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M Pharmaceutical: THE INVESTMENT CASE

M Pharmaceutical piecing together the jigsaw of success

At the moment, the healthcare firm M Pharma is a work in progress
M Pharmaceutical piecing together the  jigsaw of success
INVESTMENT OVERVIEW: MQ The Big Picture
M Pharma is a diversified healthcare business with significant blue-sky potential.

M Pharmaceutical (CSNX:MQ, OTCMKTS:MPHMF) appears to have all of the parts of the jigsaw puzzle - it is now just a case of piecing them together.

It has two potential blockbuster products: a side-effect-free version of the best-selling slimming product orlistat (probably better known to consumers as Xenical) and a female sexual dysfunction (FSD) remedy.

Add to that an infertility treatment and a handful of other revenue-generating products and you have a diversified healthcare business with significant blue-sky potential.

At the moment, M Pharma is a work in progress.

Key is an outline deal to acquire Cincinnati-based 40 J’s for up to $1.5mln and 80mln shares.

This business is already generating sales of around US$1mln a year in China.

This income is garnered from a portfolio focused on female and male reproductive health, diabetes and weight loss whose main ingredients are patented forms of menthol and L-Arginine.

“We are going to be taking what they [40 J’s] have done in China and releasing it to the US, Canada EU, South America and Australia,” said M Pharma chief executive Gary Thompson.

It is worth pointing out that all the products will be free of parabens – common preservatives found in gels and creams that have possible links to cancer.

CEO Thompson and the team are currently carrying out detailed due diligence on 40 J’s, which should take less than 30 days to complete.

Even before the acquisition announcement, the company had put together an interesting assortment of assets and IP.

Its fertility treatment, ToConceive, could really shift the dial when it goes back on sale in March. It will be sold direct to customers online.

“We know this is a very motivated customer base,” said CEO Thompson. 

“They know assistive reproduction is $15,000 every attempt. We want to be their step-therapy.

“We can’t announce our success rates yet, but I think they will be comparable to everything else out there.”

Earlier this month, M Pharma revealed as part of the 40 J’s acquisition it will continue the development of a topical treatment for female sexual dysfunction (FSD).

Where the FSD gel will take at least three years to navigate its way through US Food & Drug Administration to sign-off, the timeline to sign-off for side-effect-free orlistat slightly shorter.

It has been placed on the 505 (b2) pathway, which avoids unnecessary duplication of findings from earlier studies of the drug.

In short, this is a relatively low-risk, lower-cost means of gaining sign-off for the product than the normal route to market.

Clinical trials don’t come cheap, however. The two being carried out by M Pharma are expected to cost in the region of $10mln each.

While the business’ commercial operation is likely to expand significantly in the next few years (analysts see turnover growing to $6-7mln a year) this still won’t be enough to fully fund the two separate studies.

Logically the company will, at some stage, have to come to the market.

It is fair to describe M Pharma as an asset-lite company.  There is plenty of boardroom expertise, but drug development is outsourced, while sales of products will likely be done private-label by third party distributors.

“We are a virtual company with assets and ideas. We are a small company with big ideas,” said Thompson.

“I can’t see anyone else who has done it this way.”

With two drugs undergoing clinical development, M Pharma is clearly a three-to-five-year investment play.

However, success in bringing just one of the treatments under development across the line would move the dial. “Both have billion-dollar potential,” said Thompson.

In fact the opportunity is one that persuaded the M Pharma boss to delay his impending retirement.

“It is exciting, it is fun; it is the reason I haven’t ridden off into the sunset.”

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