InMed Pharmaceuticals Inc. (INM) Earnings Call Transcript & Summary

Good morning, everyone. This is John Heerdink, and I'm the managing member of Tribe Public. Thank you for joining us today, and for being part of the Tribe. We are -- we have the Tribe webinar event today, CEO presentation and Q&A event is titled, InMed Pharmaceuticals: Addressing the increasing demand for rare cannabinoids. As many of you know, in addition to me being a managing partner of Tribe Public, I'm also the Managing Director California RIA called -- or registered investment advisor called Vista Partners. Note that I'm an investor in InMed Pharmaceuticals. And to see a complete list of disclaimers, please go to the Tribe's website www.tribepublic.com and/or visit Vista Partners' website, which is www.vistapglobal.com. Note that the Tribe Public's mission is to aggregate the voice of investors in order to attract management teams from the world's most interesting and groundbreaking companies across all sectors that are primarily listed on the New York Stock Exchange and/or NASDAQ. Although we do get the occasional brilliant leader that's -- from a private company or just brilliant leader like we've had Nobel Prize winner in medicine in the past, we do this so that you, the Tribe, may learn and making prudent investment decisions and business decisions as you move forward. Again, I appreciate all of you being a part of this process. And please invite others to join us. Right now, we've had over 27 countries. Our members from 27 countries have joined us over the last few years. Our members include retail traders, analysts, portfolio managers, brokers, advisers, family offices and credit investors and members of media. We invite all to continue to interact with us at the Tribe through our wish list process, which is where our Tribe members voice their interest in meeting the CEOs and leaders of the companies and industry that they care about. And you can do that at the Tribe website, www.tribepublic.com. Our meetings come in the form of this webinar events, like today, and also now an in-person corporate sponsored lunch and the dinner events in Tribe cities across the U.S. Look forward to seeing you soon on both formats. Today, we have a number of questions that the Tribe has submitted as we have encouraged all prior to the event, and also note that this event will last around 30 -- approximately 30-plus minutes. [Operator Instructions] Now without further ado, please note we have 2 distinguished members of the management team of InMed Pharmaceuticals. Again, it's symbol is INM, and it trades on the NASDAQ. InMed Pharmaceuticals is a global leader in the development, manufacturing and commercialization of rare cannabinoids. First, we have Eric Adams, who's the Chief Executive Officer and President of InMed Pharmaceuticals, who is a seasoned pharmaceuticals executive with over 30 years' experience in capital formation, global market development, mergers and acquisitions, licensing and corporate governance. Prior to becoming CEO of InMed, Mr. Adams previously served as CEO at enGene Inc. in Vancouver and held senior positions in global market development with QLT, with great success, and Abbott Laboratories and Fresenius AG in Germany. Secondly, we have Jerry Griffin, he's the VP Sales and Marketing, and he comes to us today with a wealth of experience across various markets with numerous cannabinoid products and a proven track record as seasoned sales executive. He's held several senior positions at both privately and publicly held companies, including Fortune 500 companies. Now let's get started with your questions.

Firstly, Eric, before we held in the commercial business, for those new to the InMed Pharmaceuticals' story, can you please spend a few minutes to explain InMed's unique business and where InMed's commercial operation fits the company structure?

Sure, John, and thanks for having us. And again, great to be back as the -- in front of the Tribe and presenting updates on our company. So we do have some slides presented. We try to tailor these a little bit to some of the questions that came in so that we can address specifically what those interests are. As a NASDAQ-listed company, it's important that everyone memorize the forward-looking statements. Again, we're traded on the NASDAQ and use the symbol, INM, and we will be using forward-looking statements in this presentation. So InMed Pharmaceuticals is one of the few pure-play rare cannabinoid companies that exist today. We have R&D, research and development of pharmaceutical compounds based on this class of compound called cannabinoids. We have very extensive manufacturing know-how, probably more so than any other company out there. We also are in drug discovery. So we are inventing new cannabinoids that we think can enhance the activity against specific diseases. And as Jerry will talk to in a few moments, we also have an interesting commercial business in the health and wellness space. InMed traditionally has been just a straight-up pharmaceutical company. All of our compounds are targeting diseases with unmet needs, and we'll be going through the clinical trial process for FDA approval eventually with our various compounds. We have a Phase II clinical trial that just completed and we're getting ready for data readout there. We have, in total, 3 pharmaceutical drug development programs. And we have our own manufacturing approach that we think is very interesting for pharmaceutical-grade cannabinoids. We started discussions with a company called BayMedica in South San Francisco a number of years ago, over 2 years ago. And it just seemed like a very nice dovetailing of efforts between our know-how and theirs. In particular, they have this commercial business, that's a B2B business, in the health and wellness sector. Additionally, they have an extensive library of cannabinoid analog. So taking the natural compounds and augmenting them in a way to increase their efficacy against diseases. And they all had very significant manufacturing know-how in both chemical synthesis and biosynthesis. So we acquired the company about 1.5 years ago and really wanted to integrate certain parts of it into the drug development side of things, while keeping the commercial business to business alive and thriving for the health and wellness industry. So when I talk about these 2 companies, InMed is the pharmaceutical hub, BayMedica is the health and wellness over-the-counter products division. As I said, we have 3 -- we have several pharmaceutical R&D programs for rare cannabinoids. Starting with a use the naturally occurring cannabinoids, CBN. We're looking at that in 2 specific diseases. One is epidermolysis bullosa, which is a very debilitating skin disease. That's the 755 program. And we just completed a Phase II trial, and we'll have a data readout in the next couple of months. The second program is an eye drop formulation for glaucoma called the 088 program. And that's still preclinical, and we're looking at entering human clinical trials in 2024. But now that we've invented a number of new cannabinoid analog. So again, this is taking the naturally occurring compound, altering in a way that it increases its efficacy or safety or both in looking at other diseases. So we're looking at ocular diseases such as age-related macular degeneration or AMD, and we also have a very interesting research program that we launched in neurodegenerative diseases such as Alzheimer's. That's the 900 series. In addition to that, we have several others. So it's a very interesting class of compounds that can have effects throughout the body, and we're trying to really understand what those are. So I'm going to turn over to Jerry and let him walk you through the BayMedica side, which has been a very interesting business for us and has really sprouted its wings and started to fly over the last -- the course of the last year. Jerry?

Yes. Thanks, Eric.

Jerry, thanks again for joining us, and it's nice to put a name on the face as we spoke. We haven't really been able to meet you before. So it is an honor, and I look forward to meeting in person someday here in San Francisco. Jerry, most viewers might not be very familiar with rare cannabinoids and where they fit into both the cannabis and health and wellness industry. I think it's safe assume that, that might be the case. And can you give us a little bit of overview of the commercial opportunity for rare cannabinoids and what types of companies are even using them, and what type of products that it might be even used in, I think that would be a great place to start.

Yes, of course. John, just echoing what Eric said, yes, thanks so much for having us. It's great to meet you as well. We're happy to be here. We're on Slide 6, yes. So John, I can imagine -- you can imagine, I get asked this question quite a bit. And I guess the best way to start to dimension the opportunity for rare cannabinoid is through a quick biology lesson. Each person on the planet has a homeostatic regulatory system in their body is called the endocannabinoid system, or ECS for short. And this system is made up of cannabinoid receptors that are present on all human cell types. Now most health and wellness issues in the human body involve the disruption of homeostasis somewhere. And it's been said -- and if you like, after this I can send you the citation, but it's been said that modulating the ECS likely has therapeutic potential in almost all disease affecting humans. So that said, the rare cannabinoids that we produce, which are right up here on the slide, work in concert with the ECS to support different health and wellness outcomes. So in terms of the opportunity, every person on this planet can benefit from rare cannabinoids as part of their health and wellness regimen. So suffice it to say, it's a huge opportunity, right? And I don't detract from what I just said but understanding of the ECS is incomplete and it's very complex. It was only just discovered in the 1990s. But what we do know is that the latest research supports the thesis that these are very powerful compounds with the potential to have monumental impact on human health and wellness. As for the types of companies, we have a broad spectrum of end customers, from large publicly held cannabis companies to nutraceutical companies to traditional consumer packaged good companies. And we sell to these customers through a network of distributors who help us cover the U.S. market. Now our end customers, which is the customers that our distribution partners sell to, sell any number of form factors, including beverages, edibles, smokables, topicals and some more unique type of form factors. And the products target, as you would expect, health and wellness outcomes or sometimes they act as functional ingredients, like providing physical energy. We do see a lot where they're used for potentiation. So what I mean by that, I guess, is contributing to the measured effect of the product in question. We also see in some cases where they're used as preservative and sometimes even as a stability agent. So you'll see a compound being used for -- one of our molecules being used for potentiation, but oh, by the way, it also sees a preservative in the formulation. Or it's being used to -- for a specific use case, but oh, by the way, it can be used to prevent the formula from crystallizing as a result of other cannabinoids in the formulation that have a tendency to go towards being crystals. Beyond that, you certainly have medical practitioners who are using the most recent research to the best of their abilities to guide their patients towards cannabinoid-based therapies, for whatever it may be that ails them. And those customers -- those patients buy their products from our customers because there's very few pharmaceutical -- cannabinoid-based pharmaceuticals on the market today. And obviously, InMed's looking to change that. So again, the commercial opportunity is massive. And if you fold in the pharma opportunity into this, InMedica and BayMedica -- or InMed and BayMedica are combined -- their combined efforts are touching most, if not all, segments of the addressable market. So I hope that answers your question. I'm sorry, gravity is not my strong suit.

No. You maybe touched on this, but sort of the follow-up question to that is, what sort of trends are you seeing in innovation and product development out there? Maybe expand upon that.

Yes. I mean what we're seeing or what we're starting to see, John, is a trend towards traditional CPG, right? That model. So -- and what I mean by that is if you look at any products on the aisles of CVS or Duane Reade, you don't see Colgate toothpaste as the only thing on the front of that label, you don't see herbal essence and shampoo as the only thing on the front of that label. These products are differentiated by unique ingredients that add value to the product. So you might see hand lotion and right below it, you might see something like calendula or oat milk, which add value to the product and makes the consumer kind of discern between the value of one product versus another in their estimation. And that's what you're starting to see in the cannabinoid space. Cannabinoids are making their way to the front of the label. And brands are figuring out how to communicate certain claims about the ingredients that add value to their products and differentiate them on the store shelves. Now everybody has heard the proverb necessity is the mother of invention, and I think that's in play right now as well. It's a very cash-constrained environment out there, as you can imagine. And the brands, though, they really need to continue to innovate. They need to continue to stay relevant. So what you're seeing is innovative new products being launched that are really retreads of existing form factors, but with the introduction of rare cannabinoids to make those products different and better. Now these products have the ability to draw in new customers. They have the ability to raise the product's price point at retail. And by extension, they have the ability to create additional margin for the brand. Versus, I guess, the alternative, which is sinking a lot of capital into creating a brand-new product with no guarantee that, that product will actually sell through at retail. I don't mean that it makes it sound easy at all. I mean cannabinoids are fickle. They're biphasic, and it takes know-how to formulate with them correctly. But again, the alternative of building a product from zero can cost a brand a lot of precious capital and there's no real guarantees that they're going to get a return on that investment.

Interesting. So as a follow-up to that, If I was -- well, right now, these types of products that are in the market that are used in rare cannabinoids to make themselves more attractive, more valuable, more useful, what have you, where would one go to pick up these? And what form -- what types of products are they in today?

I mean the short answer to your question is that kind of consumer product that you see on the shelves, there is a cannabinoid version of that somewhere, right? The use cases, as I mentioned, kind of early on in this are very, very broad by nature of this system that you have in your body that's on all human cells, that have receptors on all human cells. And so the research is trailing out. But every day, we learn new things. And these cannabinoids are being harnessed for a specific usage in a specific CPG product to do a specific thing or multiple things, right? Sometimes they can have a broad spectrum of effect. So you see things as simple as a gummy. You see things that are lotions and topicals that address different use cases for the skin. You see things that are used for -- and I have to be careful how I kind of approach this because we certainly don't want to be making any kind of claims that would fly a fall the FDA, but certainly addressing a lot of use cases that -- or things that people would use -- the alternatives would be things that are typically in people's medicine cabinets, right, over the counter stuff, right? So you're seeing kind of alternatives to that, right, for different things at ails people. So did I answer your question? Or...

Yes. No, I think so. And I think it's a growing store, right? And that probably, as this uptick that we've seen in pick up in the space and specifically at BayMedica and InMed here, and demand that you've reported in the last 3 quarters, I believe that's going to it become more and more obvious in the marketplace which these products are.

Sure. Yes.

Now the next question sort of dovetails off that says you mentioned synthetic versus naturally derived and filling the supply gap in the industry. Can you please explain the relevance of this to the drug?

Yes, sure. This is kind of a loaded one, but let me see if I can be as concise as possible. The plant, the cannabis plant, is a very good factory for making certain cannabinoids. Cannabinoids like THC, CBD and even CBG, the plant does a really, really good job of this. The plan also has been bred to make a lot of these cannabinoids. And these cannabinoids are actually pretty easy to separate from the plant via traditional extraction. Now if you look at some of the cannabinoids that we produce, CBC or THCV, for example, these could be really difficult to produce at a mass market scale. They either exist in rather small amounts in the plant that requires a tremendous amount of biomass to create any useful quantities. And then, of course, you need the requisite infrastructure to grow them in the first place. Or they're just difficult to extract and isolate at scale. And in some cases, these cannabinoids have both of these problems, right? They're not represented well in the plant. And oh, by the way, it's really difficult to separate them from all the other stuff that comes out of traditional plant extraction. So we, as a company, endeavor to solve this problem by taking the plant out of it and allowing the brands to deliver products that include these powerful cannabinoids at mass market scale in a -- that would otherwise not be possible. Does that make sense?

That makes sense. I guess going to the slide you had up there. The next slide, I think was Slide 7 regards what I've mentioned, the positive revenue trend as you titled it here. What -- why do you think this has happened? Can you give us an overview of what this means to the company and what you've experienced here, because this is a pretty impressive growth in a relative period of time?

Yes. I appreciate you noticing Yes, let me frame my answer around what happened last year. 2022 was a building year for us. We had to make very sure that we could scale production and ultimately operationally digest the opportunity we felt we could create with our go-to-market plan. We also felt we could offer a lot of value by being a reliable supply chain partner, providing a frictionless buying experience and ultimately setting the standard. There wasn't really a standard in the industry, everybody is just trying kind of figure it out. But to be able to kind of back that, it takes a little time, right? So we spent a lot of 2022 doing that. We also needed to build a sales funnel. We needed to get in front of our target customers, and we needed to fire up our marketing engine to not only create additional demand, but we also needed to normalize the use of synthesized cannabinoids. So that took a fairly heavy lift from a marketing perspective and just generally educating consumers and the brands that we sell to. Now in 2023, we're starting to see all that pay off. As you can see on the slide, we've grown revenue over the last 2 quarters, including a 46% increase from Q1 to Q2 and triple-digit growth from Q2 to Q3 to the tune of 120%. Now our best guess is that Q1 to Q2 was the inflection point we've been waiting for. And we are in kind of the shaft phase of the hockey stick growth curve, right? So going like that, and we're in this kind of explosive growth shaft phase of that chart. And I guess I'll say we have a bit of a perch above the entire cannabinoid value chain, meaning that we can see all activity across all the different segments. And it looks like we could end up with a very, very long hockey stick, which is great, of course. But I played hockey and typically the guys that are on the ice with the longer sticks are typically also the ones that play a lot of defense. So we are certainly keeping an eye on new entrants into the market and any other potential disruptive forces. So in support of this, in support of what we expect could be this kind of very long hockey stick, we're increasing manufacturing volumes from hundreds of kilos a year to metric tons a year. And for those listening, for the Tribe, a metric ton is 1,000 kilos. So we're going from hundreds of kilos a year to thousands kilos a year to ensure that we don't have the same supply gaps we've been experiencing recently. Now Eric, if you can move to Slide 8, I'd appreciate it. Perfect. Thank you. Now I guess in terms of drivers, the largest driver behind the increased demand has been consumer education, which we, by our marketing engine, and others in the industry have contributed to. And we've also seen very large companies with really big voices launching products with their cannabinoids on the front of the label, right? If you go back over the last 6 months, you can find press releases from the likes of Cronos and [ Willow ] and Organogram and TAPs and many others that are announcing their respective launches of their cannabinoid products. So that, of course, raises a lot of awareness, right? But I think most importantly, the consumers have spoken with their wallets. Rare cannabinoid products have been on the shelves for the last few quarters, and we're seeing sales velocity. The brands are seeing sales velocity. And so what you're getting now is a lot of fast followers starting to pile in and bringing their own market -- or their own products to market at a pretty steady clip. So what you can see on the slide, today with the growth of CBG and CBN is what we think CBC will likely do in the next 24 months or less. And I get the feeling that most people are surprised by this growth. But candidly, we're not. Our founders did a really, really good job of building our initial customer base. And I came along, and I put a little more structure and process between behind the sales and marketing functions, but we always knew that the figures would start to catch in the market. And ultimately, by virtue of everything we did in '22, we were ready now that things have started to really happen. We've got really no reason to believe CBC won't be as big as some of these other cannabinoids that are stepped in the spotlight, i.e., CBG and CBN. But my personal belief is CBC can fairly well become a key ingredient in all cannabinoid formulations. It's a -- one of our founders like to say, it's a very promiscuous cannabinoid from a receptorology perspective. And it brings a lot of value to a lot of formulations, if not all formulations. So if I'm right, CBC can easily leapfrog CBG, definitely could leapfrog CBG, and possibly CBD in terms of popularity. And again, this hockey stick could get very, very long.

Is there -- there is growing understanding and this confidence that you have in making that statement. What is -- are there -- can you point us to where that understanding is growing from and where that is -- is it being published in different journals? Or what is growing this understanding and this confidence that you have?

Well, for us, as an ingredient supplier, right, we sit at the kind of very top of the value chain, right? You've got ingredients up here and you've got finished products all the way down here. So we have a perch. We can see everything that's going on. We get all the inquiries, right? We feel all of the different types of customers that come in. And we have a tendency to be able to see it all and just a short volume of opportunity that's presenting itself is our best indicator. But again, certainly, if you look at Cronos, right, those guys don't do anything by accident or don't fall backwards into a product and just kind of just push things out and hope for the best, right? Those guys are beacons for the rest of the industry. And to see them put out a CBC product is pretty -- is a pretty good indicator to the rest of the market that they should be looking at this a lot closer. So all of those things combined lead us to the kind of conclusion that this could get pretty wild pretty quickly.