OCTP - the next GW Pharma?
Oxford Cannabinoid Technologies plc listed on the LSE on 21st May 2021. At the current price of 4.2p the company has a market capitalisation of £40m. The company develops cannabinoid-based prescription drugs for the global pain market, which is estimated to be worth £42.5bn.
We were delighted to welcome the Chair, Neil Mahapatra, and CEO, Dr. John Lucas, to a webinar for private investors to introduce the company and talk about the opportunity ahead of them in the pharmaceutical cannabinoid market. A recording of the webinar is available here.
Neil started the presentation by explaining that OCT is a cannabis company hoping to emulate the success of GW Pharmaceuticals (which listed in 2001 with a market cap of £174m and was sold in 2021 for £5bn – so quite some aspirations). The company is developing cannabis and cannabinoid products for the prescription drug market targeting the treatment of pain, which is estimated to be over £40bn. At float OCT raised £16.5m and these proceeds will be used to take 4 of the current drugs underdevelopment into clinical trials. In response to a later question, we learned that at the end of phase 1 trials the company will look to raise further capital, likely to be in the region of £30m to fund phase 2 trials. Neil indicated that he hoped the valuation then will be many multiples of the current valuation.
OCT has a strong research network of commercial and academic partners especially with the University of Oxford which is their lead research institution. They also have a blue-chip weighted shareholder register including FTSE100 company, Imperial Brands. Neil closed his introductory comments by referencing how OCT emulates the GW Pharma business model and that OCT’s ambitions for growth are extremely high.
Broadly speaking companies operating in the cannabis space follow one of two possible business models. The majority of companies have taken the medicinal cannabis route whereby they develop and promote unlicensed products to consumers. These products cannot make claims for treating any disease or condition, are not reimbursable from insurance companies and generally means physicians shy away from recommending them as the onus of responsibility falls upon them.
In contrast, OCT has chosen the licensed drug development business model. The company is developing drugs that will go through a robust clinical trial route before they are brought to market. These products can then be recommended by physicians, are reimbursable by insurance companies and in the UK can be funded by the NHS. OCT believe this route has the potential to create most value for shareholders.
Looking back at the history of the company it was founded in March 2017 in partnership with the University of Oxford. In February 2018 the company began the development of cannabis and cannabinoid derivatives for their proprietary library. The advantages of changing the structure of cannabinoids is that you can patent the new molecular structures and this is the bedrock of future drug compounds. In September 2019 the company in-licenced OCT461201, which will be the lead drug development compound and they believe will have blockbuster potential. Through 2020 the library of cannabinoid derivatives was developed and then in that same year they were published in the scientific journal PAIN. The lead drug continued to be developed and also a Phyto cannabinoid mixture. Now they have IPO’d they will finish preclinical development of these drugs before going into clinical trials in 2022.
Neil then introduced CEO Dr John Lucas and the rest of the management team and board which is diverse and has good levels of independence and corporate governance.
The presentation then moved to the size of the market and the problem that OCT is trying to solve, which is the lack of safe and effective drug products for treating chronic and severe pain. Historically this has led to the use and over-use of opioids which has led to a number of issues. Over 50% of the medicinal cannabis products have been developed for the pain market which suggests cannabinoids are safe and effective at treating pain. The pain market size is estimated to be worth £42.5bn a year and there has been double digit growth for a number of years. Visceral pain is the largest segment valued at £12.1bn followed by lower back pain at £7.4bn. Most physicians are reluctant to recommend medicinal cannabis for this market because it has not been through the rigorous approval process but there is a clear demand for treatment from patients. The FDA supports the regulatory approach, and it is hoped that trials will show efficacy and lead to approval.
For shareholders, value creation occurs as the drugs pass through each stage of the drug development process with the greatest value being created in the latter stages. OCT intends to commercialise their drug products directly but there may also be opportunities for acquisition and partnerships.
At the start of the presentation the relationship with Oxford University was highlighted as a differentiating factor and Neil spent a bit of time going into this in more detail. The origins of the company lay in Neil studying biology at Oxford and going back to his university professor in 2015 to discuss the potential of cannabis in medicine. This led to a discussion with the medical sciences department and members of the administrative wing who needed comfort on the reputational issues. A partnership was signed and OCT was set up and established. All of the scientists work exclusively with OCT on Cannabis and Cannabinoid research and OCT own the IP on everything that is produced in this area. This makes is very difficult for any similar type of company to work with Oxford University. This is a fee for service arrangement and Oxford receive no royalty payments or hold any equity stake in OCT.
The most prominent drug going through development is OCT461201 which was in licenced from Pfizer. The drug targets neuropathic and visceral pain and it is hoped will begin phase 1 trials in 2022. The second drug is a Phyto Cannabinoid mixture targeting visceral pain associated with Irritable Bowel Syndrome (IBS). The aim is to be in phase 1 clinical trials in 2022. The third drug compound under development will come from the OCT library of drug compounds and pre-clinical work will begin in 2022 and again will target neuropathic pain. Finally, the fourth programme aims to identify a new receptor which will target a broad range of inflammation, epilepsy and cancer. The first drug approvals and commercialisation are expected in 2027. All of the drug candidates have the potential to be repurposed across different indications.
The company have committed to regular news flow to keep shareholders up to date with progress and as each of the drug programme progresses through the different development milestones announcements will be made. There is also the potential for publications coming out from Oxford University.
Looking at the market size for these new drugs under development the pain market is estimated to be worth £42.5bn. Within this market, neuropathic pain and Visceral pain are the initial focus and together represent a market estimated at £19bn. The serviceable obtainable market (SOM) for the initial drug candidates is estimated to be £1.55bn.
GW Pharma is one of their main competitors but while OCT focuses on the treatment of pain, GW focuses on neurological conditions.
Neil answered a question regarding the recent IPO at 5p and the subsequent fall in share price. He commented that a number of early investors had taken the opportunity to reduce their positions and this had led to the share price weakness but this selling from early investors was now over in his view.
The directors own 40% of the company and they are locked up from selling for 12 months. Neil said that the intention is to achieve Unicorn status and while the lockup only lasts for a year he doesn’t anticipate selling any significant amounts even after that.
The potential for cannabis based medicines have received a lot of press recently and this was a really interesting introduction to a company that is trying to make a real difference in this field. OCT is targeting a huge market with and management are clearly very ambitious. GW pharma have shown what is possible by successfully progressing cannabis based products through clinical trials and gaining regulatory approval. If OCT are able to achieve something similar and progress their drugs through clinical trials investors are likely to be handsomely rewarded.
A recording of the webinar is available here. If you would like further information on other webinars organised by Yellowstone Advisory, please contact firstname.lastname@example.org.