Creso Pharma negotiates significant commercial agreement with Swiss food and pharma group

While company’s leveraged to the cannabis industry have rerated strongly in the last three weeks due to changes in legislation in Australia, it is likely that the share price of one of the major players Creso Pharma (ASX: CPH) has only just started its run given the release of important news on Tuesday.

Just as a guide to the company’s recent share price performance though, its shares surged 75% in the last three weeks with extra momentum coming from company specific news flow.

However, it should be noted here that share trading patterns should not be used as the basis for an investment as they may or may not be replicated. Those considering this stock should seek independent financial advice.

CPH has been making strong progress in developing cannabis and hemp based therapeutic products, and discussing distribution agreements, including an arrangement which will facilitate distribution of the company’s products in Australia.

However, today’s news is arguably a significant event for CPH as it will allow the group to fast track development and commercialisation of new cannabinoid-rich nutraceutical products for human and animal health.

Domaco agreement

CPH has negotiated a binding Letter of Intent (LOI) with Swiss based food and pharma development company Domaco, Dr. med Aufdermaur AG (Domaco) which will see the two parties working together on the development, manufacture and commercialisation of two human health cannabinoid-rich nutraceutical products, one relating to the management of anxiety and stress, and the other aimed at the management of bone metabolism disorders such as osteoporosis and osteoarthritis.

Going hand-in-hand with these initiatives will be the development of a new animal health nutraceutical product for companion animals, a market segment where CPH has already established a prominent position.

Highlighting the significance of this agreement is the fact that Domaco is a leading European producer of innovative products for global pharmaceutical and food companies such as Blackmores, Bayer and Danone, as well as manufacturing its own branded products.

In commenting on this important partnership, CPH’s Chief Executive and co-founder Doctor Miri Halperin Wernli said, “Creso continues to make significant progress in broadening the pipeline with innovative cannabinoid-rich nutraceutical products for both human and animal health, and this LOI with a Swiss leader in the development and manufacturing of food and pharma products is another key milestone in establishing our leadership position in the field of hemp and cannabis derived therapeutics.”

Exposure to billion-dollar markets

Looking at the various dollar values of the markets CPH will be selling into, it represents a quantum leap for a relatively new company, albeit one that has quickly established itself in global regions where the manufacture and distribution of its products have government support.

As a guide, the anxiety and stress markets were valued at approximately US$3.5 billion in 2015 according to research conducted by IMS Health, MIDAS.

The global osteoporosis market is already huge, and with compound annual growth of 4% anticipated between 2016 and 2021, Zion Market Research estimates it will have a value of US$14.3 billion by 2021.

Credence Research is forecasting the osteoarthritis market to increase from circa US$5.1 billion in 2015 to $5.9 billion in 2022.

In a sense, surprisingly the estimated value of the veterinary health market in 2021 well surpasses the combined total of the other three areas with Mordon Intelligence predicting the market will be worth nearly US$40 billion.

Arguably one of the key reasons why the veterinary market will be valued so highly is that there are currently few options available to veterinarians for the treatment of conditions such as behavioural-based disorders, chronic pain, inflammation, arthritis and metabolic conditions such as diabetes.

Currently, veterinarians are attempting to adapt human therapies for use in animals, but with no great success. CPH’s new animal health nutraceutical products will be specifically formulated for various companion animal segments, and contain very low THC (the psychoactive components of cannabis) at levels below legal thresholds.

Human nutraceuticals to complement first-generation products while providing a faster mode of action.

The new human health products will use new buccal delivery technology systems allowing absorption via the rich blood vessels in the mouth, ensuring high absorption and enhanced bioavailability of the full plant hemp extract and its cannabinoids, as well as being standardised in doses and formulations.

The product for anxiety and stress offers a fast acting innovative alternative therapeutic option designed to enhance improved mental focus and stress reduction, while avoiding the gastrointestinal side effects and addiction dependency found with many alternative therapies.

Central to CPH’s clinical strategy with its human products has been the development of a nutraceutical that modulates the hypothalamic-pituitary-adrenal axis (HPA axis), a major neuroendocrine system that controls reactions to stress and regulates many body processes including anxiety.

Balancing the endocannabinoid system is pivotal in generating healthy stress responses, mitigating excessive fear, anxiety and panic that can result from dysfunctional responses to stress.

The role of cannabinoids in assisting sufferers of osteoporosis and osteoarthritis

Osteoporosis and osteoarthritis are degenerative bone diseases. Osteoporosis is the most common bone disease, resulting from an imbalance in normal bone remodelling and is a chronic condition. It leads to loss of bone mineral content and mass, structural abnormalities, bone weakening, increased risk of fracture and poor healing.

In contrast, osteoarthritis is a result of trauma, infection and/or age, often leading to chronic and severe pain and limited mobility, primarily in the hands, feet, hips and spine, being those areas of the body that are central to performing everyday functions.

Current treatments include surgery and/or anti-inflammatory and pain medications which often have side-effects such as stomach ulcers, cardiac problems and carry the risk of triggering blood clots. CPH is of the view that its products can provide an innovative alternative therapeutic option which doesn’t carry the side-effects of traditional therapies.

Management highlighted that CBD receptors have been shown to be vital for the regulation of bone metabolism and bone health by helping to maintain the balance between osteoclasts and osteoblasts. In animal models of osteoporosis and osteoarthritis, CBD has been shown to prevent bone loss and stimulate bone formation, as well as to promote maturation of collagen, improve fracture healing, and reduce inflammatory processes.

Commercial terms of Domaco LOI and upcoming milestones

Under the terms of the LOI, Domaco will develop the products using CPH’s full plant CBD hemp extracts. The development will include full formulation and analytics development, production of lab samples, pilot batches, and validation batches for stability testing.

Domaco will manufacture and package the products and CPH will pay a manufacturing fee on a cost of goods sold basis while retaining full ownership and IP rights of the developed end products.

Management noted that key end markets will be Switzerland, key European countries, Latin America and Australia.

CPH expects to have the new second-generation human anxiety and stress nutraceutical product in the new delivery technology available for sale in the first half of 2018, and the first-generation nutraceutical product for osteoporosis and osteoarthritis in the first half of 2019.

The animal product in the new delivery technology is expected to be launched in the first half of 2018.