Cannabis-based ingredients and medicines developer Celadon Pharmaceuticals (LON: CEL) says that it will start supplying its two major customers before the end of the year. It also hopes to sign up a partner to finance the trial of a cannabis-based alternative to opiates.
Earlier, this year AIM-quoted Celadon Pharmaceuticals extended the Home Office licence to enable commercial supply of the active cannabis-based pharmaceutical ingredients it manufactures. Two multi-year contracts worth £3m and £1.2m respectively were won on the back of this approval.
Commercial cultivation has started. The current facility in the Midlands has an annual capacity of around 150kg. Gross margin is estimated to be at least 70%. The two existing contracts could generate £1m of gross profit in a full year, which is not enough to cover overheads.
The LVL pain relief trial will cover up to 5,000 patients and could take up to three years, although it should not be that long. Canaccord Genuity expects the trial to last 12-18 months from its launch, which could be in the first half of next year.
The interim cash out flow from operating activities was £3m. Cash was £1.6m at the end of June 2023 and there is also a £7m credit facility, which Celadon Pharmaceuticals is likely to dip into by the end of the year. The facility is provided by a shareholder and the interest rate is 10% of the amount drawn down.
A partner would finance the pain relief trial and there will be a profit contribution from the initial supply agreements. That does not mean that the cash outflow will be stopped in the medium-term.
Further investment in the company’s facility is required, although the pace of investment will depend on new contracts being won. If the order book builds up there could be a requirement for a fundraising to finance the growth.
The share price slipped 10p to 120p following the interim results. Positive news concerning supply deals and a partner for the pain relief trial should help the share price to recover.