Medibank doubles down on partnership with EMD to include psilocybin for treatment resistant depression

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 15,679,998 EMD Shares and 5,822,221 EMD Options and the Company’s staff own 933,334 EMD Shares and 203,888 EMD Options at the time of publishing this article. The Company has been engaged by EMD to share our commentary on the progress of our Investment in EMD over time. This information is general in nature about a speculative investment and does not constitute personal advice. It does not consider your objectives, financial situation, or needs.

Health insurance companies have a big problem.

One insurance CEO even called it the ‘new pandemic’.

In 2019, payouts for mental health in Australia were $1.2 billion...

Last year they were $2.2 billion...

Mental health is Australia’s leading chronic health concern.

Conditions like PTSD affect 1 in 11 Australians and approximately 30% of people who receive anti-depressants are resistant.

The system is unsustainable - current interventions are not working and premiums are going up.

So insurers are turning to psychedelic therapies... because frankly, nothing else is really working.

Emyria (ASX:EMD) is the first (and only) company in Australia that offers this in a clinical setting.

EMD has regulatory approval AND the backing of a major health insurer to deliver psychedelic-assisted therapies.

EMD’s has a payer agreement in place with Medibank, to fund therapies delivered by EMD for Medibank members.

Medibank is Australia’s largest health insurer with 4.2 million customers.

Yesterday, Medibank expanded its coverage of EMD treatments to include “treatment resistant depression”.

(Source)

This is very strong validation of EMD’s work to deliver psychedelic care and address mental health challenges in Australia.

A few months ago Medibank announced that it would cover eligible members for EMD’s MDMA-assisted therapy for PTSD.

Now Medibank is covering eligible members for EMD’s psilocybin-assisted therapy for treatment resistant depression.

Almost doubling EMD’s total addressable market in one deal:

(Source)

According to EMD, the total addressable market in Australia for “eligible” patients with these two conditions is around 1.3M people.

EMD charges roughly $20,000 to $30,000 per patient.

(We’ll let you do the maths on what the potential revenue upside is for EMD).

This deal also marks the first time that psilocybin-assisted treatments will be covered by a major insurance company, and validation of EMD’s expanding offering to multiple mental health conditions:

(Source)

Here’s how much US psychedelics companies are currently being valued...

EMD is currently capped at $36M and is on the start of its scale up journey.

The market seems to be liking how EMD is tracking with the stock steadily climbing from 2.5c at the start of July to 5.5c now.

(past performance is not an indicator of future performance)

While EMD builds out its business in Australia, psychedelic companies in the US are being acquired for big money.

Last month, pharma company AbbVie spent US$1.2B to acquire Gilgamesh’s psychedelic drug program:

(Source)

Spravato, a ketamine nasal spray for treatment resistant depression, is tracking for a $1.6B annual revenue run rate, with Johnson and Johnson’s sales guidance to reach $3B to $3.5B by 2027/28:

(Source)

While EMD is not directly in the drug development game, it is building a business model that could potentially be even more impactful in the psychedelics mental health space.

This is because it combines these psychedelic drugs with in person therapy.

The biggest challenge with this business model is building a business at scale... and that is exactly what EMD is delivering.

(Source)

You can watch EMD’s team present the whole story here:

(Watch the full video)

EMD’s business model: A franchise for psychedelic care

EMD coordinates therapies within physical clinics for mental health conditions, assisted with psychedelics.

EMD is looking to build a very defensible business model where it has deep-seated relationships with all stakeholders in the psychedelic therapy industry.

We think EMD has a very defensible market position because it has:

• Authorisation from Australia’s TGA to deliver MDMA-assisted care to patients (this is not easy to get)
• A Payer Agreement with Medibank to cover the cost of these therapies to its members (years in the making).
• Data that shows it works and continues to work months after the patient is treated.
• A means to deliver therapies through physical clinics that it owns and operates and access to skilled therapists.
• Purchasing power when looking to secure more drug supply from the market
• Scale potential with an approved protocol from the TGA that it can “franchise” out to other clinics looking to deliver assisted therapies.

It is still very early stages but this business model is playing out exactly as EMD is expecting, with the company “nearing capacity for 2025” for its initial sites.

The main limiting factor is EMD’s ability to deliver the care.

This essentially means more sites are needed, across Australia.

Right now the company is undertaking a national rollout with three sites already secured and a further nine sites in the “near term potential” category:

These sites are leased rooms in existing hospital settings or clinics, meaning there is a low CAPEX / startup cost for EDM to deliver the therapy and care.

EMD Exec Chairman has scaled up a clinic business before...

Driving this scale up strategy is EMD’s Executive Chairman Greg Hutchinson.

If anyone knows how to rollout clinics fast, it’s Greg.

He led the scale up of Sonic HealthPlus to over 7,000 active clients across 40 different clinic locations.

Sonic HealthPlus is now the largest provider of occupational and community medical services in Australia...

... The parent company Sonic Healthcare is now capped at ~A$12.75BN.

The past performance is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

Greg is not only the Exec Chairman, he is EMD's largest shareholder, owning 6.42% of all EMD shares...

EMD is looking to replicate the same playbook as Sonic Healthcare, scaling up its therapy offering and leveraging its position in the market to be a monopoly player in the space.

Essentially, EMD is looking to carve out a clinical niche, scale up operations, and build a defensible business.

Medibank deal to cover for treatment resistant depression

The big news from yesterday is that Medibank will now fund treatment for members for treatment resistant depression, using EMD’s psilocybin-assisted treatment:

(Source)

Earlier this year Medibank announced a $50M investment into mental health:

(Source)

From the news release, a big part of this investment is that “Medibank will fund an innovative psychotherapy program for eligible customers with acute mental health conditions”.

It appears that EMD is the preferred partner of Medibank to deliver this psychotherapy program.

First it was MDMA-assisted therapy for PTSD.

Now it is psilocybin-assisted therapy for treatment resistant depression.

Approximately 30% of people who receive anti-depressants are resistant (source).

This means that there is a big demand for a solution... and EMD is providing it.

Because of EMD’s position as a leader in the market - with TGA approvals, access to clinicians and clinics - it is a much easier business proposition for Medibank to deal with just one supplier.

Obviously Medibank has liked the data so far, and we can only hope that results continue to improve for patients undertaking the therapy.

So, what has Medibank seen?

Does EMD’s therapy work? Results to date show that it does...

Earlier this year EMD published data that showed its treatment reduces PTSD symptoms by more than 50%.

And patients continued to improve six months after the assisted therapy was complete.

63% of patients no longer met the PTSD criteria, with symptoms dropping 55.5% on average:

Here is the data that also shows quality of life improvements by more than twice, again, improving six months after the treatment is complete:

This data would have been crucial for the Medibank deal for PTSD, we are hoping that similar data will be collected and proven effective for treatment resistant depression.

Why this data collection is so important is because while Australia has the regulatory environment for EMD to deliver this therapy without a clinical trial... the USA does not.

EMD is able to collect this data without the need for a clinical trial (but still collecting the data in a very robust way - EMD’s Chief Scientific Officer Michael Winlo is an ex-Palantir healthcare lead, and data is his specialty).

(yes the Palantir, Peter Theil backed, now capped at almost half a trillion dollars...).

We think that after a few years of delivering therapy, working out the best protocol from the data, EMD will be able to take this program over the pond to the US, where there is a much bigger market and bigger potential.

The data on getting people back to work is also extremely promising.

According to the latest presentation of the 10 patients with work related PTSD, all 10 have returned to work six months after treatment.

This is a huge stat, given that workcover is one of the largest insurance organisations in Australia, and one of the biggest payout each year is to the Australian Federal Police.

(This is primarily due to payouts for work related PTSD - first responders are more likely to experience PTSD)

Right now EMD is working with workers compensation on a “case by case” basis:

However, we hope that this can turn into a more formal agreement directly with EMD, such that it makes it easier for work cover to pre-approve EMD therapies and deliver care to its members.

More payers on the horizon...

According to EMD’s latest company presentation there are many more insurance payers chomping at the bit to fund therapy for their members.

Today, EMD progressed Medibank as a payer for Depression from “planning” to “active”.

The goal is to get as many payers funding therapy for members as possible.

This is a big part of the scale up strategy.

What’s next for EMD?

More new sites opened

Now that EMD has signed on with Avive Health we want to see other potential sites that it can scale up its clinics to.

More payers

We want to see if EMD is able to secure another payer alongside Meidbank.

Grow sites and optimise utilisation

This is one of the key charts from EMD’s latest presentation:

We want to see the company expand its offering to more sites and then optimise those sites for utilisation.

Right now EMD has a total capacity to do around ~50 dosing days per week.

This is the limit on the revenue that it can earn right now.

More sites = more dosing days available = more potential revenue for the company.

First revenues from Medibank deal (announced this quarter)

According to EMD’s quarterly report, the company has said that first revenues from the Medibank deal will be booked in the following quarter.

(Source)

Our expectations are relatively low here because EMD is yet to scale up its operations, and it is revenues from just two sites...

But it is a big milestone all the same.

What are the risks?

Regulatory Risk

EMD is working in a heavily regulated space.

The regulatory changes that allow EMD to operate in the field of psychedelic therapies are new and could be reversed. A regulator could step in and intervene either across the industry or specifically in relation to EMD.

Scale Up Risks

Even though EMD can secure funding for Medibank, there is a lot that needs to go right in terms of scale.

This includes securing more sites to operate its services as well as securing more MDMA supply to meet the expected demand.

Scaling costs money, and EMD needs to reach a level of profitability before it can scale without continuing to tap the market for resources.

Other Risks

The company’s expansion is also limited by the small number of doctors with Authorised Prescriber (AP) status for MDMA-assisted therapy. Training and credentialing additional clinicians is essential but not guaranteed to scale quickly.

Financially, EMD remains early-stage with ~$4.6M cash balance as of June 30th and a market cap of just $36M.

Although Medibank is covering treatment costs for its members, EMD is heavily reliant on this single payer.

Any change to the Medibank agreement, or a slower-than-expected patient ramp-up at new sites like Avive Health Brisbane, could strain cash flow and potentially require further capital raises, leading to dilution of existing shareholders.

Operationally, the company has yet to prove it can deliver therapies at scale.

Treatment throughput per clinic remains unclear, and access to medical-grade MDMA and other psychedelics is still subject to supply chain risks, despite domestic manufacturing starting to come online.

EMD’s growth plan also depends on rolling out its EMPAX clinic model nationally, which requires securing additional sites, training staff, and maintaining quality and compliance at every location.

In short, while EMD is well-positioned with a first-mover advantage, its success hinges on execution.

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