$2.6M Capped eSense-Lab Signs US$600k Revenue Deal
PUBLISHED: 19-06-2020 09:53 a.m.
16 minute read
With a new management team installed, ASX-listed biotech microcap, eSense-Lab (ASX:ESE) is getting some early traction on a revitalised strategy.
Currently with a tiny market cap of less than $3 million, the company is commercialising technology that analyses and reverse engineers exact terpene profiles of plants.
In the lab, ESE has the ability to generate proprietary terpene mixes, with anti-viral qualities.
Its focus is now on delivering commercial outcomes for this technology and it is no delivering on this goal.
ESE’s unique terpenes can be infused in ethanol based liquid sanitisers and given the nationwide shortage of surface and hand sanitisers, there is a clear demand for ESE’s technology.
The company yesterday announced a JV with Wise Winery, which will generate US$600,000 revenue for ESE from the first 2 million unit order.
The JV company plans to produce a new range of liquid sanitisers infused with eSense’s proprietary terpene mix over an initial 10-year term.
To kick start the partnership, ESE will provide proprietary terpene mixes to the JV, specifically selected for their anti-viral qualities, and a cash contribution of up to $200,000 for operational expenses.
Wise will contribute up to $200,000 of sanitiser ingredients (the base alcohol sanitiser and packaging).
The JV’s initial two million unit order is equivalent to US$600,000 in value. It is anticipated that this order will only be partially funded upfront to an amount of $150,000 to $200,000. The balance of the order will be then paid from proceeds of the products sales.
Given that back in March the winery/distillery shifted into 24 hour production of hand sanitisers, this should hopefully take care of itself.
In fact, since the start of the COVID-19 outbreak, Wise has been supplying sanitiser to the WA state and federal governments, including hospitals, state and federal police, schools and aged care facilities.
The JV agreement is subject to certain conditions precedent, including mutual due diligence, various approvals, and agreements being signed off.
Even the initial $600k revenue is quite an achievement for ESE given that the company is still capitalised at sub-$3M, and will hopefully lead to additional deals and revenue.
Much like all microcap stocks, there is risk involved in an investment here, and the current cash position of ESE does remain a concern.
The company is basically valued at ASX shell prices right now. But if it can get over its near term funding hurdles and continue to sign revenue generating JVs, there is no reason this company shouldn’t be capped at multiples higher than current levels.
It’s early days still, but with a highly experienced global pharma exec (ex Pfizer) installed as the new CEO and a series of deals signed, we are keeping a close watch on ESE.
Share Price: 1.6¢
Market Capitalisation: $2.655 million
Cash Position: ~A$200k (at 29 May)
Israel-based eSense-Lab (ASX:ESE) was established as a biotech company, with a unique technology to analyse and reverse-engineer the exact terpene profiles of cannabis strains by using alternate plant sources, at cost and without the psychoactive ingredients.
The technology also enables the creation of unique terpene profiles of rare and high value plants, providing sustainability and lower production costs.
In addition to its existing products, under a new leadership team ESE has established an optimised business model and developed broader R&D plans.
Its team of expert scientists are focused on the creation of ‘virtual plants’ by applying cutting-edge technologies and disruptive techniques to reverse engineer rare or lucrative plants.
ESE deconstruct plants’ chemical profiles and use alternate natural products to then re-engineer and create the virtual plant.
The resulting line of plant-based products have wide reaching commercial and medicinal application, viable for multiple markets and mass consumer consumption.
But what are terpenes?
Terpenes are naturally occurring compounds (classified as phytochemicals) of which there are at least 20,000 different terpenes in existence. They account for the flavour and fragrance of aromatic plants, with each plant having its own unique terpene profile.
The terpenes play a critical role in the defence mechanism of the plants protecting them from virus, bacteria and insects.
Terpenes have long been used in the treatment and management of common respiratory conditions
One of the most widely known terpenes is menthol, a terpene found in mint and the key ingredient of Vicks® VapoRubTM, which relaxes the muscles in the lungs and widens the airways.
Another example of a widely used terpene is carvacrol, which is found in oregano and thyme, and has historically been used as remedies for the common cold.
Terpenes are well described in literature for their anti-viral activity, playing a critical role in the defence mechanism of plants by protecting them from viruses, bacteria and insects.
Terpenes are pharmaco-vigilant substances that can reduce pain, and have anti-inflammatory, antioxidant, anti-bacterial, anti-viral, anti-parasite, anti-cancer, gastro protection, neuroprotection, anti-convulsant and sedative properties.
Similar to the cannabinoids THC and CBD, terpenes bond with a person’s endocannabinoids, delivering therapeutic effects.
New JV centred business model
eSense-Lab is operating a joint venture business model, whereby it establishes JVs for the mutual development of products with different partners.
Armed with its unique plant profiling technology, eSense is seeking out highly scalable, low cost / high volume market opportunities. Its new commercialisation strategy is likely to considerably reduce costs associated with sales and distribution.
In the last month alone, the company has established JV agreements with three parties: Wise, ANC Enterprises, and SeaLaria — which I will further detail below.
Given that ESE’s technologies have such a variety of applications, we can expect to see further partnerships and expanded applications for the use of ESE’s terpenes.
It’s early days for ESE under its new strategy and team right now, however getting these terpene profiles to market could deliver significant commercial value over the long term.
With a new management team chasing down commercial opportunities across multiple large markets, starting with high demand hand sanitisers, E-sense appears to be a small ASX listed stock on the move.
Revitalised team to target new markets
eSense, was previously focused only on developing terpene profiles of cannabis strains (without psychoactive ingredients) and with lower production costs by using alternate plant sources.
It is now broadening its reach to wider markets, via a recently strengthened leadership team.
Itzik Mizrahi - CEO
The company appointed a new CEO in March, Itzik Mizrahi, a highly experienced global big pharma executive.
Mizrahi brings a wealth of experience to eSense with over 20 years tenure in commercial, medical and clinical management positions in global pharmaceutical companies. As the previous Head of Clinical at Pfizer Pharmaceuticals Israel, and General Manager at Actelion Pharmaceuticals Israel, he had full accountability for clinical departments, operational efficiency and regulatory compliance.
As Country Manager (Israel) at Actelion Pharmaceuticals, he led commercial activity, and oversaw clinical trials, medical and regulatory processes. Under his leadership, Actelion Israel repeatedly overshot benchmark sales predictions and company goals.
Moshe Hukaylo - CFO
Moshe has vast CFO experience in public and private companies. Moshe served as CFO of Pfizer Israel and prior to that in Merck-Serono Israel and In InterPharm. Moshe has extensive experience in financial management, business strategy, process improvement and supply chain. Accompanies fast-growing companies from early stage through the regulated arena of public companies
eSense-Lab joins Wise Wine to target sanitiser market
As announced this week, eSense-Lab has entered into a binding joint venture with family-owned West Australian wine maker and distiller, Sassey Pty Ltd (Wise) — the owner of the Wise Winery.
The deal will see Wise broaden its sanitiser product offering to include sanitiser infused with eSense’s unique terpenes.
The Wise Gin Distillery is the only Margaret River distillery distilling its own chardonnay and other grape varieties on-site as the base for spirits and its sanitisers.
In order to meet demand in Western Australia, the distillery at Wise Wine has transitioned to 24-hour production of hand sanitiser made from ethanol that was originally earmarked for gin.
Under the JV agreement, eSense will provide its proprietary terpene mixes specifically chosen for their anti-viral qualities and Wise will produce, sell and distribute its 70% ethanol sanitiser product.
The deal will see the new products widely available through Wise’s global distribution network via its online store.
The agreement will run for a 10-year period with initial orders of two million units and manufacturing to be undertaken exclusively by Wise.
Under the agreement, eSense will provide its proprietary terpene mixes to the JV, specifically chosen for their anti-viral qualities, and a cash contribution of up to $200,000 for JV operational expenses and Wise will contribute up to $200,000 of sanitiser ingredients (base alcohol sanitiser and packaging) to the JV.
The product will also carry Wise’s premium recognisable branding, as well as being distributed exclusively by the group.
Wise has been producing and selling wine for over 28 years, and its existing brand, proven sales strategy, and distribution channels means its product is ideally positioned within the growing sanitiser market.
Wise’s general manager, Greg Garnish, sees the addition of eSense’s terpenes to create a broader range of products as an effective marketing and sales strategy.
Wise’s current product has seen ongoing demand since production started in March.
Here is Wise discussing the shift to sanitiser production:
While highlighting the obvious commercial benefits of the deal, ESE CEO Itzik Mizrahi, noted that it represented a validation of the group’s business model, “We are so pleased to be working with Wise Wines, a household brand and name in Australia to produce sanitiser products.
“The joint venture agreement validates eSense’s updated commercialisation model as well as the growing recognition of terpenes and their unique and varied qualities.
“This binding agreement will see eSense’s terpenes used in a premium product to be delivered straight to consumers.”
eSense’s laboratory continues researching and testing its gel-based, alcohol-free sanitiser with promising results of terpene’s anti-viral synergistic effects.
Discussions are ongoing with several universities, hospitals and virology labs to establish further testing and research into the exact nature of terpenes as an anti-viral agent.
The ongoing COVID-19 pandemic has significantly impacted consumer behaviour with people becoming more aware of their hand-hygiene. Government campaigns, advertisements and news are urging the use hand sanitiser, a shift that is anticipated to continually boost market growth.
The addition of terpenes in sanitisers could reduce the harmful effects on skin, without compromising effectiveness.
This presents significant opportunity as the global market value for hand sanitiser is expected to grow to reach US$8.09B at the end of 2025, up from US$1.2B in 2019.
ESE partners with ANC Enterprises to expand its range of terpene products
Less than a week prior to the Wine Wine JV announcement, on 15 June ESE announced it had entered a joint venture agreement with ANC Enterprises Pty Ltd.
ANC is a manufacturer and wholesaler of high quality Australian made cosmeceutical products. It offers full-service contract manufacturing for products from creation of the formulation, packaging, design and manufacturing through to final approval by Australia’s Therapeutic Goods Administration (TGA), where required.
The group has significant experience in manufacturing unique products for uses in skincare, sports and nutritional supplements, infant milk powders, bath salts, essential oils and pharmaceuticals.
Under the JV agreement the two companies intend to produce a new range of skin care, hair care and hand sanitiser products with eSense’s proprietary terpene mix.
Starting with a 700,000 unit initial order, eSense will provide specific terpenes uniquely developed for each product category, while ANC will formulate and manufacture the resulting products containing these proprietary terpene mixes.
ANC currently manufactures natural plant focused products including a skin-care brand which contains no artificial colours or ingredients, New Age BotanicalsTM. The range includes regenerating creams, nourishing creams, face masks and vitamin C creams.
Having invested heavily in innovative equipment, ANC continues to make improvements to its processes to minimise waste and lift output to meet consumer demand from its 100% owned, 600m2 GMP certified facility.
That facility is capable of producing 16,000 to 20,000 bottles per day, or five million bottles annually. Its leading edged bottling processes generates only 1% of wastage, compared to the industry average of up to 10% waste.
Commenting on the partnership with ANC, Mizrahi said, “ANC seemed like an obvious partner for eSense to further diversify its product offering. Its passion for natural, ethically made products aligns with our company’s ethos and goals.
“The joint venture agreement validates eSense’s updated commercialisation model as well as the growing recognition of terpenes and their unique and varied qualities in more markets. This agreement will see eSense’s terpenes used in a premium Australian-made product to be delivered straight to consumers.”
eSense-ANC Enterprises JV Terms
Under the JV agreement, the terpenes based skin care, hair care and hand sanitiser products are to be manufactured exclusively by ANC, with ESE to supply terpenes to the JV for an initial 10-year term on a cost plus arrangement.
The parties have agreed that on formation of the JV, a minimum of 700,00 initial orders will be made consisting of:
– 500,000 units of terpenes for hand sanitiser,
– 100,000 units of terpenes for skin care,
– 100,000 units of terpenes for hair care.
These minimum orders are based on the anticipated initial production run for products to be undertaken by the JV company. It is anticipated the JV will pay $100,000 upfront for the terpenes and remainder upon sales occurring.
The JV company will be owned 95% by eSense and 5% by ANC, based on an initial cash contribution to the JV of $95,000 by eSense and $5,000 by ANC.
ANC will have a 12-month option to increase its holding to 50% through an additional capital contribution. The amount that ANC will pay to acquire such shares will be $90,000 after 1 month and increase by $10,000 each calendar month thereafter.
ESE will make additional loan funds available to the JV for working capital purposes if required.
ANC will grant the JV a royalty-free, irrevocable, perpetual, license for use throughout the world of any formulations, service marks, trademarks and trade names for the products produced for the JV purpose, provided the JV Co pays ANC an agreed formulation fee for any product it develops.
The agreement does remain subject to certain conditions precedent, including mutual due diligence, receipt of any regulatory and shareholder approvals, and executing certain definitive agreements, including a shareholders’ agreement, supply agreements, manufacturing and distribution agreement.
eSense joins forces with SeaLaria Ltd
In late May, ESE signed a Letter of Intent with SeaLaria Ltd, a private Marine Biotechnology company in Israel.
The LOI is for a joint venture in developing new products based on the synergistic effect of eSense’s terpene strains, and SeaLaria’s unique gelatinised red algae.
The initial focus of the JV will be on healthcare and consumer anti-viral hand sanitisers.
The infusion of terpenes to enhance the anti-viral potency and reduce the existing high alcohol content present in hand sanitisers and related products will be tested and produced.
eSense’s CTO, Dr Eyal Kalo, said the lab teams have been engaged to formulate the first experimental batch of a gel-based, alcohol free sanitiser. Preliminary results have been received and are currently being considered by the company.
Additionally, eSense is developing an ointment to infuse combinations of SeaLaria’s gelatinised algae along with eSense’s best anti-inflammatory and anti-proliferative terpene blends. eSense plans to enter collaboration with hospital-based dermatology key opinion leaders to examine the therapeutic effects of these terpene/algae combinations on skin disorders.
Itzik Mizrahi, said “We have looked into possible cooperation with SeaLaria for some time, but the increased consumer demand for hand sanitisers has pushed both companies to prioritise the potential development of more effective products, to match consumer demand. I believe this joint venture will also produce other high efficiency products, leveraging both our companies’ expertise.”
The two companies have also initiated discussions to enter a collaboration process with relevant universities’ virology lab or certified hospital virology lab, to run future testing of anti-viral synergistic effects.
Opportunities in a growing market
Under its new leadership team, eSense is already delivering on its revised JV centred business model, securing three news deals in less than a month. These recently signed JV agreements open up significant markets for the application of its terpenes.
This includes its exclusive 10-year deal announced today with Wise Winery (Sassey) that will bring in an initial US$600,000 revenue for eSense in its first order of two million units.
Deals such as these only highlight the potential on offer in the emerging area of biotechnology and for eSense specifically, which still has a market capitalisation of just A$2.6 million.
Like all micro cap stocks, securing funding is always an issue, however as the company is currently valued at that of an ASX shell, we could soon see the company valued at a much higher level.
We can expect further opportunities to continue to emerge as the company continues to seek out innovative, evidence-based, commercial applications of terpenes in the multi-billion dollar medical, wellness, cosmetics and nutritional markets.
The company also anticipates further opportunities in evidence-based applications of terpenes in the medical arena, including application across cancer, virology, neurodegeneration, fibrosis, COPD, endometriosis and other diseases.