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A Closer Look Into Veritas Pharma


- By George Ronan

To date, ‘9 U.S. states have legalized cannabis for medical use. Total industry revenues during —…–5 came in at $4.4 billion. A March report from financial advisory firm Ackrell Capital suggests prohibition will lift entirely by the end of this decade, and the medical marijuana space will be worth an annual $5… billion within –… years.

This is not a standalone expectation.

Also in March, the Marijuana Business Daily forecasted a high end of $44 billion in economic impact from the cannabis industry by —…—…, accounting for both recreational and medicinal consumption.

For the first time in the history of medicine, the stigma surrounding cannabis and cannabis derived therapies is lifting – benefiting from a concurrent recreational legalization drive.

In —…–— and —…–‘, the legalization of recreational marijuana led to a run up in the market capitalizations of companies across the scope of the industry. After the initial excitement, these gains tapered off, but the underlying fundamentals have continued to build, and as analyst expectations confirm, the next run is likely to be considerable and sustained.

One company that is looking to take advantage of this trend is Veritas Pharma Inc. (VRTHF).

Veritas is a development stage medicinal marijuana biotech headquartered in Vancouver. Its business model involves identifying what are called cultivars of cannabis, and propagating these cultivars for specific medicinal indications.

The term cultivar refers to a plant over which humans have had some level of influence on its growth. This could mean the identifying of a mutation (a pink flower on a rose, for example) or the germination of two plants to combine characteristics and create a child plant that exhibits a combination of the desirable characteristics of its parents. In this instance, Veritas is searching for both types – that is, mutations in current strains of cannabis, or combination driven characteristic desirability, that can be used to treat a host of medical conditions.

Once a desirable characteristic is identified, the company hopes to propagate a breed of plant (the cultivar) and extract its active compound to treat the disease in focus. From a potential target indication perspective, the list is expansive. Marijuana and its active compounds have a wide range of potential applications. There are currently ––‘ active cannabinoids identified in cannabis, and a number of these are under investigation for the treatment of certain cancers, neurological disorders and immune conditions, to name just three areas of therapy.

Examples include GW Pharmaceuticals PLC- ADR (GWPH), which gained more than –—…% in one day back in March on positive topline from its lead cannabidiol (one of the ––‘ identified cannabinoids) based treatment Epidiolex and Cara Therapeutics Inc. (CARA), which is developing an IV postoperative pain treatment.

As things stand, Veritas is still in the identification phase of its clinical development pipeline, but as the company identifies promising cultivars, it intends to go after a range of oncology indications, chronic pain, epilepsy and PTSD.

It’s a small-cap company and this would normally limit its R&D capabilities. However, Veritas is using an approach that should expand its investigative reach, and in turn, should enable it to identify effective cultivars rapidly. This approach is called virtual R&D. The virtual R&D model leverages existing facilities – say, for example, research hospitals and educational establishment laboratories – to conduct research rather than carry out the research in-house. It’s a type of R&D outsourcing that overcomes the need for an extensive workforce and physical infrastructure. In turn, this reduces the cost associated with pre-clinical identification and development.

Aside from its unique R&D methods, Veritas’ management sets it apart in the development stage marijuana biotech space. The company has assembled an industry leading leadership team that includes members from a variety of backgrounds. The CEO is Dr. Lui Franciosi, who has experience at GlaxoSmithKline plc (ADR) (GSK), Cardiome Phama (CRME) and is a current board member at the privately held marijuana company Cannevert Therapeutics Ltd., a company we’ll look at in a little more detail shortly.

The advisory board comprises Jesse McConnell, co-founder of Whistler Medical Marijuana Corp; Peter Doig, a professional agrologist with a focus on converting agricultural systems to certified organic practices; and Peter Smith, a former clerk to the Supreme Court of Canada and New York attorney.

The company’s board of directors also boasts some strong names, each with a separate specialty in the medical marijuana space.

What are some recent achievements, and what can we look to going forward as potential upside catalysts?

As mentioned, Franciosi serves on the board of directors at Cannevert. At the end of last year, Veritas became a majority shareholder in Cannevert, and it looks as though the latter will play a key role in the R&D process going forward. Specifically, Cannevert looks set to become one arm of Veritas’s virtual R&D network, as does the already mentioned Whistler Medical Marijuana Corp., which board member McConnell founded. On April 7, Veritas announced that Cannevert had delivered its first quarterly scientific progress report to the company. While the report didn’t contain any details relating to specific cultivars, it outlined the establishment of chemical assays that Cannevert will use going forward to identify promising cultivars.

Essentially, the first step was infrastructure-related. The next report due in June will be the first to detail specific cultivars. As such, it has the potential to be an upside catalyst once it hits press. To quickly summarize the structure of how Cannevert, Veritas and Whistler fit together, Veritas is purchasing cannabis samples from Whistler, providing them to Cannevert for analysis, and Cannevert then reports to Veritas on which of the samples look promising.

Of course, there are some considerable risks involved with investment in a company at this stage of its development. It’s very early in the pipeline process, and Veritas must be looked at as a preclinical prospect as things stand. Capitalization is also an issue. The company has very limited cash on hand – C$‘,8…… reported at Jan. ‘– – and lost $7—8 million during the nine months to Jan. ‘–. A portion of this net loss was attributable to the position taken in Cannevert, so the bottom line should improve going forward, but Veritas is far from generating any net income in the near term. This is not unusual for a development stage biotech company, so it needn’t dissuade interest, but it does mean the company will need to raise capital before it can carry any identified candidates through to the latter development stages. This capital raise will likely come from a share issue, which could be dilutive to any early stage holdings.

To conclude, the medical marijuana space is growing in its own right, while also being boosted by the push towards recreational legalization. Veritas is well positioned to identify and develop clinical cannabis derived treatments for a number of potential billion dollar markets, and its R&D structure and strong leadership team compliment this positioning. It’s a risky allocation, with a pipeline very much in its preclinical phase. As part of a wider medical marijuana portfolio, it might make an attractive exposure with a large potential upside.

This article first appeared on GuruFocus.