Creso Pharma makes transformational deal to acquire Canadian psychedelics company Halucenex

Creso Pharma (ASX: CPH) has announced a transformational move to evolve from a medical cannabis company to an integrated natural medicines provider with the acquisition of Canadian psychedelics company, Halucenex Life Sciences Inc.

Halucenex is an established psychedelic-assisted psychotherapy (PAP) company focused on developing therapeutics for treatment-resistant depression in individuals suffering from post-traumatic stress disorder (PTSD) and other mental health illnesses.

The deal, in which Creso is proposing to acquire 100% of the company in consideration for more than $10 million in cash and shares, would mark the first wholly-owned psychedelics medicines company on the ASX.

It is also expected to provide Creso with “early mover advantage” into the emerging global psychedelic medicines market, estimated to be worth up to US$100 billion (A$129 billion).

Creso non-executive chairman Adam Blumenthal described it as a major milestone for the company and signals its 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,” he said.

“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.”

Acquiring an established company provides early mover advantage

Acquiring an established business will allow Creso to bypass significant barriers to entry into the market, positioning it with the abovementioned “early mover advantage” to bring products to market.

Creso strategic advisor Bruce Linton, who founded $15 billion Nasdaq-listed Canopy Growth Company, said that part of the point of the acquisition was to have this competitive edge.

“It’s only the beginning, science will lead to outcomes … If you lead early in that, you start developing brands, outcomes, products, then people will start using your name to describe the solution, not the ingredient,” he said.

Based in the Canadian province of Nova Scotia, Halucenex operates a 6,000sq ft mental health-dedicated medical clinic located next to the Hants Emergency Hospital. The facility comprises a controlled substances laboratory and 18 treatment rooms dedicated to provided PAP.

The company is currently awaiting the receipt of its controlled drugs and substances dealer’s licence, which will allow it to possess and conduct research and development and clinical studies on psychedelic substances including psilocybin (the active ingredient in magic mushrooms), LSD and MDMA.

Once it has received its dealer’s licence, Halucenex will apply to begin a phase two clinical trial researching the efficacy of psilocybin to treat and alleviate treatment-resistant depression in individuals suffering from PTSD and other mental illnesses. This trial is anticipated to start in the third quarter.

Halucenex will also seek to amend the dealer’s licence to enable it to produce, package and assemble, sell, transport and import and export psychedelic substances.

“Our ability to design a clinical protocol and fast-track a phase two treatment resistant depression clinical trial will allow us to be one of the first companies to demonstrate the efficacy of psilocybin in Canada,” Halucenex founder and chief executive officer Bill Fleming said.

Creating a diversified natural medicines company

Creso believes the combined group would benefit from several significant synergies, which are expected to “ultimately fast-track the company to early revenues”.

These include an established global distribution network with partners in the pharmaceutical space and a cannabis cultivation facility that can readily be adapted for the cultivation of natural psychedelic psilocybin mushrooms.

Creso said it will also benefit from an experienced executive and management team with a deep understanding of pharmaceutical product development in heavily regulated environments.

Deal terms

To acquire 100% of Halucenex, Creso has offered a deal worth up to $10.3 million (at its last closing share price of $0.21), comprising $500,000 in cash and about 29.25 million Creso shares, plus 17.55 million Creso performance shares that will convert into fully paid shares if the dealer’s licence amendment is approved within 12 months of the acquisition settlement.

Other key terms of the deal include Creso advancing Halucenex $250,000 as a loan for the sole purpose of funding its operations prior to settlement.

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

In addition, the vendors have a right to nominate a non-executive director to Creso’s board up until three months following settlement.

The psychedelics medicines sector

According to Mr Blumenthal, PTSD and other mental illnesses have been highlighted in the last 12 months, and particularly worsened by the pandemic, with available treatments shown to have limited effectiveness and many side effects. He said psychedelic-assisted therapy is a new alternative treatment route that has shown “considerable promise”.

Research into the effects of psychedelics on mental health grew between the 1950s and 1960s but was limited from the 1970s mainly due to political reasons.

More recently, growing evidence demonstrating that psychedelic medicines are safe and non-addictive when used in medical settings has sparked renewed interest in PAP.

According to Creso, several recent clinical trials have shown PAP can produce significant and long-lasting outcomes for individuals suffering from addiction, depression, end-of-life distress, and PTSD.

Mr Linton said public policy towards psychedelics is rapidly shifting.

“We are witnessing a massive regulatory wave which has the capacity to change the way that mental health and wellness is achieved and maintained.”

According to Creso’s announcement, the global market for psychedelic medicines to treat mental illness is growing rapidly and is estimated to be worth up to US$100 billion (A$129 billion).

The PTSD therapeutics market alone is expected to grow up to US$10.5 billion (A$13.5 billion) by 2025 and mental illness in Canada has been estimated as having an economic burden of C$51 billion (A$52.8 billion) per annum.

Globally, the economic burden of mental illness is predicted to reach US$16 trillion (A$20.6 trillion) by 2030 if there is no innovation in treatments such as PAP.

Halucenex’s deal to counter psilocybin supply issues

Creso says there is currently a bottleneck in the supply chain of pharmaceutical-grade psilocybin that is expected to expand as more companies enter the research domain.

It’s important to note that synthetic psilocybin is preferred over naturally sourced psilocybin in a clinical setting as it ensures consistency of dosage and purity in formulations, therefore Health Canada will only approve clinical trials if companies have access to synthetic versions.

In anticipation of a worsening supply shortage, Halucenex signed a supply deal 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 two and three clinical trials.

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

PTSD is considered more prevalent among war veterans than the general population and the Canadian government has budgeted more than C$25 million (A$25.86 million) over the next decade to support research on veteran health.