Lexaria Bioscience Corp (LEXX)

[Shawking]

Ted Ohashi Pg. 7
https://4495825a-d729-4d8f-ade8-e78f828e1c8d.usrfiles.com/ugd/449582_5fd3798e43074dacb8f1a381c974d835.pdf

Special Report
Important News from Lexaria Bioscience
There was some important news from Lexaria Bioscience (NASDAQ: LEXX) (NASDAQ: LEXXW)
that is all the more important because it seems to me the market missed the point.
(1) On June 2, 2022, LEXX announced it grant Valcon Medical, a DehydraTECH™ license
for medical cannabis applications, its first licensing agreement in Europe. Valcon
Medical is a European contract manufacturing organization specializing in the manufacturing of medical cannabis extracts for the European Union and the UK. Valcon is GMP certified and licensed under the Danish medical cannabis program to manufacture cannabis
products requiring physician-patient consultation. I think this is important because:
• Valcon is the most advanced medical cannabis manufacturer in its field in Europe and
leads the cannabis industry in manufacturing capacity and production of the highest quality
full spectrum extracts and API cannabinoid isolates.
• Valcon is supported by a shareholder group comprised of some of the leading cannabis
investment funds in the world, including Altitude Capital, Artemis Growth Partners, Enexis
AB, Greenfield Global Opportunities, and Nimb Capital.
• The license is non-exclusive and includes a combination of defined milestone fees payable
to Lexaria upon completion of batch validation and marketing authorization application approvals for the first DehydraTECH-enabled products for each of several product categories
as well as defined royalties payable to LEXX on revenues generated from Valcon's sales.
Conclusion: this may not be the most significant short term financial agreement but I think it is important for these reasons:
? It is another piece of evidence that DehydraTECH™ produces results that users assess
and decide it adds value.
? Valcon is an industry leader and others will be watching to see the ultimate results.
? It is a non-exclusive agreement which means separate agreements can be signed with
other companies that might decide to follow Valcon’s lead.
? The ideal end game is to reach the point where so many companies are using DehydraTECH™ others will be forced to use it if they are to be competitive. Each agreement of
this type brings LEXX one step closer to this objective.
(2) A far more important and financially rewarding agreement was announced effectively on June 3, 2022 as LEXX granted an exclusive license to Premier Wellness
Science for a strategic and long-term partnership in the Japanese market. Under the
agreement, Premier is purchasing the rights to DehydraTECH™ technology for the Japanese non-pharmaceutical market for use with CBD and hemp ingredients in oral liquid and
non-liquid products, as well as for topical, hair-care, lip-care and cosmetics products. I think
this agreement is important because:
8
• Lexaria and DehydraTECH™ finished first in a worldwide competition to evaluate advanced
delivery technology for active pharmaceutical ingredients run by Premier. In January 2022,
LEXX was contacted by Premier as the first step in the agreement that was just announced.
As Shinji Shosoyama said, "Premier conducted a global competition to evaluate the world's
most advanced molecule delivery technologies, and selected Lexaria's DehydraTECH
technology based on its superior performance and the extensive data available through
Lexaria's years of testing." For the first time, we have an independent commercial assessment of molecule delivery technologies and DehydraTECH™ prevailed. This lends significant credibility to the potential for DehydraTECH™ and LEXX.
• It is the largest financial commercial agreement for LEXX to date.
- In order to retain ongoing exclusivity, the minimum quarterly payments to LEXX amount
of US $4,527,500 during the first five years starting September 1, 2022.
- Assuming that Premier continues to submit all required payments, the license for the
Japanese market is perpetual.
- LEXX will receive royalty revenue from DehydraTECH licensed product sales, the
terms of which have been agreed to. If Premier achieves their minimum projections,
LEXX can expect annual payments of over $5 million by the fifth year of the contract.
- Lexaria and Premier have agreed to examine the possibility of research and development collaborations related to advanced formulation science. Premier and Parent have
long-established relationships with leading scientists in relevant fields in Japan.
• Premier is a wholly-owned subsidiary of Premier Anti-Aging (PAA) which is listed on the
Tokyo Stock Exchange Mothers division. PAA had revenues of approximately US $187
million in the first three quarters of fiscal 2021 with year-over-year revenue growth of
63.1%, strong profit margins from sales though over 45 product SKU's across four brands
sold in over 16,000 retail stores as well as directly through mail/web orders to over 2.6
million proprietary members. This is another major step up in the size and quality of a
DehydraTECH™ licensee.
• This financial information is more significant because:
- As fee and royalty income, these payments are far more significant that sales. They
represent gross profit because there is no cost of goods sold.
- One more agreement of this approximate financial impact would mean LEXX’s current
annual operating cash burn is covered.
- In fact, I suspect that if Premier should exceed their minimum expectations, it is possible
that the payments from this contract alone could do the job.
- LEXX’s business model is superior to other companies that may record higher revenues but negative gross profit.
• This agreement follows the awarding of two issued patents by the Japan Patent Office for
DehydraTECH™ technology. This confirms patent protection is a vital component of entering commercial agreements and, as I have said on several occasions, LEXX’s patent portfolio represents a valuable Intellectual Property asset.
9
• The overall Japanese cosmetics and personal products markets are estimated to be over
US $35 billion in annual sales.
Conclusion: I conclude these announcements are very significant despite the market’s apparent indifference. Over the past several months, investors have been critical of the slow pace at which LEXX’s
commercial business has developed. Management has said there was a need to develop information
that is required to conclude commercial contracts. It may be that LEXX has reached the tipping point
where we will see an increase in the number of commercial contracts concluded each year. Also, it
appears there is a clear trend toward potential commercial partners being well-established commercial
entities.