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LEXX: Put Your Drinks Up! Four Deals Signed in June

By John Vandermosten, CFA

NASDAQ:LEXX

READ THE FULL LEXX RESEARCH REPORT

Lexaria Bioscience Corporation (NASDAQ:LEXX) experienced a substantial amount of activity on both the drug development front and in closing agreements with partners since the end of the fiscal second quarter. The company announced four material partnerships in June that will provide a variety of upfront, milestone and royalty opportunities over the next quarters and years to come. It has also updated investors on other events including the results of its annual meeting, the grant of patents and the filing of a pre-investigational new drug (IND) meeting request with the FDA. See below for a summary of third quarter financial performance, Lexaria’s new relationships and additional detail on the company’s operations.

3Q:22 Results

Lexaria filed its third quarter fiscal year 2022 Form 10-Q on July 14, 2022. The company reported 3Q:22 revenues of $100,000, and total operating expense of $2.6 million resulting in net loss of ($2.4) million or ($0.41) per basic and diluted common share.

For the third quarter ending May 31, 2022 and versus the same ending May 31, 2021:

➢ Revenue totaled $100,000, down 51% from $204,000 with product revenues of $94,100 down 27% and other revenues of $5,600 rising 23%. Licensing revenues were $0 in contrast to the prior year’s $70,600. Lexaria’s primary customer in the B2B product revenue stream has been delayed in chain-store rollouts causing them to work down overstocked inventory and delay new purchases;

➢ Research and development expenses totaled $752,000, increasing 65% from $454,000 as Lexaria undertook several studies within its 2022 applied research and development program focusing on DHT-CBD to treat hypertension and costs related to preparation of the investigative new drug (IND) filing;

➢ General and administrative expenses totaled $1.7 million, down 20% from $2.2 million due primarily to lower consulting and professional fees partially offset by increased spending on investor relations and advertising;

➢ Net loss was ($2.4) million, or ($0.41) per share, compared to net loss of ($2.6) million or ($0.50) per share.

As of May 31, 2022, cash and marketable securities totaled $7.1 million - a sequential $1.9 million decline. Cash burn for the first nine months of FY:22 was approximately ($3.8) million. Lexaria carries $8,000 in loan payable on its balance sheet.

Recent Deals

Lexaria signed four deals in June that expand the use of DehydraTECH in several product areas and geographies. The most impactful of these arrangements is with Premier Wellness Science, which will soon start paying license fees and launch products using the DehydraTECH technology in Japan. Relationships with AnodGen and Valcon are longer term in nature as these partners seek to become pharmaceutical-grade manufacturers of cannabinoid products. BevNology takes over from Lexaria’s former Salt Lake, Utah facility to provide contract manufacturing services, beverage capacity and act as a science center for these operations.

In addition to the new deals, long-time partner Cannadips is expanding internationally with its CBD pouches into Europe, Japan, and South Africa. The product is offered in 6,500 stores in the US.

BevNology

Lexaria’s most recent arrangement which occurred in late June, licensed the use of DehydraTECH to BevNology, an Atlanta-based purveyor of food and beverages. Two agreements were signed. The first is a manufacturing operating agreement that will allow third parties to use DehydraTECH modified ingredients for consumer goods. BevNology will act on behalf of partner brands that wish to use DehydraTECH and need a third-party manufacturer. The second agreement is a commercial license that allows BevNology to offer DehydraTECH products with cannabidiol products. The arrangement is non-exclusive for powdered product but is exclusive in the United States for liquid formulations. Minimum fee payments are required to maintain the license and royalties will be owed on product sales including the technology.

AnodGen Bioceuticals

As reported in a June 8th press release, Lexaria granted a pharmaceutical license for use of its DehydraTECH platform by AnodGen Bioceuticals for manufacturing and distributing cannabidiol (CBD) active pharmaceutical ingredient (API) powders in Europe, Australia and New Zealand. The license includes pharmaceutical and medical product applications for psychoactive cannabinoids and medical product applications for non-psychoactive cannabinoids and can be extended to third party companies to use in their own products. Products qualifying under the license will be designated by a national regulator as a medical product, drug, nutraceutical, pharmaceutical or biopharmaceutical under its cannabinoid product license rights. Lexaria will receive royalties for AnodGen products sold using DehydraTECH. Although rates have not been disclosed, royalties received for pharmaceutical products are generally greater than those received for consumer products.

Anodgen is a contract manufacturing organization (CMO) that will manufacture and distribute active pharmaceutical ingredients for the pharmaceutical industry by focusing on plant-based medicine. Anodgen specializes in sourcing and compounding custom CBD APIs and other customized blends. It has recently signed two research memorandums of understanding (MOUs) with multiple U.S. universities for research collaboration.

Premier Wellness Science

Lexaria granted an exclusive license to Premier Wellness Science Co. for use of the DehydraTECH technology in a variety of CBD products as detailed in a June 3rd news release. The products may be in oral liquid or non-liquid form and may be used in the topical, hair-care, lip-care and cosmetics segments. The arrangement includes minimum payments of $4.5 million to be paid over the first five years of the deal to maintain exclusivity. The license payments will start from a small base and grow as the arrangement moves into its final years. First payments will be made to Lexaria on September 1st. Royalty percentages were not disclosed nor were Premier sales forecasts; however, the press release noted that under the worst-case sales projection by Premier, Lexaria could receive annual royalties of over $5 million.

Technology transfer between the companies began prior to the initial public announcement providing a head start to an expected launch of DehydraTECH-powered CBD products under the KO brand in 2Q:23. Premier will create an e-commerce infrastructure and digital marketing campaign to support the brand.

Premier is a wholesale and retail marketer of cosmetics and health foods in Japan which are offered under the DUO and CANADEL brands. The company is also involved provides information and consulting services to entities involved in the anti-aging, beauty and health industry. It also offers market research and data collection and analysis for its clients. Premier is a subsidiary of Premier Anti-Aging Co which trades on the Tokyo Stock Exchange under code 4934.

Valcon Medical

Lexaria and Valcon Medical A/S signed an agreement granting the latter rights to use the DehydraTECH platform for medical cannabis applications as described in a June 2nd, 2022 press release. The products subject to the license are classified as non-registered medical products and authorized through country-level programs or EU Commission registered cannabis products. Examples of intended products include bulk powders, solid oral dosage forms, powder-filled capsules, compressed tablets, pills, oral melts and topical creams and lotions with or without patch integration. It is a non-exclusive license with milestone fees due Lexaria upon completion of batch validation and marketing authorization application approvals. Royalties on sales will also be due from related products sold by Valcon using the DehydraTECH technology. While financial details of the arrangement were not made public, in the pharmaceuticals space, royalties are normally in the 6-10% range.

Valcon Medical is a European contract manufacturing organization (CMO) that is good manufacturing practice (GMP) certified and licensed in Denmark to manufacture medical cannabis. The CMO works with partners to provide contract processing and bulk extract services. It can also produce white label product for other companies to commercialize.

CEO Interview

We recently spoke with CEO Chris Bunka about the DehydraTECH platform, Lexaria’s hypertension and nicotine programs and the company’s competitive advantage with respect to input cost, which is particularly relevant in today’s environment. See below for links to the five videos in the series.

I. Introduction

II. What is DehydraTECH?

III. Lexaria’s Work in Hypertension

IV. Lexaria’s Nicotine Efforts

V. Fireside Chat

Pipeline

Milestones (Calendar Quarters Used)

➢ Study examining cannabinoids and SARS-CoV-2 - January 2022

➢ Publication of results for PDE5-A21-1 animal study – February 2022

➢ Animal study (EPIL-A21-1) for pediatric seizures using CBD – March 2022

➢ Hypertension study (HYPER-H21-4) dosing – April 2022

➢ New Altria nicotine agreement – April 2022

Patent granted for delivery of antiviral drugs – April 2022

➢ Hypertension study (HYPER-H21-3) readout – April 2022

➢ Human sublingual (buccal) tissue study in nicotine – Spring 2022

➢ License granted to CMO Valcon Medical – June 2022

➢ License granted to Premier Wellness Science – June 2022

➢ License granted to AnodGen Bioceuticals – June 2022

➢ Manufacturing & Licensing agreement with BevNology – June 2022

➢ Nicotine compositions patent granted in Australia – June 2022

➢ DehydraTECH patent granted in Japan – July 2022

➢ Briefing book submitted to FDA for pre-IND meeting on hypertension program – July 2022

➢ Completion of dosing for HYPER-H21-4 – July 2022

➢ Completion of dosing for EPIL-A21-1 – Summer 2022

➢ Hypertension study (HYPER-H21-4) results – 3Q:22

➢ Commercial client partners introducing DHT skin products – 3Q:22

➢ Human nicotine study NIC-H22-1 launch – 2H:22

➢ Pre-IND meeting with the FDA for CBD in hypertension – July 2022

➢ IND submission to FDA for CBD in hypertension – late 2022/early 2023

➢ Material agreement with industry partner in nicotine, pharma or other – 2022/2023

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1. Source: Lexaria Biosciences CEO Chris Bunka YouTube video screen capture, June 2022.

2. Source: Lexaria July 2022 Corporate Presentation.