RE:Lexaria teamhttps://4495825a-d729-4d8f-ade8-e78f828e1c8d.usrfiles.com/ugd/449582_fb7fedcba9454f1ab1fd34375f292bc0.pdf
I had a chance to chat with Chris Bunka, CEO of Lexaria Bioscience (NASDAQ: LEXX) (NASDAQ: LEXXW) who has recently returned from a three week trip to Europe. What I learned is that everything is on track in my anticipation of improved results from their B2B business as well as their standing for a July 30, 2022 preliminary meeting with the U.S. Food and Drug Administration. Ohashi: You’ve been to Europe for three weeks. What were you doing and how did it go? Bunka: In three weeks I was in five different countries. Roughly 75% of our meetings were to advance and solidify existing relationships and 25% were to establish new relationships. I guess it would be fair to say it was primarily a management trip with an important amount of business development or prospecting. While I was away we announced the AnodGen Bioceuticals contract that covered Europe, Australia and New Zealand and the BevNology. I also visited Croatia where our HYPER 21-4 is underway so that was a best practices audit meeting where I was armed with a multipage document with many checkboxes to verify the study is being conducted the way it is supposed to be. For example, I was ensuring that things were recorded and stored properly which becomes very important assuming we start dealing with the U.S. Food and Drug Administration (FDA). I also met with the heads of the 8 clinical practices divisions that are conducting the study. The bottom line is everything is being done properly with all the boxes ticked and everything is on time and on budget. There were a couple of things that impressed me: 1. The size of the team. When you consider the administrators, clinicians, support and analytical people, they have about 20 people working on this study. There are many different areas of expertise involved in the study. 2. The amount of research coming out of our study. We’re measuring hypertension, arterial stiffness, brain mapping and anxiety and depression during sleep. In my discussions, they have mapped the possibilities and determined there could be as many as nine major academic papers coming from our hypertension studies. I’ll just mention one thing that I’ve talked about before and it showed up in GW Pharma’s original filings for Epidiolex. There is a small but growing body of evidence that says larger doses of CBD can lead to a buildup of unwanted and potentially harmful liver enzymes. This is becoming fairly well known as a negative side effect so of course we're measuring for those liver enzymes in in our study. We designed our study doses limited to five milligrams per kilogram of body weight because in reviewing the literature, those elevated liver enzymes have virtually never been reported at 5 milligrams per kilogram of body weight or less but they have been reported above that level. We know from previous studies, DehydraTECH™ doubles or triples the bioavailability. This might mean that when others dose 5 milligrams per kilogram of body weight, it works out we are delivering the equivalent of dosing 9 to 15 milligrams equivalent and we are not having any elevation in liver enzymes. That could be an important commercial difference if other companies are having dosing issues that are developing those higher liver enzymes and we can reach equivalent levels without an elevation in liver enzymes. This could mean we will have an improved version of CBD. If one of those academic papers points in this direction, it is a possible finding for us to test. Just to finish answering your original question, we have some companies that we have been developing a relationship with that for one reason or another, we have not reached the point where public disclosures are appropriate. I had some meetings of this type to further our relationships and discuss ongoing work programs. Perhaps over the next four to six months, this work could generate material developments. Ohashi: Would it be fair to assume this latter set of potential customers are large and the projects are potentially transformational for LEXX? Bunka: Without answering your specific question, it is very clear to me that in areas we are working on, we have moved to an entirely higher point on the food chain. More than just my conclusion, I have been told this by some of the most involved and impactful companies in the CBD space. Without question we are now thought of as one of the top five or ten companies in the world today related to CBD. 9 It is really satisfying for us to hear thoughts like this from people in a position to make such assessments. I have had such people say words to the effect that they can’t believe how much we’ve been able to accomplish while spending so few dollars. I heard that more than once on this trip. Ohashi: Which brings me back to the point that I see as so important in the progress LEXX is making and that is the NASDAQ listing that give you access to the funds necessary to do all of this. I mean three years ago you didn’t have the capital to undertake such a broad testing program and the ability to get you over the hump so you could move up the food chain. Bunka: I appreciate the comment. I think you're accurate and the other kind of related input to that was not just money time and that sort of thing but as I said for a long time and it's becoming more and more clear to me every quarter that passes by is something LEXX President John Docherty's been saying for years internally to the management of LEXX as well as to our board. He would say, “You know gentlemen, we as a company and as a research organization are required to pay our dues. The way we pay our dues is by generating meaningful science so that the world's leading companies will pay attention to us. They will realize that we have something meaningful to add to the body of knowledge of CBD research.” I think now I can safely say that the world's leading CBD research companies are very aware of Lexaria. By the work we are doing we get that validation from your peers. It is really really satisfying to get to that point and realize we are on the right track. Ohashi: Like the lab visit in Croatia. I mean that also furthers the pre-IND meeting and perhaps the Investigational New Drug (IND) applications that I anticipate you're going to be making in the in the weeks and months ahead. Bunka: Absolutely. Just to remind everyone, the work we are doing now is not FDA registered work that I expect we will be doing in the future. But it is highly indicative, it is highly supportive of the IND and post IND work. As I mentioned at the top of the call we've almost completed dosing in the multi week HYPER 21-4 study. We have not encountered any serious adverse effects and we do not have any elevated liver enzymes. So we are well on our way to establishing beyond any reasonable doubt that DehydraTECH™ - CBD is at least as stable, at least as safe or at least as well tolerated as generic CBD. So to a large degree in reality we have already had many or most of the outcomes required of Phase One Clinical studies. This is very empowering to the company. We feel really good about that and even though again because it's non-registered we can't directly input that data into FDA paperwork it is referenced and it is very supportive of our application. I can also tell you that since our press release about the initial IND submission, we have had more communication with the FDA. I can't really speak to what that is at this point but everything is going smoothly; everything is going on time and you know they too are certainly very aware of the work that we've been doing. We’re hoping the FDA can get their work done so we can meet the July 30, 2022 target date. 10 I suspect we're finally going to start reaping some value from all the painstaking work we have done. Over the past months, shareholders have asked me, “Is there really a point to all this?” I think the answer is increasingly that we're going to start seeing some benefits and rewards of all this hard work and going through this registration process, if we’re successful, is going to help to extend our advantages on much of the rest of the industry. It should really help differentiate us. Ohashi: Are you still working toward the July 30th meeting date? Bunka: Absolutely! For the FDA, that’s not a legal requirement. It’s a target date that they may or may not hit. It could be a little before or a little after but there’s nothing to indicate at this point they will be significantly late and from LEXX’s point of view, there is not a single document or submission or anything else pending from our end. I can absolutely confirm we’ve done everything we need to do and everything is on the FDA’s desk. As of this moment that date is valid. I will add I really think it's going to eventually have a meaningful impact in our company valuation. It has been admittedly difficult at times to stay on track. Obviously, we know sometimes the market has a much shorter lens through which it's working and wants to see immediate results but there's no substitute for doing the hard work and we've been doing it. We're feeling vindicated that we've been taking the necessary steps and that we are on the right path. I know the biotech industry has been hammered. It's been one of the worst hit industries as you know. I think probably the only one that is worse has been cannabis. I know some of the biotech sectors or ETF's are down 60% and 70% from their 2021 highs so that has been tough but that said you know that will change at some point and there are signs that it might even be changing now. There's lots of external things that we cannot have any influence on and then there's lots of internal things that we can and we're going to stick to our guns. We’re going to keep doing the hard work. We raised $15 million last year. I can tell you that as of today we still have about $7 million of that money in the bank so not only are we doing the right work, not only have we been fortunate to get positive results in general, we are also doing it on budget. So you know we're still in good shape. We're spending $5 million a year so we have comfortably more than another 12 months of cash in the bank. We have plenty of time plenty of time for a positive IND with the FDA, with our clinical studies in other areas and with potentially transformational corporate relationships. We have plenty of time for any of these three things to positively influence our valuation before we have to go to the market again. Ohashi: The other message I have been trying to send is that your B2B relationships might have reached a critical mass. It used to be six months to a year between new commercial contracts and they tended to be with microcap companies. In June 2022, you announced four of them and, on average, the companies were upscale. I’m not saying you’re going to announce four a month because obviously 11 June was special. But I’m thinking the rate of new contracts will be more frequent than they were a year or two ago. Bunka: It sounds again like what you're saying is quite likely. I have a weekly wrap up call every Friday with our President John Docherty and that topic was on our agenda this week as we're mapping out the next six months. There's a lot going on. Hypertension dosing should be complete shortly; it's on schedule. We are getting closer to launching the human nicotine oral pouch study and I think we will have an update on that soon. There's been good progress behind the scenes in that we've got a couple of new studies that we’ll be announcing in the next few weeks. The CBD epilepsy animal study is ongoing although that one has been challenging and we are little behind schedule on it but it is it is ongoing. Then there is the corporate work. We have corporate relationships that we have not disclosed because they were just contacts. But that is changing. Almost by definition, these are with much larger companies. Each of these third party corporations are planning to do the study protocols and the agreements for manufacturing of the DehydraTECH™ test articles is either complete or underway or about to be completed. If we wind back the clock to 2018 we had one Fortune 500 relationship that was disclosed, we had no human clinical data, half the amount of animal data that we have today and virtually no revenue and no customers to speak of and a market cap of roughly $200 million. Wind the clock forward four years and we have several Fortune 500 relationships only one or two of which are disclosed, we have evaluations going on in different parts of the world, we have signed deals that are large enough over the next few years to make us cash flow neutral or positive and profitability is possibly in sight and our current valuation is less than $20 million. Ohashi: That’s exactly the valuation disparity I see and I really believe that this valuation gap is going to be closed. With the regular flow of news I expect based on what we have talked about, I think LEXX will begin to close that gap moving toward a more realistic valuation than you currently have. With Juul blowing up on Altria, that also has to be positive for LEXX. Bunka: Yes we have a lot going on right right now. Altria hasn’t shared any of their plans with us but every major tobacco company outside of China is desperately scrambling to find alternatives for cigarette revenue whether that's vaping or pouches or whatever it might be. It’s just speculation on my part but with Altria’s non-combusted franchise being seriously threatened by regulators it must be a significant concern to them and, although I'm speculating again, perhaps Lexaria’s alternatives are looking more attractive. Ohashi: I had an interesting conversation with someone who is really wired into the cannabis scene and we got to speculating that one of the big name Canadian licensed producers might not make it through the next 12 – 18 months. 12 Bunka: A couple of thoughts. You and I have spoken many times over the years that the Canadian LP business plans are flawed. So it wouldn’t surprise me if one or more of them ran into more trouble than they already have. In this case, the leading edge was the bleeding edge and the first movers ended up the losers. But there are more companies that held back than jumped in and they are looking smart at this point. They can invest in the cannabis industry at a fraction of the cost that the early movers paid. So we might see some action from them. Ohashi: Any final thoughts? Bunka: I’ve said a couple of times I think we’re on the right track. I don’t mean we’ve done everything perfectly. But our associates and peers in the industry are giving us positive feedback more frequently now. I also interpret our conversations with the FDA as positive. That doesn’t get you in the door any faster and easier but it is encouraging. These are ways of distinguishing us from our comparables that may have flawed objectives. Finally, I am a little concerned that someone will make a takeover attempt of LEXX before our shareholders have a chance to realize most or all of the potential profit. If we are going in the right direction, we will eventually get market recognition and those who have kept the faith with us will be rewarded. Conclusion: I believe Lexaria Bioscience (NASDAQ: LEXX) (NASDAQ: LEXXW) has reached the tipping point where good news results in a positive response in the markets. I believe the “new” Lexaria started with its NASDAQ listing in January 2021. There is a saying among investors that goes “a stock doesn’t know when you bought it or what you paid for it.” In other words, if you bought the “old” LEXX before January 2021 or the “new” LEXX after January 2021, you own the “new” Lexaria. To me, the charts above show clearly the “new” Lexaria seems to be responding to positive news and might well have bottomed out.