Creso Pharma enters transformational deal to buy established psychedelics company Halucenex Life Sci

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Creso Pharma Ltd (ASX:CPH) (OTCMKTS:COPHF) (FRA:1X8) has entered into a transformational agreement to buy established psychedelics company Halucenex Life Sciences Inc, which will strengthen the company’s position in Canada, as well as lead to new market entries and commercialisation opportunities. 

The purchase provides Creso Pharma with entry into the emerging global market for psychedelics medicines, which is estimated to be worth up to US$100 billion. 

The proposed acquisition provides Creso Pharma with a first-mover advantage into the psychedelic medicines sector and marks the first 100%-owned psychedelic medicines company listed on the ASX. 

Halucenex is a life sciences development company focused on researching, developing and licencing novel psychedelic molecules for the global pharmaceutical and nutraceutical markets. 

Evolution into broader-based pharmaceutical business

Creso Pharma non-executive chairman Adam Blumenthal said: “This is a major milestone for Creso Pharma and marks our evolution into a broader-based pharmaceutical business.

“Creso will now sell its trusted cannabis products and progress the commercialisation of a range of psychedelic-assisted psychotherapy treatments.

“Our entry into this market provides the company with another lucrative vertical and an additional near term revenue stream.

“Mental health and PTSD are becoming detrimental to our society and this has been highlighted in the last 12 months.

“These conditions have been exacerbated by COVID-19 and the available treatments are shown to have limited effectiveness and many side effects.

“Psychedelic-assisted therapy is a new alternative treatment route, which has considerable promise.

“The acquisition of Halucenex will strengthen our presence in Canada, as well as provide a number of opportunities in drug development, which will inevitably lead to further new market entries and commercialisation opportunities.”

Commercialisation of one of world’s first psychedelic inspired medicines

Creso Pharma’s strategic advisor Bruce Linton added: “Public policy towards psychedelics is rapidly shifting and we are witnessing a massive regulatory wave, which will change the way that mental health disorders are treated.”

WATCH: Bruce Linton explains significance of entering psychedelics market

Linton said: “Creso’s decision to enter the psychedelic space allow it to capitalise on its strong global partnerships, and its team’s expertise in the development of new pharmaceutical products, to accelerate commercialisation of one of the world’s first psychedelic inspired medicines.

“Following this acquisition, Creso will have the ability to provide varied combinations and outcome centric approaches that have the potential to considerably benefit individuals that are suffering from a range of debilitating illnesses.”

Early advantage

Halucenex founder and chief executive officer Bill Fleming said: “Halucenex is excited to be acquired by Creso and looks forward to levering its strategic relationships and expertise in the pharmaceutical industry.

“Halucenex has an early advantage in that it has applied for the Controlled Substances License, it has a laboratory for research on psychedelic compounds and a medical clinic to conduct micro and macro dose trials.”

WATCH: Bill Fleming discusses Halucenex’s early-mover advantage in psychedelics

“Our ability to design a clinical protocol and fast track a Phase 2 Treatment Resistant Depression clinical trial will allow us to be one of the first companies to demonstrate the efficacy of psilocybin in Canada.”

Key deal terms:

Creso Pharma will pay:

  • $500,000 in cash;
  • 29,251,795 Creso Pharma shares;
  • 17,551,077 Creso Pharma performance shares that will convert into fully paid ordinary shares if the dealer’s licence amendment within 12 months of settlement of the acquisition; and
  • The shares and any Creso share issues on conversion of the performance shares will be subject to voluntary escrow for six months following settlement.

Settlement of the acquisition is conditional satisfaction of conditions precedent, including:

  • Creso completing financial legal and technical due diligence within 45 days of execution;
  • Creso obtaining all necessary shareholder and regulatory approvals, including approval for the issue of the company shares; and
  • Creso and Halucenex obtaining all third-party approvals and consents necessary to lawfully complete the acquisition.

Other key terms

In addition, Creso will advance Halucenex $250,000 to fund Halucenex’s operations prior to settlement.

Creso has also agreed to apply at least a further $1 million in funding to Halucenex business during the 12 months period following settlement.

The vendors have a right to nominate a director to the board of Creso as a non-executive director up until three months following settlement.

Shareholder approval

Creso Pharma plans to seek shareholder approval for the issue of the consideration and performance shares at its upcoming annual general meeting expected to be held in April 2021.

Established Canadian psychedelics company

Halucenex is focused on delivering and developing evidence-based products for the treatment of treatment-resistant depression and other detrimental mental illnesses, with a specific focus on psychedelic-derived medicines.

It is currently focused on progressing clinical trials to research the efficacy of psilocybin to treat and alleviate treatment-resistant depression in individuals suffering from PTSD and other mental illnesses.

The company operates at a 6,000 square foot medical treatment facility in Nova Scotia, Canada, next to the Hants Emergency Hospital, with a controlled substances laboratory, and 18 treatment rooms for psychedelic-assisted psychotherapy.

On receipt of its pending Controlled Drugs and Substances Dealer’s License (Dealer’s Licence), Halucenex will apply to commence a Phase 2 clinical trial.

The licence will allow Halucenex to possess and conduct research and development and clinical studies on psychedelic substances including LSD, psilocybin and MDMA.

Phase 2 clinical trial

Halucenex’s Phase 2 clinical trial is expected to commence in the third quarter 2021.

Halucenex will also seek an amendment to the Dealer’s Licence to produce, package/assemble, sell, transport, import and export psychedelic substances.

Bottleneck in pharmaceutical-grade psilocybin supply chain

Given the growing interest in psychedelic inspired medicines, there is a bottleneck in the supply chain of pharmaceutical-grade psilocybin that is expected to expand as more companies enter the research domain, with clinical trial submissions testing psilocybin for a multitude of mental illnesses.

Synthetic psilocybin is preferred over naturally sourced psilocybin in clinical settings, as naturally sourced psilocybin is known to have greater inconsistency of potency and therefore dosage. Health Canada, therefore, approves clinical trials only if companies have access to synthetic psilocybin to ensure consistency of dosage and purity in formulations.

In anticipation of a worsening supply shortage, Halucenex has signed a supply agreement with one of Canada’s only pharmaceutical-grade synthetic psychedelics manufacturers, Psygen Industries Inc., securing supply of 11.6g (11,600mg) of synthetic psilocybin for use in Phase 2 and Phase 3 clinical trials.

Halucenex is currently one of about 11 companies to secure supply from Psygen, significantly de-risking the clinical trial timeline.

Fast track to revenue

Halucenex also has an affiliation with Veterans Affairs Canada via its strategic adviser David Fraser, which will provide a fast track to revenue through sales into a market with significant demand and government backing.

The prevalence of PTSD among veterans is considerably higher than the general population.

Veterans Affairs Canada is a government department responsible for pensions, benefits and service to war veterans.

The Canadian government has budgeted over C$25 million over the next decade to support research on veteran health and spends over C$1.1 billion annually on disability pensions.

Halucenex’s short-term focus is on progressing clinical trials to assess the safety and efficacy of PAP using psilocybin to treat mental illness, with the aim of becoming a clinical drug pipeline provider, while also progressing two complementary business strategies.

Halucenex will conduct R&D to produce novel proprietary formulations of synthetic psilocybin in order to de-risk supply, increase yields for future micro and macro dosing formulations, and to open the manufacturing vertical.

Alongside partners Acadia University and non-profit research organisation Mitacs, Halucenex will research methods of synthesising psilocybin in scalable quantities, with the aim of developing formulations for use in preclinical and clinical experiments.

Halucenex will also conduct R&D into the interactions between natural and synthetic psilocybin derivates to accumulate intellectual property on the entourage effects of naturally sourced psilocybin.

In partnership with Acadia University and Mitacs, Halucenex is progressing the project to gather information on organic and synthetic psychoactive molecules derived from psychedelic psilocybin mushrooms, with preliminary results from the project expected by the second quarter 2022.

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