Thursday, September 28th 2023

Oxford Cannabinoid Technologies Holdings PLC

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Why is Oxford Cannabinoid the ideal option for BIG Tobacco?


“…in June OCTP won significant backing from FTSE 100 British multinational tobacco company Imperial Brands Ventures Limited which took a 9pc strategic holding in the company, becoming its second largest shareholder behind Mr Mahapatra’s Kingsley Capital Partners. The move reflects the growing interest of the tobacco giants in medicinal cannabis…”


It’s not so long since we last covered Oxford Cannabinoid Technologies (LON:OCT) – see our recent feature and interview. But, with its focus on developing cannabis-based prescription medicines that have gained regulatory approval, rather than the short-term marketing of commercial cannabinoid extract products, we think the company is one worth watching. So with news over the past few weeks of new research partnerships, and a significant declaration of interest from a major FTSE 100 company, we thought it time for an update.

OCT joined the LSE Main Market in May, raising just under £15m, one of several cannabis-related companies to go public this year after the Financial Conduct Authority gave the green light for UK-based medicinal cannabis companies to list on the LSE last autumn. Several have already been covered by TMS, including the Kanabo Group (LSE:KNB), developing products including a vaporiser measuring precise cannabis doses; Love Hemp (AQSE:LIFE), perhaps the UK’s most recognisable high street cannabis product brand; Fast Forward (AIM:FFWD), an investment fund with interests in several cannabis ventures; and Apollon Formularies (AQSE:APOL), researching new medical cannabis treatments. CiiTECH is set to become the latest after raising £2.1m earlier this month to facilitate a reverse takeover listing on the LSE Main Market.

UK retail investors poured more than £300m into cannabis stocks earlier this year, encouraged by forecasts that the domestic cannabis market could be worth more than £2.4bn within the next three years and the European market nearly €14bn by 2025.

Confusing regulations and entrenched attitudes


But the emerging industry must navigate a confusing regulatory environment and entrenched cultural attitudes if it is to fulfil that promise. For sure, there is a worldwide trend towards liberalisation of the drug, as its medicinal benefits become ever clearer, and the persistent fog of confusion regarding the difference between medical and recreational use of the drug gradually lifts. Medical cannabis is now legal in more than 40 countries, and the giant US market is gradually opening, with medicinal use of the drug already legal in 15 states and the prospect of further deregulation under the liberal Biden administration.

A much quoted report by Maple Tree Consultants and Mackrell Solicitors, however, makes plain the hurdles that still remain here in Britain, warning that a ‘restrictive and cautious approach’ means ‘the UK is at risk of missing out on the commercial and industrial benefits of this rapidly developing sector’. Because recreational cannabis remains a criminal offence in the UK, cannabis companies with non-UK operations could fall foul of Britain’s Proceeds of Crime Act. They must ensure their overseas operations would be legal if carried out in the UK, making marketing and distribution a legal minefield. And British-based cannabis companies are still prohibited from using cannabis grown in the UK, able only to sell products produced from imported plants.

The result is a sprawling, somewhat incoherent market, in which customers self-administer their own treatment by trying an array of over-the-counter commercial products. Research by Prohibition Partners, a cannabis-focused market intelligence firm, found that in 2019 some 1.4 million British people used cannabis to treat chronic health conditions, while just 153 prescriptions were issued for cannabis-based medicines.

Arguing that growth depends on the further loosening of regulatory frameworks, the Maple Tree paper urged the government to make it easier to grow cannabis for medical use, relax restrictions on the extraction of the cannabinoid CBD, and allow general practitioners, not just specialists, to prescribe cannabis.

The European picture is just as cloudy, with regulations and attitudes differing sharply from country to country. Some allow the use of medicinal products containing cannabinoids, and others the medical use of unauthorised products or preparations. Some allow cannabis product manufacture and others do not allow manufacture but do permit cannabis import, while in other countries both are permitted.

The GW Pharmaceuticals model


Indeed only one medical cannabis product is approved across the EU, GW Pharmaceutical’s Epidiolex, a proven treatment for rare and severe forms of epilepsy. Epidiolex was also the first plant-derived cannabinoid medicine to be approved by US regulators. Unlike retail commercial medical cannabis products Epidiolex is a cannabis-based pharmaceutical product that only came to market after passing rigorous clinical trials and passing existing cannabis usage regulations. GW Pharmaceuticals’ approach has worked well for patients and the company, which sold more than $500m of Epidiolex last year, and was acquired this February by US drugmaker Jazz Pharmaceuticals for $7.2bn.

It is this path to market that OCT is working to emulate. In an Investors’ Chronicle interview last month OCT Executive Chairman Neil Mahapatra said ‘We think of ourselves as the next GW Pharmaceuticals … GW, like us, are one of the few firms in the cannabis space that actually requires no real progression of cannabis law in order for its business model to succeed … That is because we are using these already pre-existing channels of drug development, clinical trials and regulatory approval … to develop our products.’

We provided a full overview of OCT in our article last month, but to recap, the company was founded four years ago when private investment firm Kingsley Capital Partners sunk £10m into an Oxford University research programme studying pharmaceutical uses of cannabinoids. Mr Mahapatra, a Kingsley Capital director, sponsored and launched the End our Pain campaign that was instrumental in securing UK government approval for the use of medical cannabis in 2018, highlighting the case of Billy Caldwell, a young epilepsy sufferer whose condition reportedly deteriorated after his supply of cannabis oil – then illegal in Britain – was confiscated when he and his mother re-entered the country at Heathrow airport.

OCT is developing cannabis-based prescription medicines calibrated for the relief of inflammatory and autoimmune disorders such as rheumatoid arthritis, systemic sclerosis, fibromyalgia and osteoarthritis, and debilitating neurological and neurodegenerative disorders including multiple sclerosis, Parkinson’s, Alzheimer’s, and epilepsy. The company is also researching the potential of cannabinoids to alleviate cancer symptoms, and where possible address their underlying causes.

Like GK Pharmaceuticals OCT is prepared to go through a demanding regulatory process to develop approved products that can benefit from substantial recurring revenues. Unlike the commercially available natural cannabis treatments that rely on the plant’s native qualities, custom-designed cannabinoid derivatives qualify for patent protection and regulatory exclusivity. Licensed drugmakers qualify for a period of market exclusivity of up to 20 years in return for their investment.

Although there are an estimated 1.5 billion chronic pain sufferers worldwide – more people suffer from chronic pain than cancer, heart disease and diabetes combined – the pain treatments currently available are limited, consisting primarily of opioids and anti-inflammatory drugs. Many patients are now dependent on these painkillers, which can have fatal side effects: last year there were more than 60,000 opioid-related deaths in the US in 2020 alone. For many other patients there are no effective pain medications at all. Some estimates suggest the market for quality pain medication is worth more than £40bn.

OCT’s research focuses on medicines that act on the body’s endocannabinoid system (ECS), which plays important roles in many physiological functions, including pain, mood, memory, sleep, appetite, and also the immune response to cancer and infective agents. There is increasing evidence of the exceptional capacity of cannabinoids to map on to ECS receptors found in the brain and peripheral nervous system, and elsewhere in the body. OCT is developing cannabis-based compounds that can target these receptors more precisely than the simple ingestion of cannabis flower and extracts. The company is blending natural cannabinoids with cannabinoid derivatives and other chemical entities to design a portfolio of drugs calibrated precisely for different ailments. OCT has compiled a proprietary library that already comprises nearly 100 cannabinoid derivatives, a set of building blocks for the development of an array of safe, non-addictive treatments.

OCT intends is to use the net proceeds of £14.82m the company raised on listing for the pre-clinical development and initial clinical trial of its first drug candidate, OCT461201, which targets neuropathic and visceral pain caused by nerve damage or disease. This and a second drug candidate will begin clinical trials in the third quarter of 2022, with a view to the commercialisation of OCT461201 by 2027. OCT estimates the market for these first two treatments may be worth up to £1.55bn. Mr Mahapatra has described the OCT461201 candidate as having ‘real blockbuster potential targeting a range of indications within neuropathic and visceral pain’, offering the prospect of a clinically approved prescription medicine that addresses pain effectively without psychoactive effects. 

Rather than building an extensive in-house team the company follows a partnership model, paying for research on a ‘fee for service’ basis that protects intellectual property. OCT continues its research collaboration with Oxford University, but engages new partners on a case-by-case basis to drive further research and development.

Progress since IPO


The company has announced several noteworthy updates since IPO. In May OCT reported a consultancy agreement with Voisin Consulting, a medical devices, cannabinoids, neurological disorders and addiction consultancy, with which it will evolve its strategies for accessing the UK, US and EU markets and their regulatory authorities.

Earlier this month it signed a service agreement with drug discovery and development company Evotec to enter the OCT461201 compound into Evotec’s INDiGO programme, an integrated drug development process designed to expedite the pr cess of bringing early drug candidates to clinical trials. The programme, expected to take 12 months, will develop manufacturing, safety, and toxicology packages for submission to the UK Medicines and Healthcare Products Regulatory Agency and the US Food and Drug Administration. Evotec will also manufacture and formulate the OCT461201 drug product for use in clinical studies.

And in June OCT won significant backing from FTSE 100 British multinational tobacco company Imperial Brands Ventures Limited (LSE:IMB), which took a 9pc strategic holding in the company, becoming its second largest shareholder behind Mr Mahapatra’s Kingsley Capital Partners. The move reflects the growing interest of the tobacco giants in medicinal cannabis.

When we last covered OCT the company’s share price had fallen off its 5p IPO price slightly, to 4.4p. The price has since drifted down further to 3.3p. As we said then OCT is somewhat different from the other cannabis companies that have gone public this year, being something of a slow burner, a company committed to the long road that must be travelled to secure regulatory approval for cannabis-based prescription treatments. But as the example of GW Pharmaceuticals demonstrates, the eventual commercial reward can be very great. And of course, as the Imperial Brands shareholding indicates, there is the possibility that bigger players may make a move well before the product comes to market.

We repeat our suggestion that OCT, with its clear roadmap to achieving regulatory approval for a well defined product, looks a good long-term bet for investors seeking access to the UK’s exciting but turbulent cannabis market.