IHL Summary (November 2020)

SUMMARY - IHL is an innovator and developer of medicinal cannabinoid pharmaceutical products with global export capability. IHL is currently undertaking 4 significant clinical programs to develop 4 uniquely formulated products in its relentless pursuit of FDA registration and market exclusivity over the following indications: Obstructive Sleep Apnoea (‘OSA’) Traumatic Brain Injury (‘TBI’)/Concussion Sepsis Associated Acute Respiratory Distress Syndrome (‘SAARDS’) Temporomandibular Joint Disorder (‘TMJD’).

Each represents a multi-billion dollar market with no existing pharmacotherapy. Underpinning the biotech side of the business is a revenue generating CBD Oils Business under the Incannex Brand, which sells products under the Cannvalate distribution network which is Australia’s largest distributor. Cannvalate is IHL’s #1 shareholder, and shares its CEO Dr Sud Agarwal as IHL’s CMO.

Furthermore, the company notably is the best performer amongst the entire medicinal cannabis sector and went from a mouthguard company under 20M MC to the highest valued ASX listed MM stock in 2 years while the entire sector went backwards down the shitter. The register is extremely tight and includes serious smart money including Cannvalate, Canary Capital, Glenn Poswell, Peloton Capital and other sophisticated investors with a seriously good track record. The BOD are all Top 20 holders, and all participated in the IHLOB program to raise $10M in funds, contributing $1.2M of their own money towards the company. The risk/reward is immense at these levels and success of just one of its clinical programs could make IHL a billion dollar company. [This is a Cross-Post from my writeup over at ASX_Bets on redd it and was asked to post here]

SHARE PRICE - 14c
MARKET CAP - 141M
SOI - 1.1B
CASH - $12.5M
EV - $103.5M

1. KEY POINTS

ARDS (IHL-675A)

IHL has recently finished a multi stage preclinical trial consisting of two in vitro and two in vivo studies. The drug is a combination of CBD and HCQ, and aims to address the cytokine storm in ARDS sufferers. The cytokine storm approach is also being taken by Mesoblast with a 2.1B MC. Preclinical results indicate that IHL-675A is up to 767% more effective than CBD alone at reducing the cytokine storm. For reference, the FDA has approved Tetra Biopharma for human trials with COVID-19 for their drug ARDS-003, which is synthetic CBD. The inference can be made that IHL-675A is up to 767% times superior to ARDS-003. According to Camargo Pharmaceutical Services, subject to success in In Vivo Animal Trials IHL-657A was a strong candidate for the FDA’s Emergency Use Authorization. This would allow IHL to meet with the FDA for an IND. Subsequent approval of an IND would allow IHL to proceed to human trials on patients with COVID-19.

Initial Announcement can be found here.
https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02224918-3A539368?access_token=83ff96335c2d45a094df02a206a39ff4

As of 23/11/2020, IHL and Camargo are seeking a Pre-IND meeting with the FDA, where they will request an EUA from the FDA and guidance from the FDA on how to achieve this. IHL is likely to recieve an expedited Pre-IND meeting due to the company's intention to submit a EUA request.

Full Announcement can be found here.
https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02312153-3A556096?access_token=83ff96335c2d45a094df02a206a39ff4

OSA (IHL-42X)
IHL has recently received ethics approval for a Phase 2B Human Trial at the Alfred Hospital for IHL-42X for OSA. The company is currently recruiting patients and is expected to commence soon. The drug will be a combination drug including dronabinol. It is worth researching previous in-human clinical trials involving dronabinol for OSA, such as the Carley Trial and RespireRX’s trial. Camargo Pharmaceutical Services were consulted for IHL-42X and they found that it was a potential candidate for FDA accelerated drug approval. Under this pathway, IHL would only have to take 2.5 years to bring the drug to market.

Full Announcement can be found here.
https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02218148-3A538119?access_token=83ff96335c2d45a094df02a206a39ff4

Currently 936 million people suffer from OSA, and all could benefit from a pharma treatment. Existing treatment is either surgical or intrusive (CPAP) and has low patient adherence. Assuming 1% of target is 10M users. Assuming earnings of $3 per month net per user of IHL-42X is $36 per month. With only 1% market penetration, annual earnings of 360M from IHL-42X alone. Market Cap at 40x P/E is $14.4B. This is similar to Cochlear’s P/E. There are no existing competitors to IHL-42X pharmacotherapy, unlike Cochlear. Initial stats are taken from Resmed, whose CPAP is currently the leading treatment for OSA.

TBI/CTE (IHL-216A)
IHL is currently in progress with an animal In Vivo study for the IHL-216A program. Due to COVID, the Phase 2B human trial was delayed and the animal program should be completed first to help gain insight for the upcoming Phase 2B human trial. Traumatic Brain Injury is another multi-billion dollar market with no existing pharmacotherapy, and IHL has appointed Liam Picken (AFL) and James Graham (NRL) to the advisory board for the TBI program. Camargo Pharmaceutical Services was also consulted for IHL-216A and they found that it was a potential candidate for FDA accelerated drug approval. Under this pathway, IHL would only have to take 3 years to bring the drug to market. There is potential for unregistered sales sooner.

Full Announcement can be found here.
https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02227653-3A539896?access_token=83ff96335c2d45a094df02a206a39ff4

PSYCHEDELICS
IHL has recently appointed Dr Paul Liknaitzy to the medical advisory board for 18 months. Also noting that not only are current clinical trials in this sector rare but the scope for researching the areas where psychedelic medicine has been shown to be effective is open. IHL has a massive opportunity to be a global leader here. There are very few recognised experts in this field and Paul Liknaitzky is the leading authority in Australia. It says a lot about IHL on the ability to attract people of his calibre. Credit to @andres for the bullet points.

1. There are no ASX competitors in the space.
2. Very little overseas re companies playing in the sector - and a lot of these are "aspirational".
3. Very very few are active in clinical trials and mostly claims are rhetoric.
4. Compass Pathways on the NASDAQ is perhaps the only real major player and they recently listed and now have a $1.3B market cap.
5. Psychedelics, for those who know a bit about its history and evolution, has had a strong history of research and efficacy and it is now resurging. Treatments for PTSD, Depression and Palliative care have shown tremendous results far exceeding the Prozacs of the world and pure psychiatric approaches.
6. There are very few globally recognised experts in the field - we have one with Paul Liknaitzky. (worth researching Paul's profile)
7. The sector has a strong base in legitimacy - worth looking up Johns Hopkins and Usona Institute. It should also be noted that the companies involved with clinical trials are under close scrutiny from partnering hospitals; a testament to the quality of medical talent IHL has been able to attract and the high standards it adopts.

CBD OILS BUSINESS
IHL has achieved parabolic sales quarter on quarter since inception of the Incannex Brand late 2019. The most recent quarter of CBD Oils Sales the Q3 2020 September quarter had IHL receive $695K in cash receipts and a record quarter for patient acquisition and sales. This is only IHL’s third quarter EVER selling CBD Oils and it already is one of the largest on the ASX in terms of revenues and patients. Its peers include Althea Group ASX:AGH and Little Green Pharma ASX:LGP. Others are either selling different types of products or are too inferior to IHL. Cannvalate’s dominance as the #1 medicinal cannabis distributor in Australia plays an enormous role in IHL's growth in this area.

2. CAPITAL MARKETS THESIS

CANNVALATE
Cannvalate is Australia’s largest medicinal cannabis distributor, with close to 50% total market share. A giant in the industry, they are distributors for not only Incannex but also Althea Group (ASX:AGH) and MGC Pharma (ASX:MXC). AGH, notably has the largest number of medicinal cannabis oils sales on the ASX and at peak boasted a market cap over $200M. Their parabolic rise was in part due to Cannvalate, when they partnered with Cannvalate their patients and revenue increased parabolically causing their 2019 bull run.

Cannvalate is IHL’s #1 shareholder, and furthermore, Dr Sud Agarwal the CEO and Co-Founder of Cannvalate serves as a Non-Executive Director and Chief Medical Officer of IHL. There is a clear connection between the two companies, and Cannvalate has significant skin in the game in IHL, ensuring that Dr Sud’s interests remain with the company.

CANARY CAPITAL
Canary Capital is a boutique Sydney investment management and corporate advisory firm that prides itself on creating value for its clients with long term strategic investments. Their track record includes the likes of CRO, HTG and 3DP which are all 10 baggers from when Canary entered the register. They co-invest alongside their clients and do extensive DD before trying to accumulate stock. They have an extensive network, and in the case of 3DP were heavily involved in bringing Bevan Slattery on board, and the share price since does the talking. From my understanding, Canary started accumulating stock in the 6-8c range initially and has continued to buy even up to current prices. They clear through Third Party, and I have seen Broker Data for the previous few months. Incredibly strong buying and barely any selling. They are in it for bags not pips.

Canary is IHL’s Corporate Advisor, and in exchange for their services in lieu of cash, Canary has been granted 10M options with a 15c strike, and 10M options with a 25c strike. The 25c options indicate that Canary believes that the SP will be at least 30c, if not there is no value at being able to get liquidity for shares at 25c. Their position, investing style and extremely good track record speak for themselves. They are also considered early-birds, and if you see them take a position the big events are yet to come.

GLENN POSWELL
Glenn Poswell appears as the #5 shareholder through his personal investment vehicle, and appeared in the Top 20 in 2020’s Annual Report alongside a suspicious account at #2 which is a Credit Suisse Nominees Account. Speculation is that this account is related to Poswell or one of his affiliates. If smart money is valuable, Glenn should be considered one of the smartest. He is the former head of Ellerston Capital, a multibillion dollar fund and currently heads Gannet Capital. Poswell also once managed the billionaire Packer family fortune, and also sits on the advisory board for fellow billionaire Jay-Z’s fund Marcy Venture Partners which has invested in medicinal cannabis ventures before.

You can read his thoughts here where he publicly disclosed his investment this year.
disallowed/business/small-business/investor-buzz-around-cannabis-stocks-with-new-treatments-20200924-p55ypc.html

PELOTON CAPITAL
Peloton Capital was lead manager to a capital raise for IHL at 7.8c last year, and continued to buy afterwards late in the year. They have been replaced as Corporate Advisor by Canary Capital.

THE BOARD OF DIRECTORS

The BOD totals four. All of them have Top 20 holdings either personally or through their investment vehicles, and all participated in the IHLOB program to raise $10M putting up $1.2M of their own cash.

Dr Sud Agarwal (Non-Exec Director & CMO)
• 5,600,000 fully paid ordinary shares (“IHL”)

• 32,303,593 unlisted performance rights
• 200,000,000 $0.20 unlisted options expiry 30-Sep-21
• 32,000,000 fully paid ordinary shares (“IHL”)
• 14,000,000 $0.06 unlisted options expiry 01-Dec-20
• 16,000,000 $0.08 unlisted options expiry 01-Dec-20
• 18,000,000 $0.10 unlisted options expiry 01-Dec-20
• 20,000,000 $0.12 unlisted options expiry 01-Dec-20
• 20,000,000 $0.14 unlisted options expiry 01-Dec-20

As is evident, the 14c options are a magnet and so are the 20c options. The 20c options for Dr Sud only vest when IHL trades at 20c or higher for 5 trading days. This doubles as incentives but also as a source of future funding. The 20c package alone is worth $40M and is likely to be used instead of a capital raise. Canary Capital is notorious for getting placements and did not receive one to take a position in IHL. This is because IHL is cashed up.

Troy Valentine (Chairman)
Direct + Indirect (Ekirtson, Tranaj, Valplan, Alignment, Cityside)
• 26,734,248 listed IHL Ord shares
• 7,116,950 unlisted $0.08 options expiry 30-Sep-21
• 1,500,000 unlisted Perf rights

Joel Latham (CEO & MD)

• 13,829,129 IHL ordinary shares
• 5,000,000 unlisted performance rights
• 200,000 unlisted $0.08 Options expiry 30-Sep-21
• 4,119,285 IHL fully paid shares (voluntary escrow)

Peter Widdows (Non-Exec Director)

• 15,915,790 IHL ordinary shares
• 1,500,000 unlisted performance rights
• 657,895 unlisted $0.08 Options expiry 30-Sep-21

Peter Widdows deserves a little note here, he was formerly head of Heinz Asia/Pacific which was a multi-billion dollar corporation and has extensive experience in sales at a regional level. This kind of top tier executive does not belong on a penny stock spec board. He has been there for years and has been buying consistently. It says volumes to the quality of the company.

OTHER TOP 20 HOLDERS OF INTEREST

Others in the Top 20 that aren’t the Board, Cannvalate, Glenn Poswell or Canary Capital clients are of note here.

As of the latest Annual Report, Mr Peter Proska also known as The Croupier of the “Bulls, Bears and a Croupier” fame holds 12M IHLOB which he converted. The Croupier is one of the greatest spec investors on the ASX, and notably called ADN and NVA under a cent and accumulated multimillion share T20 positions in both stocks and has held to both 34c and 23c respectively at time of writing.
You can read his story here. https://www.goodreads.com/book/show/13604147-bulls-bears-a-croupier

Then there is also Raymond Laurence Carroll, also known as @Chaya
From the Annual Report he held 20M IHLOB which he converted, and has bought millions more on market since. He is also a multimillion share T20 holder in ADN and NVA among other stocks, and bought ADN at 0.003. Brilliant track record.

There is also Mr Anthony Malyniak the #3 shareholder as per the 2020 Annual Report, now likely to be lower in the list who from my understanding is a Hartley’s client. A Hartley’s investment advisor David Hainsworth has been promoting IHL for a long time now, and Hartleys has been buying IHL shares albeit nowhere near as much as the likes of Canary.

FINAL THOUGHTS
IHL has only recently surpassed the $100M MC level and is still very undiscovered. Smart money has taken positions and are still accumulating stock to add to their positions, as can be seen by my DD. Major Brokers are aware of IHL, last year they bought before the run from 2-11c, including Hartleys, UBS, Patersons, Pershing (Shaws, Blue Ocean Equities etc) and Citi. As to the future, there is major institutional buying power that has not yet discovered IHL or are waiting for a major de-risking event to buy in. Canary is a dark horse, considering what they did for 3DP by bringing Bevan Slattery to the register I can only imagine they could do something similar for IHL.

Furthermore, the risk/reward at these levels is excellent value. The strong balance sheet and CBD Oils Biz gives a floor to the valuation of the company, keep in mind that despite the pot sector being dumpstered as of late IHL is still flourishing, up over 5 times from RTO. The potential of the clinical programs at work here is enormous, ARDS is probably the most headlined condition of 2020 due to COVID-19 and IHL could have the answer. For OSA, a Phase 2B Human Trial is nuts and would lead to a 100-300M+ addition in value alone. Now throw in TBI and Psychedelics. Severely undervalued to what is in progress and if just one program works out the value of this little biotech will explode.