Rising High: Exclusive talk with psychotropics company Lucy Scientific Discovery

In this edition of “Rising High,” The Fly conducted an exclusive interview with Richard Nanula, Executive Chairman and Chief Executive Officer of Lucy Scientific Discovery (LSDI), a Nasdaq-listed company with holdings and operations in a variety of psychotropic businesses.

PSYCHOTROPICS MANUFACTURING: Lucy Scientific Discovery is an early-stage psychotropics manufacturing company aimed at becoming the premier contract research, development and manufacturing organization for the emerging industry. The company holds a Controlled Drugs and Substances Dealer’s License granted by Health Canada, which authorizes Lucy to develop, sell, deliver and manufacture pharmaceutical-grade active ingredients used in controlled substances.

Nanula, who has previously served as CFO of Disney (DIS) and Amgen (AMGN), said Lucy’s strategy is currently focused on three main components with the first being the company’s manufacturing facility in British Columbia, Canada. “It’s a pretty small effort today because there really aren’t large legal markets for psychedelics just yet, only for research materials,” he said. “We expect that market to grow substantially when the FDA approves them, so we have a large quota and a nice license to make whatever quantities of MDMA, psilocybin, LSD and whatever else may be necessary.”

The CEO noted another key element in Lucy’s strategy is its drug development business, Lucy Discoveries Holdings, which was formed following the acquisition of Wesana Health. The division will serve as a platform for continued advancement of psychedelic medicine research and development. “Wesana Health, Daniel Carcillo’s company, has a handful of programs and one that is ready for the clinic,” he said. “We’re in those two parts of the business today and are actively looking at adding to that.”

The company is also concentrating on diversifying its portfolio by taking advantage of distressed situations in the market and seizing on deal-making opportunities, Nanula said. “Our pipeline includes a handful of companies like Wesana,” he said. “Companies that are either public or private in Canada and the U.S. that need capital and have their eye on our Nasdaq vehicle. Drug development reminds me of my days at Disney. When making movies and television shows, they mostly don’t work percentage-wise. You need to have a handful of shots on goal, but when one works it usually pays for all the losers and then some.”

When asked about the rising competition in the psychedelic space, the CEO pointed to Lucy’s Nasdaq listing, its opportunistic approach and his past experience as key differentiators for the company. “There are only 12 psychedelics companies that are on the Nasdaq listed in the U.S.,” he said. “The rest of the public companies are in Canada, which is a market with less volume and as a result less institutional interest. Secondly, we’re open to being opportunistic. In a nascent marketplace like this, where we really don’t know what the FDA is going to do and when they are going to do it, to keep your head down and just do one thing, hoping it’s the right thing, requires a little too much good luck than I am willing to count on.”

Nanula, who has overseen more than $50B of M&A and financing transactions over his career, also cited his decades of senior leadership experience at some of the largest companies in the world as a factor to set Lucy apart. “I have a background that is fairly unique in most businesses, especially this one,” he said. “I spent my life in corporate America doing deals and strategy. I was at Amgen, so I know my way around drug development and deals, and when I was with Disney we bought ABC, ESPN and Miramax. I don’t think there are many folks in our business that have been around as many different industries and done as many deals as myself. And while I’m not going to do it by myself, I think that experience gives us a leg up.”

CEO APPOINTMENT: In July, Lucy appointed Nanula as the new CEO, succeeding Chris McElvany, who transitioned into a consulting role with the company. “I was asked by the board to take on the role,” Nanula said. “Our first CEO was the guy to get us to the initial public offering and then he wanted to go off and do some other things. He wasn’t very interested in running a public company and so the board asked me.”

He added he was also attracted by the opportunities he saw within the emerging space. “I saw what I think is a similar situation to the biotechnology business about 20 years ago,” he said. “When I got to Amgen, we had two big drugs and we needed to add some people, some R&D resources, and acquire a bunch of other companies. By the time I left, we had 10 or 11 drugs and a whole bunch more in the pipeline. I see the same environment in today’s psychedelics business, where there are a lot of companies with drugs in the pipeline and a lot of uncertainty as to success and timing. I feel comfortable in that environment.”

AMANITA PRODUCTS: Additionally in July, Lucy announced the launch of its ‘Twilight’ sleep aid product made from a blend of Amanita and Reishi mushrooms to promote enhanced sleep quality. The product comes as part of the company’s Amanita-based product line made in partnership with High Times, which also offers a ‘Mindful’ product to enhance well-being. “Our idea here is we are not interested in touching the plant as a Nasdaq vehicle,” Nanula said. “In between cannabis and soon-to-be but not yet legal medicinal psychedelics like MDMA and psilocybin, there are a whole bunch of popular products that aren’t yet scheduled by the DEA and are not subject to many of the restrictions, like amanita mushrooms. We just want to give our shareholders more ways to win and keep ourselves busy and nimble in the markets.”

Lucy is planning to release more products in the psychotropic space as the company waits for the psychedelics market to come to fruition, he said. “If psychedelic products were legal, and drug trials were successfully complete, and insurance companies were covering psychedelics, that is what this company is built for and organized to do, but we’re just not there yet,” the CEO said.

He added that Lucy also holds an important partnership with High Times formed through common shareholders, with the two companies entering a marketing arrangement when Lucy approached its IPO. “We bought a number of marketing credits on their platform, so it basically doesn’t cost us any actual dollars to market these products,” Nanula said. “There are two or three other products we’re planning under this line.”

WESANA ACQUISITION: Lucy also completed its acquisition of Wesana Health’s SANA-013 assets in July. SANA-013 is being developed for the treatment of several mental health and central nervous system related conditions and uses a combination of psilocybin and CBD to produce anti-inflammatory and anti-depressant effects. “As we wait for the FDA to rule on MAPS and another handful of clinical trials in the space, we thought it was commercially viable for us to have our own asset,” the CEO said. “We have a couple of clinical trials planned with Wesana’s products. When the government approves psychedelics, we have a chance to manufacture them and offer the market our own products.”

He noted that during his time at Amgen, acquiring a promising drug ready to go into the clinic would cost tens or hundreds of millions of dollars, but Lucy was able to buy Wesana for roughly $1.5M due to liquidity issues and a lack of interest in the Canadian exchange. “It made commercial sense for us to do it because it gives us yet another way to win,” Nanula said.

PASITHEA OFFER: In June, Lucy reiterated a proposal to acquire biotechnology firm Pasithea Therapeutics (KTTA) for 60c in cash and 25c in Lucy stock per Pasithea common share. An independent special committee of the Pasithea board rejected the proposal in July determining it did “not reflect Pasithea’s strategic value and prospects for continued growth.”

“We offered to acquire Pasithea, which is a biotech company with a bunch of cash and its stock trading well below that cash, and we have not succeeded yet,” the CEO said. “We’re looking at other opportunities to do that, you’re just going to see us be acquisitive and opportunistic.”

He added Lucy has not yet disclosed its future plans for the Pasithea offer and noted the biotech company recently did a small tender offer for 10% of their cash. “Nothing would keep us from making a new offer or going directly to their shareholders,” Nanula said. “The stock price doubled after our offer, showing that we were right, the shareholders did want cash. There are also some other companies that are in a similar position to Pasithea, including some with weaker defenses. We are going to look for every way we can to make our shareholders some money within reason within our industry.”

Lucy may look to acquire companies that have cash without a good use for it or companies with a compelling product offering, he said. “I would look for some moves out of us because I do think it is going to be several quarters before the FDA is going to approve psychedelic products,” the CEO said. “We don’t want to sit around and wait and I don’t think our shareholders want us to either.”

SCHEDULING: Several psychedelics are listed as Schedule I drugs under the Controlled Substances Act in the U.S., including psilocybin and MDMA, but Nanula said he feels these drugs will be rescheduled in the future. “When those products are approved by the FDA, you’ll then be able to get a doctors’ prescription and it may very well be that they will be rescheduled at the same time,” he said. “Over time, it will be a legal opportunity and a very large one.”

FDA DRAFT GUIDANCE: The FDA recently published its first draft guidance on clinical trials with psychedelic drugs highlighting fundamental considerations for researchers investigating the use of these drugs for potential treatment of medical conditions, including psychiatric or substance use disorders. “The upside of that FDA guidance is that they consider this industry as part of the biopharmaceutical industry,” the CEO said. “We have the same rules, regulations and thoughts about clinical trials. We want to make sure that there are safety trials done, ensure long-term safety and see how people do after they take the medicine. Those are things that the FDA requires of most, if not all, pharmaceutical products.”

He said the guidance affirmed that psychedelic medicines are expected to meet the same standard as any other drugs. “It’s going to take just as long and be just as hard to approve, so get ready for it,” Nanula said. “That’s why I have signaled we’re going to be opportunistic and acquisitive, because it is going to take a while longer and more money than most people think.”

CHALLENGES: When asked about the largest challenges facing the psychedelic space, the CEO pointed to regulatory uncertainty and access to capital as two big hurdles in the industry. “All of these companies doing clinical trials take an awful lot of money and the marketplace has to be there to deliver that,” he said. “In our experience and my personal experience, the market has a way of favoring and funding really good ideas and commercial plans. Some companies that find themselves without the capital continue their work or their trials, but that probably means they’re not on the right track.”

He said companies with solid strategies will attract capital and he hopes Lucy is one of them. “That’s a big issue in the game right now,” Nanula said. “Whether you’re public or private, you need capital to do the work and make some progress.”

OPPORTUNITIES: As the psychedelic industry develops and matures, the CEO said he sees the biggest opportunities in psychedelic medicines that can be prescribed. “There’s a lot of clinical trials going on now in MDMA and some other products that involve being in a treatment facility and having a caregiver next to you,” he said. “The real opportunities are in the companies that are creating products that the doctor can prescribe, whether it has a psychedelic effect to it or not, that can be taken by the patient on a regular basis like other prescribed medicines.”

When discussing Lucy’s plans, Nanula said he is most excited about the deal landscape. “There’s a lot of opportunity in acquiring public or private companies that we can add to our portfolio,” he said. “That’s really what gets me excited in the end. I’m not someone who is married to one particular industry. I like to go where the opportunities are and there are tons of opportunities in the biotechnology, psychedelic, and psychotropic space.”

CANNABIS/PSYCHEDELIC STOCKS: Publicly-traded companies in the space include Aleafia Health (ALEAF), Acreage (ACRHF), Atai Life Science (ATAI), Audacious (AUSAF), Aurora Cannabis (ACB), Avant Brands (AVTBF), Awakn Life Sciences (AWKNF), Ayr Wellness (AYRWF), Body and Mind (BMMJ), BZAM (BZAMF), Cannara Biotech (LOVFF), Canopy Growth (CGC), Chicago Atlantic (REFI), Clearmind (CMND), Clever Leaves (CLVR), CordovaCann (LVRLF), Cresco Labs (CRLBF), Cronos Group (CRON), Columbia Care (CCHWF), Compass Pathways (COMP), Curaleaf (CURLF), CURE Pharmaceutical (CURR), CV Sciences (CVSI), Cybin (CYBN), Delic Holdings (DELCF), Delta 9 (DLTNF), Entourage Health (ETRGF), Enveric Biosciences (ENVB), Fire & Flower (FFLWF), Flora Growth (FLGC), General Cannabis (CANN), Greenlane (GNLN), Green Thumb (GTBIF), GrowGeneration (GRWG), Goodness Growth (GDNSF), Hemp (HEMP), HEXO (HEXO), High Tide (HITI), India Globalization Capital (IGC), Indiva (NDVAF), Innovative Industrial Properties (IIPR), InterCure (INCR), IM Cannabis (IMCC), Wellbeing Digital (KONEF), Khiron Life Sciences (KHRNF), Lowell Farms (LOWLF), Lotus Ventures (LTTSF), MediPharm Labs (MEDIF), MedMen (MMNFF), MindMed (MNMD), NewLake Capital (NLCP), Numinus Wellness (NUMIF), Organigram (OGI), Planet 13 (PLNHF), Reunion Neuroscience (REUN), Revitalist (RVLWF), RIV Capital (CNPOF), Relmada (RLMD), RYAH Group (RYAHF), Safe Harbor (SHFS), Small Pharma (DMTTF), SNDL (SNDL), Sproutly (SRUTF), Skye Biosciences (SKYE), Stem Holdings (STMH), Sunniva (SNNVF), TerrAscend (TRSSF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Trulieve (TCNNF), Tryp Therapeutics (TRYPF), Verano (VRNOF), Village Farms (VFF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).