Merger and acquisition activity has played a massive role in the formation of the pharmaceutical industry as it exists today. Historic deals, like Pfizer’s 2009 purchase of pharmaceutical giant Wyeth for $68 billion and Glaxo Wellcome’s purchase of SmithKline Beecham for $76 billion in 2000, have created a consolidated market that’s often driven forward by the innovations of smaller companies. Lexaria Bioscience Corp. (CNSX:LXX.CN) (OTC:LXRP) (LXRP Profile), with its promising intellectual property portfolio focused on revolutionizing the delivery of a variety of molecules to the human body, is well-positioned to continue on this history of acquisition in the pharmaceutical space, following in the footsteps of companies like Derma Sciences, Inc., which was acquired by Integra LifeSciences Holdings Corporation (NASDAQ:IART) for approximately $200 million, and CoLucid Pharmaceuticals, Inc., which was acquired by Eli Lilly and Company (NYSE:LLY) in a landmark $960 million deal. With analyst rumblings pointing toward additional high-profile buyouts of industry upstarts like ACADIA Pharmaceuticals, Inc. (NASDAQ:ACAD) and Incyte Corp. (NASDAQ:INCY), the time to cash in on the next Big Pharma acquisition could be at hand.
While the acquisition frenzy in pharmaceuticals spans the entirety of the colossal global industry, few subsectors have demonstrated more potential for promising upstarts than the medicinal cannabis market. Projected by Arcview Market Research to eclipse $20.2 billion in North American sales by 2021, the legal marijuana industry, including both medicinal and recreational markets, is expected to create more than a quarter of a million jobs by 2020, outpacing economic mainstays like manufacturing, utilities and government positions. This forecast expansion has already set the stage for a number of industry acquisitions, many of which have taken place in the soon-to-be federally legalized Canadian market. One such is example Canopy Growth Corp.’s April acquisition of rTrees Producers Limited, a late-stage Access to Cannabis for Medical Purposes Regulations (‘ACPMR’) applicant. The rTrees acquisition brought a 90,000 square foot indoor growing facility with considerable room for expansion under Canopy Growth’s already sizable umbrella, expanding upon the market presence of the first Canadian cannabis company to achieve a $1 billion market valuation.
Other industry players have followed Canopy Growth’s lead. In late July, Aurora Cannabis announced plans to make a strategic investment in Hempco Food and Fiber, Inc., one of the world’s largest producers of industrial hemp products. Earlier that same month, Canadian cannabis producer Invictus MD Strategies Corp. invested $5.5 million in AB Ventures, Inc. to fund the costs of licensing approval under the ACMPR and construction of related production facilities. Similar M&A deals were recently completed by Aphria, which invested $11.5 million in endocannabinoid-focused pharmaceutical company Scientus Pharma in mid-August, and Maricann Group, Inc., which recently announced its acquisition of biotech company NanoLeaf Technologies for total transaction consideration of C$40.1 million. The NanoLeaf transaction is particularly intriguing for prospective investors of Lexaria Bioscience (OTCQB:LXRP) (CNSX:LXX-CN.CN), as NanoLeaf possesses the licensing rights to a number of globally patented technologies that provide proven pharmaceutical, nutraceutical, cosmetic and functional beverage drug delivery formulations.
This recent industry activity highlights the rising demand for innovative and marketable offerings targeting the burgeoning cannabis sector, but they fail to capture the scale of a potential Lexaria Bioscience transaction. This is because of the wide-ranging applications of Lexaria’s technology platform. To date, the company has noted potential applications for its lipid-based molecular delivery technology that include NSAIDs, nicotine, vitamins and cannabinoids – applications that are supported by 19 currently-pending patents filed in more than 40 countries. According to biotech analysis firm EvaluatePharma, the global market for NSAIDs was valued at $11.4 billion in 2014. Meanwhile, the global market for vitamins in on course to reach $9.3 billion by 2020, the market for alternative nicotine delivery technologies is at an all-time high following recent FDA proposals, and consumer sales of cannabinoids are expected to reach $2.1 billion by 2020. All told, the market potential for Lexaria’s flagship platform could be huge.
It has been precisely this potential, alongside numerous clinical, financial and IP developments, that has driven Lexaria’s growth in recent months. On July 18, the company announced (http://nnw.fm/wI0LB) that the Australian Patent Office granted a patent protecting its method of improving absorption, speed of onset and taste of cannabinoid active agents in edible products. This milestone was particularly noteworthy in that it followed Lexaria’s announcement of a $1 million combined R&D program aimed at examining improvement in absorption offered by its technology for several groups of molecules, including NSAIDs, nicotine, vitamins and cannabinoids. Just last week, the company took a major step toward maximizing on the value of its patented technology by announcing the world’s first clinical study of human volunteers of CBD within its high absorption TurboCBD(TM) product.
“Lexaria is proud to be advancing our collective knowledge of the benefits of CBD specifically showcasing the benefits of Lexaria’s unique patented delivery technology,” Chris Bunka, CEO of Lexaria, stated in the news release announcing the study. “Results will advance Lexaria’s ability to custom design products that increase the leading performance our technology already offers to customers.”
Strengthening Lexaria’s status as a promising acquisition target is its current cash position. The company has outlined a number of moves to bolster its balance sheet in recent months, most notably its $1 million raise from warrant exercise originally announced on May 19. In total, Lexaria raised over $3 million in the past nine months in a strategic effort to capitalize on the growth of both the pharmaceutical industry as a whole and, perhaps more importantly, the cannabis sector. With funding in place through 2019, according to Bunka, Lexaria has the IP and the capital needed to properly demonstrate the marketability of its lipid-based delivery technology while working with prospective licensees and resellers to maximize returns for early investors.
Recent acquisitions in the pharmaceuticals industry highlight the potential upside Lexaria presents to the investment community. Derma Sciences, Inc., for example, operated as a tissue regeneration company at the forefront of research and innovation for the management of acute and chronic wounds prior to its acquisition by Integra LifeSciences Holdings Corp. (NASDAQ:IART) in January of this year. In a slide deck issued following the acquisition, IART noted Derma’s line of products with patented technologies, including multiple offerings targeting the burn and wound management market, as a key driver for the transaction. Insights from medical technology analysis firm MedMarket Diligence, LLC suggest that this market is currently growing at a rate of 3.1 percent annually, providing a fertile runway for future sales growth in the space. For comparison, the cannabinoid market, which is just one of many potential indications for Lexaria’s molecular delivery technology, is expected to climb 700 percent from 2016-2020.
Eli Lilly and Company’s (NYSE:LLY) March acquisition of CoLucid Pharmaceuticals, Inc. serves as another example of the aggressive M&A strategy employed by some of the most recognizable names in Big Pharma. At the time of the deal, David R. Ricks, president and chief executive officer of Eli Lilly, noted that the purchase would enhance Lilly’s existing pain management portfolio and add a potential near-term launch to [its] late-stage pipeline. This late-stage addition is lasmiditan, an oral tablet that’s currently being evaluated in phase III clinical trials for the acute treatment of migraine headaches in adults. Lasmiditan was actually originally developed by Eli Lilly, but it was licensed to CoLucid in 2005 as part of Lilly’s strategic move away from the pain management market. On top of highlighting the evolving strategies of Big Pharma players to capitalize on industry trends – including cannabis painkillers and related cannabinoid products – the CoLucid acquisition’s focus within the migraine drug market falls well within earshot of Lexaria’s diverse portfolio of potential applications for its lipid-based delivery technology.
In both of these cases, high-dollar acquisitions were fueled by strong intellectual property positions targeting inviting markets within the pharmaceutical industry. This trend rings true when studying other upstart companies that could be in line for big time buyouts. A buyout of ACADIA Pharmaceuticals, Inc. (NASDAQ:ACAD) has been rumored for months, with the company having reportedly received an offer from AstraZeneca in February and interest from Pfizer related to its lead product NUPLAZID®, the only significant compound in the company’s development pipeline. Approved by the FDA for the treatment of hallucinations and delusions associated with Parkinson’s disease, NUPLAZID® is currently in late stage trials for similar symptoms in Alzheimer’s and schizophrenia, giving it the potential to address a massive and growing global market. The company’s stock closed at $36.16 on September 1, and reports from Seeking Alpha suggest that ACADIA’s management team is pushing for a substantial premium for a potential buyout in the range of $55 to $60 a share.
Incyte Corp. (NASDAQ:INCY) is another prime buyout target, as reported in an editorial piece published by MarketWatch. “Incyte is a throwback to what biotech companies were meant to be,” RBC Capital Markets analyst, Simos Simeonidis told MarketWatch. “It’s built on ‘great science’ that has helped it develop several drugs, and it continually reinvests in its own research.” Incyte’s main product, Jakafi, is an FDA-approved medication used to treat rare blood cancers. Back in March, analysts speculated that Gilead was close to an agreement to acquire Incyte. Although that deal has not yet come to fruition, the Delaware-based company offers a combination of growing revenues and strong R&D programs that makes it a solid acquisition target, particularly as disappointing clinical data from competing trials strengthen the revenue outlook of Incyte’s leading product.
As demonstrated by recent industry activity, Big Pharma’s biggest names stay active on the M&A front, especially as it relates to first-of-their-kind advancements in promising markets. Continued interest in the pipelines of upstarts like ACADIA Pharmaceuticals and Incyte Corporation paints an intriguing picture as Lexaria Bioscience progresses with the world’s first clinical study of CBD within its high absorption TurboCBD(TM) product. With a strong balance sheet and an increasingly diverse and wide-reaching IP portfolio targeting some of the industry’s highest growth verticals, Lexaria should be on the radar of any investor hoping to cash in on the M&A deal-making bonanza that could be on the horizon.
For more information on Lexaria Bioscience Corp., please visit: Lexaria Bioscience Corp. (CNSX:LXX.CN) (OTCQB:LXRP).
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