Description

Once in my early twenties, I tried a pot brownie at a party. After thirty minutes, I felt nothing, so I had another one. This was a big mistake. As I later discovered the hard way, edibles can take 90 to 120 minutes to kick in. I ended up eating more than I could tolerate. Very soon, I had “trouble” sitting on a couch, and the rest of the party for me was a nightmare.

I am not the only one to have bitten off (or smoked) more than I could chew. It is a horrible experience, with symptoms including uncontrolled anxiety, vomiting, and hallucinations. Some even end up going to the emergency room! 

Indeed, as Cannabis consumption rises, so are the instances of Acute Cannabis Intoxication and emergency room visits. Unfortunately, there is no current way to treat Acute Cannabinoid Intoxication- a huge market opportunity worth hundreds of millions or even billions.

Enter Anebulo Pharmaceuticals, developing what I think of as the Cannabis Epipen.

Rising Cases of Cannabis Intoxication

Driven by legalization, societal acceptance, and an introduction of a large variety of products (like edibles, beverages, etc.), Cannabis consumption is in the midst of a multi-year upward trend that shows no sign of stopping anytime soon.

Source: New Frontier Data

Not only does legalization increase cannabis consumption, but also makes users more comfortable with going to the ER since they can face no legal action or harassment. Further, as edibles rise in popularity they are more likely to induce overconsumption and ACI, given their delayed effect.

Thus, ER visits in which people test positive for Cannabis are rising rapidly. To be clear, these are people who test positive for Cannabis in their bloodstream, not those who came into the ER because they got too high. Nevertheless, the trend is unmistakable.

Source: Anebulo Investor Presentation

As more states legalize, the number of Cannabis-related hospitalizations and other problems such as depression, anxiety, and mental disorders will continue to increase as more. There will be episodes of people inadvertently consuming Cannabis. Even worse, Cannabis edibles, especially gummies, can look like regular candy, and there are increasing instances of little kids mistakenly consuming their parents’ Cannabis gummies. As a parent who regularly stores Cannabis gummies to help with insomnia, this is one of my worst nightmares.

Source

Anebulo’s Solution

Anebulo Pharmaceutical is a 2-year-old company whose lead candidate, ANEB-001, is a promising antidote for the symptoms of Acute Cannabis Intoxication. ANEB-001 is a CB1 antagonist originally developed for weight loss and which cleared Phase I trials during the 2000s, showing the compound's safety for multiple doses. Development was paused after a separate CB1 antagonist showed side effects after prolonged use. However, several studies demonstrated that CB1 antagonists could potentially counteract effects of Cannabis overconsumption. (Eg. 2001 study, 2017 study)

In May 2020, Anebulo licensed the compound from Vernalis to develop it for treating ACI. Already shown to be safe for limited use, it recently announced very promising topline results from its Phase II Trials.

The drug not only brought people down from being high but significantly improved their alertness.

In the words of the former CEO Daniel Schneeberger, ANEB-001’s Phase II results wildly exceeded his expectation

The company will release further data this quarter and press ahead with part B of the phase II trials, exploring the effect of a lower ANEB-001 dose and a higher THC challenge dose. They also hope to file its IND (Investigational New Drug Application) with the FDA for year-end. 

What gives me further confidence in the entry of Opiant Pharmaceuticals in the ACI market, with a mechanism that also used a CB1 antagonist. Given that Opiant is still in the preclinical stage of development, this lends credence to Anebulo’s approach while still ensuring it has no competition for a sizeable period after FDA approval

Market Sizing

If all goes well, Anebulo will likely have a patent-protected monopoly on the ACI market for several years. So how big is the market going to be?

One way of estimating that is to look at visitors to the ER that test positive for Cannabis- 1.7M in 2018 and likely significantly higher by the time ANEB-001 enters the market. To be highly conservative, let us assume that the annual growth slows from 15% to 10% till 2024 and then stops (even though Florida is likely to start AU in 2024). This brings us to approximately 3 Million ER visits. 

Now, these people aren’t coming to ER because of ACI- the actual number of which will be a small fraction. However, in several cases, Doctors may want to make sure the patient isn’t high while they treat them. Again, to be conservative, let’s assume 10% of these patients, or 300,000, receive ANEB-001 each year. 

Even at Anebulo’s lowest planned cost of $500 per dose (see tweet below for their thoughts on pricing), this qualifies to an annual revenue of $150M. Assuming an EBITDA margin of 29% (the median pharma EBITDA of 29%), this comes to $43.5M per year in EBITDA, for a stock with a current market cap of ≈70M. This number, of course, is just from ER visits in the US- not including people who call into their local doctor, or international markets like Canada, Germany, and other European countries as they legalize, or a potential expansion to the outpatient market. 

A Tweet by the former CEO of Anebulo

Another way to estimate the market size is to estimate that when every state legalizes Cannabis, at least 30% of the US adults will use Cannabis at least once a year. That is 78 million people. Even if 1% of them have an adverse reaction, that is 780,000 people- a $390M revenue/$113M EBITDA opportunity. 

The stock could also be an attractive acquisition target, with Pharma closely looking at the Cannabinoid market. Jazz Pharmaceuticals (NASDAQ: JAZZ) bought GW Pharma for $7.2 billion in 2021. 

Potential Risk Factors

Anebulo is an early-stage company whose time to market is still far off. FDA approval is expensive, time-consuming, and uncertain, even if the mechanism for CB-1 antagonists is well known, and approval is simple for one-time use drugs.

Further, the company’s cash reserves of $16.5M are likely to prove inadequate for FDA approval, let alone bringing the drug to market, and will need to raise fresh capital or partner with a larger pharmaceutical company for bringing the drug to market. 

Finally, this is an illiquid stock with 90% insider ownership. The stock can move very very quickly, so if you do invest, be ready for a lot of volatility.

Summary

Cannabis is one of the great secular growth stories of our time. However, as Cannabis consumption goes mainstream, our society needs to prepare for several second order effects, not all of which will be positive. One of these will be equipping our medical infrastructure to deal with rising cases of Cannabis Overconsumption, or Acute Cannabis Intoxication that come with more people consuming cannabis

Anebulo Pharmaceuticals aims to capture this unmet market need using an approach already validated by several studies and excellent Phase II topline results. With a market cap of less than $70M (as of August 1st 2022) potentially monopolizing a market conservatively worth hundreds of millions, the stock offers massive upside. Of course, like every young biotech company, it is a highly risky investment until Phase III trials are complete and FDA approval is granted. 

I believe Anebulo Pharmaceuticals is the perfect candidate for a small, speculative position in your portfolio. 

Catalyst

-additional results by year

-phase 3 trials

-partnerships or acquisition by larger pharma company