Emblem Corp’s pharma strategy faces long road, Canaccord Genuity says

A new deal on a sustained release cannabinoid product is a positive, but Emblem Corp’s (Emblem Corp Stock Quote, Chart, News: TSXV:EMC) pharmaceutical strategy faces a “lengthy and risky pathway to commercialization, says Canaccord Genuity analyst Neil Maruoka.

On Tuesday, Emblem announced it had enteredt into an aggrement with Toronto-based Canntab Therapeutics, which has developed a patent-pending oral sustained-release formulation for cannabinoids. Under the terms of the agreement, Emblem and Canntab will collaborate on the preclinical formulation, clinical development, regulatory approval, manufacturing and commercialization of the sustained-release product. Emblem will have exclusive rights to market the product in Canada.

“There are numerous examples of drug products where the utilization of advanced dosage forms such as sustained- and/or modified-release dosage forms significantly improved the efficacy and clinical utility of the active drug substance,” said John H. Stewart, head of Emblem’s pharmaceutical division. “We believe that cannabinoid therapy will be advanced via the development of such dosage forms and the associated pharmacokinetic and clinical research. Sustained-release formulations of pharmaceutical ingredients that are otherwise short acting (such as cannabinoids) have more convenient dosage schedules, a longer duration of action, and tend to be much more accepted by patients and health care professionals. Emblem expects that the introduction of easily titratable, sustained-release formulations of cannabinoids will materially increase the market for cannabinoid-based medications, particularly for treatment of conditions such as chronic neuropathic pain.”

Maruoka says getting this over the finish line is no slam dunk.

“This is the first clear articulation of Emblem’s pharmaceutical strategy, which we view to be positive; however, we do not believe that this deal substantially de-risks Emblem’s drug development pathway nor does it address some key concerns around the formulation and delivery of cannabinoids. The partnership grants Emblem access to Canntab’s patent-pending technology, and the companies will collaborate on the preclinical, clinical, and regulatory development of sustained-release products. Nonetheless, with substantial early-stage development work still to be done, we continue to see a lengthy and risky pathway to commercialization.”

In a research update to clients today, Maruoka maintained his “Speculative Buy” rating and one-year price target of $2.25 on Emblem Corp, implying a return of 21.6 per cent at the time of publication.

Maruoka thinks Emblem will generate Adjusted EBITDA of negative $7.6-million on revenue 3.0-million in fiscal 2017. He expects those numbers will improve to EBITDA of $6.1-million on a topline of $19.0-million the following year.

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