GW Pharma (GWPH) doubled in price after reporting earlier this week that its cannabis-based drug, Epidiolex, reduced seizures in patients with a rare form of epilepsy. This has buoyed optimism in companies like PharmaCyte (PMCB). Then, a report from Marijuana Business Daily said that the cannabis industry would contribute $44B to the U.S. economy [1], buoying optimism in Medical Marijuana (MJNA), and Terra Tech (TRTC). But the biggest piece of news in natural alternatives to the traditional cocktail of big pharma drugs came from ImmuDyne, Inc. (OTCQB: IMMD).
ImmuDyne reported full-year 2015 sales grew 73% to $1.22 Million. IMMD says 2016 sales will be $10 Million, or growth of more than 700%, as shown in Figure 1 below. The Company expects to be profitable and has already booked more than $1.2 Million in the first 2 months of 2016, according to their news release [2].
Figure 1: IMMD’s Forecasted 2016 Revenues Are 8x Higher Than 2015 Revenues
INVESTMENT THESIS: ImmuDyne, which trades under the ticker symbol ‘IMMD’, has a fair value of $0.39 per share based on an average 1.2 EV/Sales multiple on its projected 2016 revenue of $10 Million (see Figure 5, below). The market price for IMMD shares is $0.19, implying potential upside of 105%. Medical marijuana underscores the need for natural alternative medicines; ImmuDyne’s beta-glucan satisfies that need with a well-understood safety and efficacy profile.
Medical Marijuana’s Economic Impact Shows Evolution of Alternative Medicines
Marijuana Business Daily predicts that the US cannabis industry will pump $44B into the economy by 2020. This figure captures the industry’s overall contribution to the economy, which encompasses everything from licensing fees and taxes to employee spending and job creation. The report estimates that retail marijuana sales, alone, could hit as high as $4.3B in 2016, growing 26% year over year.
Figure 2: Marijuana’s Adoption is a Billion Dollar Economic Stimulant
The ‘green rush’s’ impact on the economy signifies the upside in companies that promote the health benefits of cannabidiol (CBD), such as Medical Marijuana (MJNA) with their hemp oil brands. As perception of marijuana shifts favorably and scientific data continues supporting its health benefits, more money will flow into the once-tainted industry. How do we know? See GW Pharma (NASDAQ: GWPH) and Figure 3, below.
GWPH Adds $1 Billion To Its Valuation After Positive Study Results. Here’s Why It Was A Big Step Forward For Medicinal Cannabis.
GW Pharma added $1 Billion in market cap after reporting data from the first of two Dravet syndrome studies. In 120 randomized Dravet syndrome patients, GWPH’s cannabis drug Epidiolex reduced the number of monthly seizures by 39%, compared to 11% for patients receiving placebo.
Figure 3: GWPH Surged 133% to $91, up from a two-year low earlier this week
Results from a second Dravet syndrome trial are expected in the second half of 2016 according to the company. If that trial also succeeds, then GWPH could be on a path to having the first FDA-approved cannabinoid therapeutic. This would be a huge vote of confidence for PharmaCyte (PMCB), for example, which is trying to develop cannabinoid compounds as a treatment for pancreatic cancer.
ImmuDyne Should Reap Rewards From Medical Marijuana’s Progress
ImmuDyne is leveraging the change in perception around new age medicine (eg. medical marijuana) and the proven health benefits of its proprietary yeast beta-glucan (“β-glucan”) to develop a pipeline of diversified products (as shown in Figure 4, below).
Figure 4: β-glucan’s Broad Activity Gives IMMD Opportunity to Address Broad Unmet Needs, Including Capsules for Immune Support and Rejuvenating Skin Cream
β-glucan’s ‘natural’ mechanism make it an attractive candidate for common problems like bacterial infections, immune support, overall health & wellness, and wound care. Beta-glucan is a natural immune-modulator derived from baker’s yeast that has shown broad medical benefits in scientific studies [3] for many common problems like the ones mentioned above.
Because β-glucan is exempt as a drug by the FDA under a classification known as ‘Generally Regarded As Safe’ (“GRAS”), IMMD can sell products directly to consumers and bypass the FDA’s expensive drug approval process. The Company has leveraged its drug-free status to (i) appeal to consumers who want an effective product that is clinically-proven, safe, and readily available and (ii) develop new products quickly based on consumer needs. The Company has disclosed that it is developing its immune-modulator for potential benefit in prostate cancer (as shown above in Figure 4).
ImmuDyne’s Financial Results Suggest 2016 Could Be An Inflection Year; Gives Investors A Reason To Own Shares Right Now
In October 2015, IMMD formed a Joint Venture (JV) with Inate Scientific, a privately-held marketing company that launched a skin cream product line based on ImmuDyne’s proprietary yeast beta-glucan ingredient.
The global market for skin care is worth an estimated $121 Billion in 2016 [3] and IMMD has projected 2016 sales of $10M driven by their JV with Inate Scientific and ingredient sales to “2 of the top 5 global cosmetic companies”[4].
In 2014, IMMD reported $0.714M in revenues. In 2015, revenues are expected to be 73% higher at $1.22M. IMMD’s revenue growth is continuing to accelerate into 2016 as revenues are projected to grow 8x to $10M.
In just the first two months of 2016, the company said it had generated more than $1.2M in revenues, roughly as much revenue as generated in all of fiscal 2015.
ImmuDyne further stated that rapid revenue growth and improved cost management will produce positive cash flows and profitability for its Company in 2016.
IMMD Fair Value $0.39/Share; Potential Upside of 105% Is Implied
If IMMD were priced in line with the average forward EV/Sales multiple that ingredient and beauty care companies such as Hain Celestial (HAIN), Revlon (REV) et al. have in the marketplace (Figure 5, below), IMMD shares would trade at exactly $0.39, 105% higher than recent market prices of $0.19 per share.
Figure 5: IMMD Currently Trades at 0.6x Forward EV/Sales; Peers Command 2X, or Twice Their Valuation
It’s important to note that ImmuDyne’s CEO, Mark McLaughlin, is the largest shareholder in the Company with approximately 30% ownership. This has aligned McLaughlin’s interest with all shareholders and has made capital preservation a priority.
Figure 6, below, shows the capital structure as measured by dilution of shares outstanding for each of the companies discussed in this note, over the past 2 years. As readers can clearly see, McLaughlin has kept dilution at a minimum (4%). What this means is that every dollar in sales will reflect significantly on a per share basis if sales grow significantly. The same cannot be said for medical marijuana companies.
Figure 6: IMMD has Minimized Dilution Whereas Marijuana Names Have Grown Shares Outstanding by At Least 17%
For ImmuDyne to be fairly valued shares would need to jump 105% to $0.39. We view this as a compelling reason to own shares of a Company that has boldly stated that they expect profitability this fiscal year alongside 700%+ year-over-year sales growth.
Key Takeaways:
- GW Pharma soared on positive late-stage data for its cannabinoid-based drug as a potential treatment of seizures for a rare form of epilepsy.
- Cannabis-based therapies are benefitting from GW Pharma’s tailwind as well as an industry report that marijuana will add $44 Billion to the U.S. economy.
- ImmuDyne (IMMD) has a natural alternative medicine in the form of its proprietary beta-glucan but is receiving little attention while efficiently turning R&D spend into actual commercial revenue.
- ImmuDyne’s news last week that sales in 2015 rose 73% and are expected to jump over 700% in 2016 went unnoticed by many investors
- Lack of awareness of ImmuDyne (IMMD) among many investors creates an arbitrage opportunity
- ImmuDyne’s shares are worth $0.39 compared to a closing market price of $0.19; have 105% in potential upside.
References & Endnotes
[1] http://mjbizdaily.com/exclusive-u-s-marijuana-industrys-economic-impact-hit-44b-2020/
[2] http://finance.yahoo.com/news/immudyne-pre-announces-full-2015-140602665.html
[3] http://ir.baystreet.ca/article.aspx?id=204
[4] https://www.sec.gov/Archives/edgar/data/948320/000121390016010247/f8k011916ex99i_immudyne.htm
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Legal Disclaimer: This research note has been prepared by One Equity Research LLC ("One Equity") on behalf of ImmuDyne ("Company") as part of research coverage services. As of the date of this report we have received thirty thousand dollars and five hundred thousand restricted shares of ImmuDyne for our services beginning in November 2015. We expect to receive ten thousand dollars per month and an additional five hundred thousand restricted shares for our services, ending on November 30, 2016, however our agreement is subject to termination at the discretion of the Company. One Equity intends to sell its shares in the Company as soon as it is legally permissible to do so. While issuer-sponsored research is seen as biased, we strive to hold the highest ethical and fundamental standards when evaluating which companies we are willing to cover. We assess issuers prior to entering into a coverage agreement and attempt to cover only those we believe are truly undervalued and deserve greater visibility. Simultaneous to entering into a research coverage agreement, we loaned ImmuDyne $100,000 USD in an unsecured note that bears interest at 11% per annum for general working capital and to voice our support and belief in the Company's growth outlook. We are long shares of ImmuDyne. Our research reflects our actual views. We do not publish investment advice and remind readers that investing involves considerable risk. One Equity urges all readers to carefully review the Company's SEC filings and consult with an investment professional before making any investment decisions. Please read our full disclaimer at http://www.oneequityresearch.com/terms/