New Ted Ohashi interview with Lexaria CEO Chris BunkaThe following interview was copied from Ted Ohashi's newsletter of May 17, 2020.
Ohashi: Let me begin by congratulating you on getting this financing done. At this stage, I can think of very "few" companies that would have been able to pull this off. I’m happy because I think it reflects well on you and John Docherty (President) and all the others working with you. The Special Equities Group of Bradley Woods (BWC) is not exactly a household name on my contact list. How did you meet them?
Bunka: Thanks, Ted. I met them last fall on one of many trips in the U.S. to tell our story. They moved to the top of my list when they hopped on a airplane and came to Kelowna to visit us and makes sure we are for real. It took quite a bit of back and forth but we got it done. I told our people at the time that in some 25 years,
that was only the second time that had happened. So I knew they were serious.
Ohashi: Was the up-listing to a senior U.S. exchange an important part of it?
Bunka: Yes. I can’t tell you how many times being listed OTC was a show-stopper for American investors. So I knew it was important and I mentioned it in my outlook report in early January. Now we have a clear path ahead of us and the money to pay for the costs involved. I’m expecting it will be done in 2020.
Ohashi: And that will attract a whole new category of investors and investment bankers?
Bunka: Yes. We may have already seen some of this. When it came to the up-listing discussion, two Canadian investors were very nervous about it and, in the end, didn’t participate. Now it might not have been just for that reason. But every American investor that wrote a cheque for the offering was strongly in favour of a NASDAQ listing and, I would say, it was an important part of the discussion leading up to the final financing.
Ohashi: I’m kind of curious about their attitude toward the Altria decision. How did the Bradley Woods group, if I can call them that, react to the pending decision?
Bunka: Well, we were very cautious and communicated with our Canadian and U.S. lawyers in detail. We wanted to be sure of what to disclose and what not to disclose. We made sure to avoid selective disclosure issues. The bottom line to what we said was exactly what I have been telling you. I am concerned that we haven’t heard from Altria because I think they’ve made their decision and they have promised to give me their answer in writing “soon” but I don’t have it. That worries me and the longer it goes without a decision, the more nervous I become. But they have been very close to the vest about it. They haven’t said they are not going to proceed either and there has been absolutely no guidance or direction about their decision. We haven’t received formal notice and we don’t know what their intentions are with respect to moving forward. So it concerned one or two investors but it seemed like the others didn’t care and their thinking went along these lines. They asked, “How much will Altria invest if it all keeps going?” We said a total of $11 million. Then they asked “What if Altria doesn’t proceed?” We said they basically lose their exclusivity to use the technology in the United States. I’m abbreviating the discussion. Next they said, “If Altria doesn’t proceed, will someone else come in and take their place?” I said, it is something we work on every day. We have had long standing relationships in the tobacco/nicotine industry going back three years so I think there is a good chance we can find other interested parties. Their punch line was “We think if anyone else comes along, you’ll get more than $11 million. We almost hope they don’t proceed.” So for everyone except for maybe those one or two investors, it wasn’t a big topic of conversation and it wasn’t a show stopper.
Ohashi: So are we looking at the end of the month for the 90 day deadline for an answer from Altria?
Bunka: No. It seems the time line is getting drawn out. I don’t have the dates on the tip of my tongue but we received the final scientific document in the last ten days, I think. Let’s say it was April 15th. Then our legal opinion is they have 90 days from then so we might be looking at mid-July if it goes to the maximum. I can’t see drawing it out but I don’t know.
Ohashi: Although I thought the fact you were able to do this financing in the manner you did it and the uplisting becoming an active part of the current plan were really the issues that got my heart rate going, you are going to proceed with lab work on DehydraTECH™ and COVID-19?
Bunka: Oh yes. Absolutely. I am communicating to our Board ahead of our meeting next week that this is probably the most important financing in the history of LXRP. I am working on a budget that is now over 100 lines long to make sure that certain things happen and the DehydraTECH™/COVID work is a very important part of that. You and I have talked about this a lot. Over the past five years, we raised a total of $11 million so we have operated LXRP on $2.25 million a year during that time. If we get the up-listing accomplished this year and we do a $5 to $10 million financing as part of that, then the next two or three years will be veryactive ones for LXRP.I think the work we have done with cannabis has been very important but as history is written, it may have been a learning experience. This financing is our first step toward becoming a pharmaceutical company. We have submitted the final documents to two leading Canadian universities to work with on the COVID side of things. We have verbal approval from a Canadian government agency to co-fund the work. We have already purchased and taken delivery of two of the anti-viral drugs we want to study. We’re ready. We’re hoping to get started in June and best case is we’ll have preliminary data by August.
Ohashi: I remember two or three years ago when you created that graph that compared the size of the market for cannabis with vitamins, non-steroidal anti-inflammatory drugs (NSAID) and nicotine. Cannabis was almost tiny compared to the others. Even before that we had talked about the day that one of these other areas would become more important than cannabis. That’s what’s happening. Maybe a little sooner than we
expected but that is it.
Bunka: Yes. We are going to be a pharma company specializing in infectious diseases. This is a market that is much larger than cannabis in total. So that is where we are headed. The revenue and profit margins in pharma are much better than we have seen in cannabis so far. For these reasons, we are very excited. We have installed some equipment to clean the air better and we are fewer people than many so we are able to manage social distancing at work. Starting next week, we are going to be in the office three days a week. This is going to be a busy place over the next six months.
Ohashi: just to wrap up, I think what we’re seeing with COVID-19 is going to be a recurring situation in the future. Thus far it’s been once every ten years. But I think it’s going to be once every seven years. Then once every five years. Which is my way of saying if DehyrdraTECH™ has a role to play, it is going to be an active business opportunity.
Bunka: I agree with you. As you can imagine we end up talking to a number of infectious disease experts and a growing minority of them are starting to believe coronaviruses are going to be part of the human experience perhaps for all of time. For example, influenza is part of our lives. It never goes away. It comes back regularly during what is now called ‘flu season.’ Flu shots don’t work 100% because there are so many flu viruses and they also keep mutating. So COVID may become just like that. We may develop a herd immunity but every year people will die from COVID just like people still die from the flu.
Conclusion: I said it before and I’ll say it again, “When looking at Lexaria, the market sees caterpillars and I see butterflies.” The next six months will be very important and exciting for LXRP. First, it will learn Altria’s decision with respect to moving forward with their joint study. I still prefer if it is positive but I am less concerned if it is not. LXRP will seek out another lead party for the nicotine side of the business. They will learn quite quickly what potential DehydraTECH™ might have with COVID-19. They will also take the necessary steps toward an up-listing and expect to complete it before year end. I believe all of this will result in a market capitalization substantially higher than the U.S. $23 million that prevails at present.
Copied from Ted Ohashi's Newsletter