical study investigating the quality of life and health economic impact of medicinal cannabis on patients with chronic disease.
In the year to 31 March 2023, Little Green Pharma lifted revenue by 89%, to $19.86 million, but made a net loss of $8.5 million; however, that loss was more than halved from the FY22 net loss of $18.3 million. It ended the financial year with $12.4 million cash, which had come down to $8.7 million by the end of the June 2023 quarter. During FY23 the company raised $10.1 million from two placements and a share purchase plan.
- Incannex Healthcare (IHL, 6.8 cents)
Market capitalisation: $108 million
12-month total return: –75.3%
Three-year total return: –1% a year
Estimated FY24 dividend yield: no dividend expected
Analysts’ consensus valuation: n/a
Incannex Healthcare is another clinical-stage pharmaceutical company developing proprietary medicinal cannabinoid products and psychedelic-assisted psychotherapies – although it does not yet generate revenue. In August, its subsidiary Psychennex began preparing an investigational new drug (IND) application to the US Food and Drug Administration (FDA) for its psilocybin-assisted psychotherapy development program (Psi-GAD). Opening an IND with the FDA is the key regulatory approval required by the company to undertake clinical trials in the world’s biggest healthcare market.
Incannex’s Phase 2 clinical trial is assessing its psilocybin-assisted psychotherapy for treatment of generalised anxiety disorder (GAD). The trial has achieved its interim milestone of 29 patients completing primary endpoint assessments, with interim analysis now underway. Final results are expected in the first quarter of 2024.
PsiGAD1 was developed in collaboration with head of the clinical Psychedelic Lab at Monash University – and member of IHL’s scientific advisory board – a Dr Paul Liknaitzky. The study is being conducted at Monash University’s BrainPark under the leadership of Dr. Liknaitzky.
IHL says treatment of GAD with currently accepted medications and therapies remains inadequate, with less than half of patients achieving remission.
Also in August, IHL received FDA approval of its IND for its drug candidate IHL-42X as it prepares to launch a pivotal Phase 2/3 clinical trial in the US, IHL-42X treats obstructive sleep apnoea (OSA), a condition for which there is no registered pharmaceutical treatment (although medical devices to mitigate OSA, such as those made by ResMed, is a multi-billion-dollar global market.) IHL’s Phase 2 proof-of-concept trial showed that the main symptom measure of OSA was more than halved, on average, for the trial participants – a major success.
IHL is also advancing its IHL-675A multi-use cannabinoid drug candidate for inflammatory disorders. Successful clinical results in the Phase 1 trial for IHL-675A led to a multi-site Phase 2 trial that began in February, to assess IHL-675A for use in the treatment of pain and function in patients with rheumatoid arthritis.
These join a portfolio of 28 distinct FDA-compliant R&D programs, with six clinical trials underway and more being planned. Apart from GAD and OSA, IHL’s drug candidates are aimed at treating rheumatoid arthritis, inflammatory bowel disease, lung inflammation (ARDS, COPD, asthma, bronchitis), traumatic brain injury (TBI) and concussion, addiction disorders, and chronic pain.
Like Emyria, Incannex has a fledgling clinical care arm, called Clarion Clinics: Clarion recently opened its first clinic, in the Melbourne suburb of Abbotsford. It is a purpose-designed facility to provide psychedelic-psychotherapy sessions for post-traumatic stress disorder (PTSD) and treatment-resistant depression (TRD).
Incannex has told the ASX that it intends to relocate to the United States, and list on the Nasdaq Stock Exchange, with plans to eventually delist from the ASX. It already has American Depository Receipts (ADRs) trading in the US.
While it does not yet generate revenue, Incannex is relatively well-funded: at 30 June 2023, it had total funds, comprising cash at bank and on hand, of $33.4 million.
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