Willow Biosciences Inc (CNSX:WLLW) CEO Explains Share Consolidation

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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

Willow Biosciences Inc (CNSX:WLLW) (OTCMKTS:CANSF) (FRA:45CN) is a synthetic biology company focused on ingredient production. Willow completed a $29 million financing in April and went public last month. CEO Trevor Peters discusses the company’s interest in opioid research and efforts to develop commercial pathways to produce active pharmaceutical ingredients from cannabinoids. Peters believes Willow’s yeast-based process provides both a faster timeline and significant cost savings when compared to cultivators using plant-based ingredients. He highlights the repeatability, scalability, and purity of Willow’s process and notes the company can tailor its end product to meet the need of CPG companies and pharmaceutical customers. He predicts that once Willow is fully operational, the company will be able to produce 300 kilos of isolates every 10 days. Peters explains Willow’s recent decision to consolidate all issued and outstanding common shares of the company and reveals the process will leave the company with approximately 68 million outstanding shares.

Transcript:

Fraser Toms:  Hi, and we’re joined by Trevor Peters. He’s the CEO of Willow Biosciences. Trevor, how’s it going?

Trevor Peters: I’m very good, thanks. Thanks for having me.

Fraser Toms:  Yeah, no problem. So just looking at a past couple of press releases, Willow is relatively new to the public markets; it looks like you started trading about a month ago?

Trevor Peters: Yeah, Correct. We closed a $29 million financing April 12th and began trading April 13th.

Fraser Toms:  Great. So this being your first time on the show, why don’t you give us a bit of an overview about what the company is all about, and what you’ve been doing in the last little while.

Trevor Peters: Right. So Willow Biosciences is a synthetic biology company that, for the past several years, has done a lot of work in opioid research and ultimately developing a commercial pathway for thebaine, which is a precursor molecule for all the semi-synthetics like oxy, hydro, buprenorphine, naltrexone, naloxone, and so we finished a program with our partner last year and then began working on cannabinoids about 120, 12 months ago. Developing the same concept, which is a synthetic biology platform to produce what we refer to as an API, or active pharmaceutical ingredient.

So we look at the cannabinoids as an ingredient as opposed to a cultivation process.

Fraser Toms:  Okay. But having said that, I guess you’re trying to ultimately grow molecules specific to the cannabis plant?

Trevor Peters: Right. So when you think about the plant, and it has a variety of uses, some of which really only target the small molecules that the plant produces. And so when you think about cultivation for that purpose, you’re essentially throwing away, you know, 99 percent of the plant to harvest the trichomes and the small molecules off the buds of the plant.

And so what we view as a relatively inefficient process and costly, and something that we can accomplish by synthetic biology essentially using yeast as a platform to grow the exact same molecule, and do it in a much shorter time frame: ten days, as opposed to a crop that would take three to four months to grow, and with a much lower cost structure based on our synthetic biology process.

Fraser Toms:  So when you’re growing a molecule, and you mentioned comparisons to the plant – like, what type of scale – how can we imagine and sort of picture what it looks like?

Trevor Peters: Sure. So fermentation, and this is no different than, it’s baker’s yeast, essentially, that we use. It’s no different than brewing beer, with slightly more complicated – well, much more complicated science that’s involved in actually developing the yeast strain. But that yeast strain, if you can imagine a 100,000-litre vat, for instance, and us producing at, to use a round number, three grams per litre of product, we can essentially, in a 10-day period, produce 300 kilograms of pure cannabidiol out the back end.

So I’m not sure what the biomass equivalents would be in a greenhouse, but I’m sure you’d be talking about hundreds of thousands of square feet to come up with the same product over a three to four month period.

Fraser Toms:  Wow. So when it comes to cannabidiol, you know, we know there’s over 100 different cannabinoids out there. So if somebody’s, you know, growing CBD, what does that mean in terms of – like, you can relate it to strains of plants that produce different types of CBD, I guess is the easiest way to understand it.

Trevor Peters: So the plant produces a lot of cannabinoids, as you mentioned – 100 plus or minus cannabinoids that come out of the plant. One of the challenges with that is, not all those cannabinoids are desirable. So for instance, THC, which is psychotropic, oftentimes you don’t want that mixed in with CBD. For instance, Epidiolex, which is produced by GW Pharma, is used to treat children with epilepsy; obviously, we don’t want to be giving them THC.

So our process is different in that we produce the pure isolates. So, whichever cannabinoid we’re targeting, CBD is one I’ve mentioned, but any one of those 100 could form part of our process. And that’s the nice thing about what we do, is for the end consumer, whether it’s an industrial, consumer packaged goods product, or a pharmaceutical company, we can really tailor that end product to what they have. So they’ve got repeatability, scalability, purity, and ultimately a very low cost solution.

Fraser Toms:  Okay. So at this point in the business, you want to be able to grow kind of what you say you’re going to be able to grow or cultivate – I don’t even know what the right word is. But biosynthetically produced, and then sell that to a large pharmaceutical company or whatever end application is, so you can provide the molecule they need for cheaper and much more of it, compared to growing plant?

Trevor Peters: Right. Yeah, cultivation – again, we view cannabinoids as an ingredient, so we would be an ingredients manufacturer. This is a bit different than, say, food or beverage, in that we’re producing a regulated product that ultimately needs to be high purity, so what we call API or active pharmaceutical grade, and our process tailors very nicely into that. Biosynthesis, in yeast in particular and other processes, is used for producing insulin, artemisinin…there are numerous drugs, for example, that are in production today because of biosynthesis.

Fraser Toms:  So who would your ideal customers be, and what kind of money could we potentially imagine that could be made from this?

Trevor Peters: Well, cannabidiol right now, just touch on that last point – cannabidiol right now, in isolate form, sells for anywhere between 10,000, 15,000 per kilogram. And if you looked at the plant-based manufacturing side, you’re probably under just under $10,000 in costs, all in. Cannabidiol, other cannabinoids, are hard to isolate, purify away from the rest of the products in the plant so you don’t have contaminants. So it’s fairly costly to manufacture and purify out your cannabinoid, which is why you see those costs.

Our process is much cheaper than that in terms of our cost base. We can produce well below, probably 90 percent less than what the cultivation costs would be. So you know, you could imagine margins for us in that range. Ultimately, once we get up and running, we’re still obviously in the research and development stage, but once we’re up and running in roughly two years’ time frame, and we’ll be producing essentially multi tons of the product.

So again, going back to my usage of the 100,000-litre tank, we’re producing three grams per litre every 10 days, we’ll be producing 300 kilograms of cannabidiol, for instance, or other cannabinoids that are desirable in the market. So you can do some math around, you know, 300 kilograms every 10 days, what we can do on an annual basis in that 100,000 litre tank, which we can do anywhere globally, and then the revenue: say, $10,000 a kilogram plus, in terms of what we can command per price for that product.

Again, that’s an isolate; that’s not, you know, a full spectrum extract or whatever comes from the plant. This is a very specific market, you know; again, CPG, pharma-type customers who would require highly pure product, which is why the cost base is what it is.

Fraser Toms:  Yeah. Okay, so now that we kind of understand what you’re doing and what the goal is, on the capital markets side, what’s the share structure like in the company right now?

Trevor Peters: So we just yesterday announced a 25 to 1 share rollback, which will ultimately give us, I think, 68.8 million basic shares outstanding; we start trading post-consolidation, Tuesday of next week. So 68.8 million shares outstanding. We’ve raised the 29 million as I said earlier; that leaves us in a very well capitalized position. We actually finished 2020 with just under $8 million in cash; that’s about the time when we’ll expect to start seeing, if not revenue, at least sales contracts that will take us into revenue in that time frame. So, leaves us in a very good financial position, a healthy financial position.

One of our major shareholders, Tuatara – a large US investment firm very focused in cannabis, has put $12 million into the company. They have also essentially an option to participate for another 12 million, which we expect them to exercise in that intervening two year period. So that will be in addition to that 8 million that we finish 2020 with.

Fraser Toms:  Okay. And management ownership of shares –

Trevor Peters: Is significant. We’ve also participated through order slide deck, we participated for about 6 million of that financing. The 20 million that we raised, we’ve also put in money prior to that. So management and insiders, I think, were on the order of 30 or 35 percent ownership, I think.

Fraser Toms:  Great. And so I notice, out of the 29 million, one of the major things you’re doing is building out three labs: San Francisco, Vancouver and Calgary?

Trevor Peters: Yep. So we have existing labs now in Vancouver and Calgary; we’re augmenting those and adding some new components to them, and that’s an important part of what we do on the Canadian side. Now, on the US side, San Francisco is our third site, and that’s what we do it’s called high throughput iatrogenesis and strain analytics. Essentially, turbocharging the yeast strain that we developed in Calgary. And that’s where we are probably going to be spending the bulk of our capital: the high throughput, the robotics, the computational biology equipment that we need down there forms a big cost for us. San Francisco, we’d like to do it all in Calgary, but San Francisco is really where, you know, the hotbed of biotech, and our staffing requirements really come in from that environment.

And then G&A and scale up will form part of that cost as well.

Fraser Toms:  Okay. So the difference between Vancouver and Calgary, are they doing different things, or is it just sort of…

Trevor Peters: They’re, to you and I, they would be very similar, but to the scientists, no, they’re very distinct. There’s more of what I refer to of the macro understanding of a plant, that happens in its UBC Vancouver and then University of Calgary, and is where our Calgary lab is based. Calgary is where we do – Calgary is really the hub for us. That’s where we do a lot of what we call discovery biology, so understanding the plant’s metabolic pathway, the fac tory by which the plant actually produces cannabinoids; that occurs in Calgary. Our Chief Science Officer is a ten-year prof at the University of Calgary, a Canada Research Chair in plant metabolic pathways, and one of very few, you know, probably five researchers in the world t hat can do the type of work that he’s doing. You know, understanding the plant and how to take that factory, the assembly line, transport it into a yeast cell, and accomplish the same thing.

Fraser Toms:  Great. Okay, and then finally, just when could we expect the augmentation process to be complete with the money that you raise?

Trevor Peters: Well, there’s a number of components to it, and the main business line that I’ve mentioned to you, producing cannabidiol. It’s something that I talk about because people understand it; they’re aware of it. We have a host of other ancillary business lines which we’re producing at the same time, because we are capitalized to do it.

We think that over the next 12 months, we’ll be in a position where we can start to scale our cannabidiol process, and why that’s important is, as we go through the discovery biology phase, ultimately through the high throughput iatrogenesis strain on the analytics stage, we will end up at a point where we move from the shaker flask, the test tube, to ultimately fermentation environment where we’re working in multi-litre tanks and ultimately 10,000-plus litre tanks to scale up our process.

So towards beginning of next year, we expect to be in that process, and that’s sort of the halfway point to when we ultimately expect to be working in much larger fermentation tanks and producing high enough concentrations – call it three to five grams per litre of product – where we can be. So, 24 months from today, we’ll be in the process where we can ultimately start working on, you know, sales contracts, and ultimately distributing our product.

Fraser Toms:  Great. Well, Trevor, thanks for coming on, and that’s a great introduction to the company. And we’ll have you back when your next milestone comes around

Trevor Peters: Okay, great. Thanks very much, Fraser. Appreciate it.

Fraser Toms:  Thank you.

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

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