Cannabis Biotechs Could be Big Pharma's Latest M&A Focus

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Nov 08, 2017, 07:30 ET

NEW YORK, November 8, 2017 /PRNewswire/ --

In late October, President Donald Trump called the ongoing opioid epidemic the "worst drug crisis in American history" before declaring it a public health emergency and pledging the nation's full resolve in overcoming it. These efforts could mark a changing of the tides as they relate to opioid painkillers, and Big Pharma is already eyeing its next moves. As reported by Reuters in June of this year, a handful of major drug makers are exploring M&A opportunities within the cannabis-based pain reliever market in hopes of cashing in on rising demand for opioid substitutes and a variety of other indications for which cannabis-based therapies show considerable market potential. InMed Pharmaceuticals, Inc. (CSE: IN) (OTC: IMLFF) (IMLFF Profile), with its promising drug development indications and noteworthy IP assets, is one biotech that could be well-positioned to benefit from Big Pharma's shifting focus toward the cannabis market. As demonstrated by the holdings and acquisition activities of CannaRoyalty Corp. (OTC: CNNRF), Aphria, Inc. (OTC: APHQF), Maricann Group, Inc. (CSE: MARI) and Aurora Cannabis, Inc. (OTC: ACBFF), InMed's promising biosynthesis platform could put it on the radar of some major names seeking entry into one the pharmaceutical industry's fastest-growing sectors.

Big Pharma's mass entry into the cannabis space may well be on the horizon, but most industry analysts agree that M&A activity targeting existing cannabis biotechs, not internal research and development efforts, will provide the primary entry pathway. This reliance on M&A deals instead of R&D dollars has become a driving trend in the pharmaceutical industry in recent years, with the value of such transactions hitting $59.3 billion in 2015. The cannabis industry, in particular, features a host of inherent costs, including: dedicated real estate, facility maintenance, and operating expenses, which are requisite for cultivation and subsequent testing. When paired with risks of crop recalls and ongoing concerns related to the use of fertilizers, pesticides and herbicides to improve yields, these factors serve as sizable barriers to entry for relatively inexperienced pharmaceutical firms looking to cash in on the cannabis boom. Additionally, many of these firms with strategic plans for overseas expansion will face an increased level of regulatory burden on plant based products.

These barriers to entry make InMed Pharmaceuticals, Inc. (CSE: IN) (OTCQB: IMLFF), with its proprietary in-house cannabinoid biosynthesis platform, an interesting player in the cannabis biotech market. Biosynthesis mimics the cannabinoid-creation process utilized by plants to create pure, individual cannabinoids that are devoid of the by-products and impurities found with extraction. InMed's method introduces the DNA of individual cannabinoids into E. coli bacteria and leverages an advanced biofermentation process that is both laboratory-based and tightly controllable. This process virtually eliminates the quality and consistency concerns that plague more traditional and antiquated extraction techniques. Using this platform, InMed is capable of producing any of the 90+ "downstream" cannabinoids that occur naturally in the cannabis plant. With the value of the cannabidiol (CBD) market alone in the U.S expected to hit $2.1 billion by 2020, the market potential of InMed's biosynthesis IP is substantial, and its development pipeline provides a taste of the impact that this technology could have moving forward.

"This novel approach to the biosynthesis of cannabinoids is a game-changer for drug development," Dr. Vikramaditya Yadav, Assistant Professor of Chemical and Biological Engineering at the University of British Columbia and co-inventor of InMed's biosynthesis technology, stated in a recent news release. "The importance of producing cannabinoids that are identical to the naturally occurring compounds cannot be overstated. Many drug development efforts with synthetic derivatives have failed."

InMed's lead product candidate is INM-750, a cannabinoid-based topical therapy being developed as a treatment for epidermolysis bullosa (EB). An orphan disease with no known treatment and significant unmet medical need, EB consists of a group of inherited connective tissue disorders sharing a common manifestation of extremely fragile skin that blisters or tears from friction or slight trauma. With INM-750, InMed is attempting to harness the well-documented anti-inflammatory, analgesic and would healing properties of cannabinoid compounds to address these key disease hallmarks. In early March, InMed announced its filing of an international Patent Cooperation Treaty (PCT) application covering INM-750, marking an important step toward providing intellectual and commercial protection of the product as a topical therapy for EB.

Joining INM-750 in InMed's development portfolio are INM-085, for the treatment of glaucoma, and INM-405, which focuses on the pain-relieving benefits of CBD. As noted on the company's website, INM-085 under development for the treatment of glaucoma, is a multi-target, dual-mechanism of action therapy, utilizing multiple cannabinoids for optimal efficacy. Implementing a proprietary polymer-based formulation designed to enable simple, once-a-day application, InMed's INM-085 formulation could prove to be a game-changer in the glaucoma treatment market, which is expected to exceed $3 billion by 2023, according to research and consulting firm GlobalData. As announced late last month, InMed, in partnership with the University of British Columbia, recently completed a study that was the first to report hydrogel-mediated cannabinoid nanoparticle delivery to the eye, with endpoints demonstrating enhanced drug uptake via the cornea and lens.

INM-405, though earlier in development than InMed's leading product candidates, has also shown promising proof-of-concept data. Just last month, the company announced results from pre-clinical testing suggesting that "peripheral application of certain cannabinoid compounds, alone or in combination, is effective in the treatment of craniofacial muscle pain disorders, without any observed CNS side effects, and may be a more desirable strategy than systemic pain-relief administration." As noted in a recent news release, InMed has already filed a provisional patent application in the United States protecting INM-405, as well as other unique compositions as cannabinoid-based topical therapies for the treatment of pain. This program and its related IP, when combined with InMed's proven biosynthesis platform, could place it firmly on the radar of Big Pharma players and other holding firms interested in staking a claim in what could be the next big thing in pain relief, particularly as the opioid crisis continues to grab headlines.

When considering M&A activity within the cannabis industry, the portfolio of specialized holding company CannaRoyalty Corp. (OTCQX: CNNRF) is a good place to start. Describing itself as "an integrated platform designed for commercialization in three high-value segments of the global cannabis market," CannaRoyalty's brands are divided into three unique categories - research/IP, retail and industry infrastructure. Alongside North American research groups BAS Research and Bodhi R&D Inc., Anandia Labs, in which the company acquired a 20 percent equity stake earlier this year, anchors CannaRoyalty's research/IP arm with its focus on cannabis testing, extraction and genetics.

Similar limitations impact the likes of Aphria, Inc. (OTCQB: APHQF), Maricann Group, Inc. (CSE: MARI) and Aurora Cannabis, Inc. (OTCQX: ACBFF). All licensed producers and distributors of medical marijuana, each of these companies has demonstrated interest in expanding its position in the cannabis market through investment or acquisition in recent months. In mid-August, Aphria announced an $11.5 million investment in Scientus Pharma, a vertically-integrated biopharmaceutical firm conducting research on cannabinoids with a special focus on commercializing pharmaceutical-grade cannabinoid derivative products. Scientus utilizes a patent-pending commercial scale microwave extraction platform to formulate these products, meaning that traditional cultivation operations, along with inherit concerns regarding the potential use of fertilizers, pesticides and herbicides, still impact development efforts.

In August, Maricann Group expanded its foothold in the cannabis industry through its purchase of NanoLeaf Technologies Inc. NanoLeaf is perhaps best known for its development, in partnership with Vesifact, of a standardized dose soft gel capsule for cannabinoid-based pharmaceutical Vesisob. Because cannabinoids are fat-soluble compounds, they have characteristically low dissolution rates and unpredictable oral availability. The presence of this bio-delivery technology within NanoLeaf's IP portfolio was noted, in the announcing news release, as a key driver for Maricann's decision to purchase the company. This is a promising factor for other industry upstarts with innovative bio-delivery IP targeting the cannabinoid space, such as the proprietary hydro-gel delivery mechanism employed by InMed's INM-085 product candidate.

Through its investment in Hempco in September, licensed medical cannabis producer Aurora Cannabis once again highlighted the active M&A scene in the cannabis industry. In a news release announcing the investment, Aurora CEO Terry Booth noted that the transaction served as a way of "securing a potentially material source of raw CBD material for [Aurora's] medical concentrates business." Per its investor presentation, Hempco primarily sources farmed hemp seeds from local Canadian farmers and processes them as a source of oils and protein powders. While utilizing this infrastructure to extract CBD for product development isn't yet an option, Charles Holmes, CEO of Hempco, highlighted it as a potential benefit moving forward, stating "[I]f the current regulations prohibiting the extraction of cannabidiol (CBD) from hemp products were to change, which we anticipate will happen in the near to mid-term future, Hempco will be very well positioned to capitalize on this opportunity through its relationship with Aurora."

The promise of cannabinoids as pharmaceutical products targeting a wide range of currently-underserved indications has led to significant M&A activity throughout the cannabis industry. While the majority of market players have been forced to rely on traditional cultivation operations to source the cannabinoids needed to develop these products, forecast supply shortages loom large, particularly in Canada. By dodging this supply dearth and effectively eliminating quality concerns that can plague cannabis cultivation operations, InMed Pharmaceuticals, with its biosynthesis technology and promising development pipeline, has established itself as a company to watch as Big Pharma begins to set its sights on the future of pain relief and the increasing value of biotechs to the cannabis industry.

For more information on InMed Pharmaceuticals please visit: InMed Pharmaceuticals, Inc. (CSE: IN) (OTCQB: IMLFF)

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