Latest / WTR Small-Cap Spotlight / PharmAla Biotech Holdings (MDMA): The World's Leading Clinical-Grade MDMA Supplier — and What's Next

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PharmAla Biotech Holdings (MDMA): The World's Leading Clinical-Grade MDMA Supplier — and What's Next · WTR Small-Cap Spotlight

• 0:01
  SPEAKER_01: Welcome to the WTR Small Cap Spotlight Podcast.
• 0:04
  SPEAKER_01: I'm your host, Tim Gerdeman, Vice Chair and Co-Founder and Chief Marketing Officer of Water Tower Research.
• 0:11
  SPEAKER_01: In today's podcast episode, I'm being joined by Nick Cadish, founding CEO and president of Farmalla Biotech, Canadian Stock Exchange Ticker MDMA, and OTC QB ticker symbol MDXF.
• 0:25
  SPEAKER_01: Also joining is my WTR uh colleague Robert Sassoon, WTR's healthcare analyst.
• 0:32
  SPEAKER_01: Welcome back to the podcast, Nick and Robert.
• 0:35
  SPEAKER_01: Good to be here.
• 0:36
  SPEAKER_01: Thanks very much.
• 0:38
  SPEAKER_00: Good to be here too.
• 0:39
  SPEAKER_00: And good to see you again, Nick.
• 0:41
  SPEAKER_01: Nick, we have had you on our podcast before discussing topics related to the psychedelics industry as well as Farmalla.
• 0:48
  SPEAKER_01: We are glad to have you back with us today to talk about a couple of recent transactional event announcements, one being Farmala's newly announced definitive agreement to form Restora Neuroscience, a special purpose vehicle that will lead the clinical and regulatory development of one of the company's two drug candidates, APA01.
• 1:08
  SPEAKER_01: The other, the signing of a term sheet to license exclusive U.S.
• 1:11
  SPEAKER_01: rights to advanced drug development, I'll ALA 002, its next generation MDMA therapeutic to Jupiter Neurosciences in a transaction valued at over$100 million.
• 1:25
  SPEAKER_01: Before I hand things over to Robert, could you start by giving us a brief overview of Farmalla and then walk us through what the definitive SPV agreement entails?
• 1:35
  SPEAKER_02: Yeah, of course.
• 1:36
  SPEAKER_02: It's my pleasure.
• 1:36
  SPEAKER_02: So look, Formala does two things.
• 1:39
  SPEAKER_02: And I think, you know, certain things we're best in the world at, certain things we're just really good at.
• 1:44
  SPEAKER_02: So half of our businesses, we're the world's leading, you know, in our opinion, manufacturer of MDMA for clinical use.
• 1:50
  SPEAKER_02: It's not a long list, so it's easy to say that you're pretty good at it.
• 1:53
  SPEAKER_02: But yeah, we're the leading supplier of MDMA into the commercial market in Australia, Canada, and we uh support about 33 different clinical trials all over the world.
• 2:03
  SPEAKER_02: We also develop novel analogs of MDMA.
• 2:05
  SPEAKER_02: So these are novel patented drugs that um go through the standard sort of biotech uh clinical trial phase process.
• 2:13
  SPEAKER_02: Uh and the APA is one of those drugs.
• 2:16
  SPEAKER_02: So uh that's what we're here to talk about today.
• 2:18
  SPEAKER_01: Great.
• 2:18
  SPEAKER_01: And uh from what I've been reading of late, it seems like there's some favorable movement on psychedelics by the federal government, which is exciting, and I'm sure Robert will delve into that.
• 2:25
  SPEAKER_01: So I'll turn it over to Robert.
• 2:27
  SPEAKER_00: Yeah, thanks, Tim.
• 2:28
  SPEAKER_00: And uh Nick, I'd like to echo uh what Tim said, and it's always good to have you back on this podcast.
• 2:33
  SPEAKER_00: It's always interesting to hear what you have to say about MDMA and the uh psychedelic sector at large.
• 2:39
  SPEAKER_00: Now, you have a more advanced development, ALA 002, which is a phase two ready with a selected trial site.
• 2:47
  SPEAKER_00: APA 01 is a preclinical um study.
• 2:51
  SPEAKER_00: Why was the earliest stage asset chosen for the SPV?
• 2:54
  SPEAKER_02: Yeah, a great question.
• 2:56
  SPEAKER_02: Um and really comes down to the structural sort of nature of uh of the asset itself.
• 3:02
  SPEAKER_02: So uh, you know, we haven't we've built a bit of a name for ourselves as a psychedelic drug developer, a psychedelic drug manufacturer.
• 3:10
  SPEAKER_02: Uh APA01 is not a psychedelic at all, it's not a controlled substance.
• 3:14
  SPEAKER_02: It's you know, we we work mostly in neuropsychiatry.
• 3:17
  SPEAKER_02: This is more of a neurology molecule.
• 3:20
  SPEAKER_02: And what we ended up finding was, you know, we would go to VCs and they would say stuff to us like, hey guys, like this is a great molecule, got great data, we love it, but you know, we don't want to invest in a publicly traded company.
• 3:31
  SPEAKER_02: Or uh, you know, the fact that you work in psychedelics most of the time, you know, uh causes us some concern and you know, we're we're sort of unsure about this.
• 3:39
  SPEAKER_02: Uh, that was one.
• 3:41
  SPEAKER_02: The the other thing is uh it is a preclinical molecule, and uh, you know, we're a small company.
• 3:46
  SPEAKER_02: There, you know, you can't do everything with equal amounts of gusto and efficacy.
• 3:52
  SPEAKER_02: And so uh when we found our partners at Datiba, uh, who are like a very, very capable preclinical lab with all sorts of bioanalytical capabilities, and they basically said, like, look, we'll partner with you on this, we'll advance this program.
• 4:05
  SPEAKER_02: It was a way to get an uh you know, one of our sort of tertiary programs off of our plate and onto theirs, which I think will actually advance it much faster.
• 4:13
  SPEAKER_02: Um, and obviously we we keep you know a bunch of equity in the in the uh in the program.
• 4:19
  SPEAKER_02: So uh, you know, we think this is a there's a great way to sort of accelerate uh an asset that we just don't have a lot of time to accelerate ourselves.
• 4:27
  SPEAKER_00: So why did you choose this particular structure rather than say out licensing to a strategic farmer pursuing non-dilutive funding, funding like BARD RPH or uh the you know the the the uh uh department of defense or department of war as they call them now, given that uh traumatic brain injury veterans framing or developing in-house or developing in-house, what other options were available on the table?
• 4:52
  SPEAKER_02: Um, so uh look, if there was if there's options to just like you know get a nice fat contract with Department of War, which by the way, like on the MDMA business, you know, we we have a clinical trial that's funded by the Defense Health Agency.
• 5:04
  SPEAKER_02: So we do have quite a few good relationships there.
• 5:06
  SPEAKER_02: Look, if that was an option, we would have taken it.
• 5:08
  SPEAKER_02: But I think structurally, it's also, you know, it's it's one thing to get a contract, but then you have to stand up a preclinical team, you have to do the rodent trials, you have to do the large animal models, so pig and dog.
• 5:18
  SPEAKER_02: Um and you know, we were we were just never going to be in a position to do that in-house.
• 5:23
  SPEAKER_02: Uh, our partners at the Tiva can do it in-house, so it's very, very efficient, uh, both from a capital perspective and more importantly from a time perspective.
• 5:31
  SPEAKER_02: Um, and so I think the the plans for non-dilutive funding are still very much on the table.
• 5:36
  SPEAKER_02: It's more a question of manpower.
• 5:38
  SPEAKER_02: Like, you know, uh, Farmala, for all that we've accomplished, you know, like two patented novel drugs and you know, great preclinical data and manufacturing and shipping all over the world.
• 5:47
  SPEAKER_02: We're like seven people.
• 5:49
  SPEAKER_02: So you you know, you can't do everything, you can't be all things to all people, and I do believe in in focus as a sort of a primary business driver.
• 5:57
  SPEAKER_00: So, was this agreement structured in response to the recent executive order?
• 6:00
  SPEAKER_02: Was it in the works before the uh it was it was in the works before, uh, but that has like that that uh executive order has definitely given it a lot of tailwind.
• 6:12
  SPEAKER_00: Right.
• 6:13
  SPEAKER_00: So can you tell us a little bit more about why you chose Aluveris and Ditiba as uh as partners for this venture?
• 6:20
  SPEAKER_02: Yeah, for sure.
• 6:21
  SPEAKER_02: So uh uh alluverus is just the uh the parent company of Ditiba.
• 6:25
  SPEAKER_02: So they are very much related entities.
• 6:27
  SPEAKER_02: I hope that came out and it was clear in the in the work.
• 6:30
  SPEAKER_02: Not related to us, but related to each other.
• 6:33
  SPEAKER_02: Um, so look, uh, we we picked we picked Ditiba and Aluvaris for for very simple reason.
• 6:38
  SPEAKER_02: Number one, uh they really are quite good at what they do, which is like the bioanalytical, um, preclinical work that we need to do.
• 6:46
  SPEAKER_02: They're licensed to do absolutely everything uh in question.
• 6:50
  SPEAKER_02: Uh, and we we had a very high degree of confidence that they were going to execute things very, very quickly.
• 6:56
  SPEAKER_02: Number two, I think it's a great deal for Formala.
• 6:59
  SPEAKER_02: There's an upfront payment.
• 7:00
  SPEAKER_02: Uh, there's obviously a significant equity stake with non-dilution provisions, uh, and there's a royalty on the back end.
• 7:06
  SPEAKER_02: Now, I had a question from a shareholder yesterday, like, you know, why is the royalty only 3%?
• 7:11
  SPEAKER_02: Uh, but if you look at preclinical assets that are out license, 3% is actually well within the realm, especially considering, you know, the fact that there's an upfront and an equity stake in the business.
• 7:21
  SPEAKER_02: So um, I don't know, I think I think it's a it's a good it's a good deal.
• 7:25
  SPEAKER_02: They're good partners.
• 7:26
  SPEAKER_02: You know, the the other the other thing that everyone kind of forgets that uh, you know, when you're when you're doing these types of deals is the most important thing is actually not the not the top line economics of the transaction.
• 7:38
  SPEAKER_02: The most important thing is how are your partners?
• 7:40
  SPEAKER_02: Will they execute?
• 7:41
  SPEAKER_02: Like can you trust them?
• 7:42
  SPEAKER_02: Can you work with them?
• 7:44
  SPEAKER_02: Um, and we you know, we had one really good experience in Australia where where we created Cortexa, which is our uh you know, operating business there, which is a joint venture between us and a company called Bitura Health.
• 7:55
  SPEAKER_02: Um, that's a great relationship.
• 7:57
  SPEAKER_02: We you know, we we really like working with those guys.
• 7:59
  SPEAKER_02: And I think the best, the best and most important thing is actually like, can we work with these people?
• 8:05
  SPEAKER_02: Can we execute on the plan?
• 8:08
  SPEAKER_00: So I have a you know an interesting question that I'm sure you may have been asked uh by uh investors.
• 8:14
  SPEAKER_00: Far Mars, you're contributing the molecule, the global IP estate, the granted back uh granted back improvements and ongoing IP B tier rights.
• 8:23
  SPEAKER_00: Alovaris is contributing an obligation to raise capital it does not yet have.
• 8:28
  SPEAKER_00: So why did you settle for a 50-50 at siding rather than a majority position with aloe varis earning in upon delivering the uh funding threshold?
• 8:37
  SPEAKER_02: So so uh uh yes, you're right.
• 8:39
  SPEAKER_02: However, Farmala has anti-dilution provisions and aloe veras doesn't, number one.
• 8:44
  SPEAKER_02: Number two, aloe veras is obviously the parent company of the Tiba.
• 8:46
  SPEAKER_02: The Tiba is going to be doing a lot of the of the of the services here uh at a pretty steep discount to market.
• 8:53
  SPEAKER_02: And so I do that's that's very, very critical.
• 8:55
  SPEAKER_02: They're not just coming with uh with like capital that they're going to raise, although like, you know, raising capital is also not nothing, right?
• 9:02
  SPEAKER_02: Let's not pretend that this is like uh, you know, bam bam and you're done, especially for a preclinical molecule.
• 9:08
  SPEAKER_02: Um uh however uh you know the the ability to get uh the type of work that we need done done quickly and cost effectively is actually, in our opinion, worth you know, uh uh more than what we what we got in the exchange.
• 9:24
  SPEAKER_02: And uh the contract provisions are actually very clear.
• 9:28
  SPEAKER_02: So if they don't execute on the plan in the timeline that they need to execute, either with the funding commitments or anything else, the license reverts back to Farmala and includes the development work.
• 9:38
  SPEAKER_02: So, you know, like like with anything else, can you get like can you get the job done?
• 9:42
  SPEAKER_02: Can you get the molecule to market?
• 9:43
  SPEAKER_02: Can you get it first in human, right?
• 9:45
  SPEAKER_02: That's what really, really counts.
• 9:46
  SPEAKER_02: And we're really confident that the T Bad Elivaris are gonna be able to do that with us.
• 9:50
  SPEAKER_00: And that's our time horizon is uh initially three months, but extendable to uh uh three a further an additional three months at your discretion.
• 9:57
  SPEAKER_00: All right, that's right, that's right.
• 9:59
  SPEAKER_00: Yeah, like a like look uh uh you know, you you never know what's gonna happen with the capital markets, but it's our discretion whether the just to uh confirm you know, confirm the uh the actual threshold funding is uh about two point five million dollars.
• 10:10
  SPEAKER_02: Yeah, two point five million dollars USD, although you know our expectation is obviously we're gonna go significantly higher than that.
• 10:16
  SPEAKER_02: You know, you just want to set a baseline.
• 10:18
  SPEAKER_00: Right.
• 10:18
  SPEAKER_00: Okay.
• 10:19
  SPEAKER_00: So moving on to the uh second announcements, announcement you recently made, although still early days as it's only a term sheet.
• 10:26
  SPEAKER_00: Can you help us understand how this deal came about, what this deal would look like, should it advance to a different definitive agreement?
• 10:33
  SPEAKER_02: Yeah, thanks very much.
• 10:34
  SPEAKER_02: Um so uh this one is this is a slightly interesting one to us.
• 10:38
  SPEAKER_02: Um we had never really considered territorial outlicensing for any of our novel molecules, but um we were approached by uh David Sands, is a banker in New York that we that we know, and uh, you know, he had a client, Jupiter Neuroscience, who was looking for a new asset in the US.
• 10:54
  SPEAKER_02: Um and so you know, we negotiated it out.
• 10:57
  SPEAKER_02: Um uh look, it's a relatively small upfront.
• 10:59
  SPEAKER_02: It's um uh just under 2 million in stock and and 1.5 million in cash.
• 11:04
  SPEAKER_02: Um, but of course, you know, as with all sort of these outlicensing agreements, Jupiter also has performance requirements.
• 11:10
  SPEAKER_02: They have to actually develop the asset, they have to do clinical research, you know, all of this stuff.
• 11:14
  SPEAKER_02: And and of course, this is this is for ALA 02.
• 11:17
  SPEAKER_02: So uh look, we thought that uh at this stage uh of where the asset is, we thought it was reasonable.
• 11:23
  SPEAKER_02: There's also optionality for us to sort of sell them the molecule.
• 11:26
  SPEAKER_02: We're going to be making this molecule for our work in Australia um and elsewhere.
• 11:30
  SPEAKER_02: Um, and so look, we we thought it was a we thought it was a reasonable proposition, uh, a very large back end, should they be successful in in their development work.
• 11:40
  SPEAKER_02: Uh, but of course, uh if they don't hit their timelines, uh the asset does revert to us as a license.
• 11:46
  SPEAKER_02: So uh look, it's a it's a I think it's a good transaction for us.
• 11:49
  SPEAKER_02: Uh I think it moves the needle um uh for us uh in terms of cash flow in the in the short term.
• 11:55
  SPEAKER_02: And then XUS, which is where our the focus of our business is, we continue on just as we were before.
• 12:02
  SPEAKER_00: So actually, can you run through the rationale for the far from the farmer perspective for this deal and why specifically Jupiter from all the other perhaps better capitalized US CNS companies you work with?
• 12:14
  SPEAKER_02: Sure.
• 12:14
  SPEAKER_02: Yeah, and I've and I've gotten that question from a lot of shareholders.
• 12:17
  SPEAKER_02: I I mean, look, uh uh Christer and the team at Jupiter came to us with, you know, a credible plan for how they were going to raise the capital in order to do all of the clinical research they would have to do.
• 12:27
  SPEAKER_02: They put quite a bit of money in escrow, like they really put their money where their mouth was, uh, with a with a pretty stringent reverse break fee, uh, if they were not able to do what they said they were going to do.
• 12:37
  SPEAKER_02: And so, you know, again, we thought that that was a reasonable and credible proposal.
• 12:41
  SPEAKER_02: Um, being a micro cap ourselves, I don't look down my nose at you know, at companies that uh that uh might have thin sort of capitalization as long as they can execute.
• 12:53
  SPEAKER_02: But of course, you know, we we have all of our protections in place, and you know, should the deal not move forward, it won't move forward, you know, we will continue to live.
• 13:01
  SPEAKER_02: Uh, but the other major thing, uh, you know, and I don't believe that's the case.
• 13:05
  SPEAKER_02: I mean, Christian certainly seems like a serious guy who's you know uh quite serious about this deal, and we've continued to talk post-term sheet and and move the ball forward.
• 13:14
  SPEAKER_02: We've got a draft definitive agreement already done, like yeah, everything is moving in the right direction.
• 13:18
  SPEAKER_02: Um, the only other thing I would say is this also sets a very nice sort of uh valuation for the ALA 02 asset.
• 13:26
  SPEAKER_02: And from our perspective, that was like that was quite important that the the the back end value of the asset sort of is is set now.
• 13:36
  SPEAKER_00: And I guess uh even if the deal doesn't go to a definitive agreement, you walk away with$600,000 uh dollars, right?
• 13:43
  SPEAKER_02: Yeah, not ideal.
• 13:44
  SPEAKER_02: I would actually prefer to complete the transaction.
• 13:46
  SPEAKER_02: That was 100% my intention is to complete the transaction.
• 13:49
  SPEAKER_02: But yeah, look, uh uh this yeah, when you're doing a deal with a counterparty that you don't really know, and we didn't know Jupiter until we started sort of talking to them about this deal.
• 13:57
  SPEAKER_02: Um, you know, uh having folks who are that serious, willing to put$600,000 in escrow to close this transaction, that that speaks to you know, that speaks to a certain level of confidence that we we appreciate.
• 14:08
  SPEAKER_00: Yeah.
• 14:08
  SPEAKER_00: So talking about the valuation, you you're uh I was part of the uh the the to uh deal terms.
• 14:14
  SPEAKER_00: The upfront payment is about$3.33 million, of which$1.5 million is cash, and the rest is in Jupyter stock.
• 14:22
  SPEAKER_00: Now that's a fraction of the more than$100 million value that seems to that would have been touted by your announcement, your press release.
• 14:30
  SPEAKER_00: So how do you get to that transaction value for a pre-end IND uh phase one drug development?
• 14:37
  SPEAKER_02: So there's there's milestone payments at various stages of development that's uh that's sort of considered in the term sheet.
• 14:43
  SPEAKER_02: Uh, and then there's there's additional payments uh post-approval uh as they hit their sales milestones, and then of course at the end of everything else, we have a 3% royalty.
• 14:52
  SPEAKER_02: Um again, I think reasonable terms for where the asset is today.
• 14:58
  SPEAKER_00: Good.
• 14:58
  SPEAKER_00: So, Nick, looking out over the months ahead, what are the specific milestones that would tell investors your outlicensing model is actually delivering?
• 15:08
  SPEAKER_00: I'm thinking across uh both the APA01 SPV and the proposed ALA 002 uh uh deal with Jupiter.
• 15:17
  SPEAKER_00: What should we expect to see and by when for each?
• 15:20
  SPEAKER_02: Yeah, so look, uh both uh have a 90-day clock, actually.
• 15:23
  SPEAKER_02: The Restora uh the Restora Neurosciences SPV, uh, you know, in my estimation, should be fully funded by the end of the summer.
• 15:31
  SPEAKER_02: Um, and then it goes like look, that's a pre-IND asset, obviously.
• 15:34
  SPEAKER_02: So that may there'll be about 12 months of uh of IND enabling work that's going to be done by our partners at um at Datiba, um, who are like eminently qualified to do it.
• 15:44
  SPEAKER_02: They do it commercially, they're gonna be fantastic.
• 15:46
  SPEAKER_02: I'm very confident in that.
• 15:48
  SPEAKER_02: Um and then and then taking it to IND.
• 15:50
  SPEAKER_02: So, you know, uh for the Restora neurosciences piece, I think it's a gonna be a pretty steady cadence of sort of elements that that begin to fall into place.
• 16:00
  SPEAKER_02: Um, starting, of course, with funding and and sort of we formed the the actual corporation already.
• 16:06
  SPEAKER_02: Now we're just raising the capital.
• 16:07
  SPEAKER_02: We've spoken to a lot of VCs.
• 16:09
  SPEAKER_02: Actually, the thing that surprised me the most with that one is just how much easier it is to raise money for a non-controlled asset.
• 16:16
  SPEAKER_02: It definitely, in my mind, it has cemented the fact that this is uh this was the right decision to sort of split the non-controlled neurological asset away from the MDMA uh generic and ALA business.
• 16:29
  SPEAKER_02: So that's that.
• 16:30
  SPEAKER_02: And then and then, of course, yeah, the Jupiter Neurosciences deal, which we just announced, very recent.
• 16:34
  SPEAKER_02: Um, you know, uh Christer and team over at Jupiter Neurosciences have uh have 90 days to negotiate the definitive agreement.
• 16:40
  SPEAKER_02: We're working super hard at it.
• 16:42
  SPEAKER_02: Get that done by the end of the summer, just in time for our year end.
• 16:45
  SPEAKER_02: Uh, and then of course, you know, we have a lot of uh actual commercial work that we continue to do.
• 16:49
  SPEAKER_02: Uh 20 milligram capsules rolling off the line shortly.
• 16:52
  SPEAKER_02: We have uh we have a novel API, ALA02, that we're in GMP production on.
• 16:58
  SPEAKER_02: So quite a few sort of major milestones coming in the next little while.
• 17:01
  SPEAKER_00: Sounds exciting.
• 17:02
  SPEAKER_00: Yeah, I'll wrap it up there.
• 17:03
  SPEAKER_00: And thank you, Nick, for walking us through both the transactional events that you've recently announced and what they mean for Famala.
• 17:09
  SPEAKER_00: I'll pass it back to the Tim.
• 17:12
  SPEAKER_01: Thanks, Robert, and thanks, Nick, for joining us to talk about the exciting developments.
• 17:16
  SPEAKER_01: We hope to have you back on as uh the story continues to evolve.
• 17:20
  SPEAKER_01: And as a military junkie, I gotta say, kind of at a heartfelt level, I hope that you have great success because it's heartbreaking every time I see the homeless uh vets on the streets.
• 17:28
  SPEAKER_01: And I think that this uh treatment is going to be very, very welcomed.
• 17:32
  SPEAKER_01: I couldn't agree more.
• 17:33
  SPEAKER_01: Thanks very much, guys.
• 17:34
  SPEAKER_01: Thank you for listening, and don't forget to subscribe, as well as visiting www.watertowerresearch.com to stay up to speed on the company's small cap written research reports, podcasts, fireside chats, industry specific symposiums, and conference schedules.
• 17:50
  SPEAKER_01: We will see you next time for another edition of the WTR Smallcap Spotlight Podcast.
• 17:55
  SPEAKER_01: Finally, a special thanks to the producer and editor of the podcast, Christoph Fitzpatrick.