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Callitas Health Inc.: DEEP DIVE
OVERVIEW

Callitas Health banks on CannaStrips and OTC products while swinging for the fence with blockbuster drugs

CannaStrips will generate near-term revenue, while the company’s blue-sky pharmaceutical assets and orphan drug are solid, long-term plays
Callitas CEO James Thompson
OVERVIEW: LILY The Big Picture
Callitas Health CEO James Thompson carries on the family legacy of innovation in healthcare

The odds are tough for health care companies as they must make the right bet and stick with it for years. Drug development is an expensive business, but when a winner is discovered, shareholders tend to latch on with all their might as FDA approvals deliver the cash flow.

Against this backdrop, Cincinnati-based health and wellness company Callitas Health Inc (CSE:LILY, OTCQB:MPHMF, OTCMKTS: MPHMF) is a solid play as it has a diverse portfolio.

More importantly, Callitas has a nimble strategy focused on getting quick revenues from mass-appeal over-the-counter products and a more long-term blockbuster pipeline. It’s a large company which health care-savvy investors should dig a bit deeper into.

The company has innovation baked in its DNA, building on the work of Dr Ronald Thompson, a well-known gynecologic surgeon and infertility specialist with nearly three dozen patents. He asked his brother Gary Thompson, a Cigna Healthcare veteran, to develop some of his ideas into products.

READ: Callitas Health enlists advertising team to spread the word about its fertility gel

Today, that patent-rich endeavor has shaped into Callitas Health and is spearheaded by the second generation of Thompsons.

“My father has done a lot of inventing,” said Callitas Health CEO James Thompson, who took over the mantle from his uncle, Gary, earlier this year.

“He has between 30 and 40 patents across the board, from medical devices for surgery to topical gels that we have for female sexual disfunction to weight-loss drugs,” said Thompson, a biomedical engineer with a finance degree from Washington University and an Executive MBA from Xavier.

Thompson was the managing member at 40 J’s LLC, a private health care development group whose primary assets were acquired in early 2017 by Callitas.

Thompson’s efforts in 2018 have, so far, largely focused on growth and the potential of the large product portfolio.

A diversified portfolio

Callitas is developing remedies across five silos: OTC sexual health & wellness, prescriptions for female sexual health, weight management, cannabis delivery technologies and orphan drugs.

“We have a lot of irons in the fire that should come to fruition over the next few months and advance our business,” Thompson told Proactive Investors.

“Sometimes a one-trick pony is easy to explain, but in our OTC business we have multiple products, multiple business partners already, and more products that are coming behind those,” said Thompson. “We also have two blue-sky pharmaceutical assets which have massive revenue potential.”

Valuable blue-sky assets

One of those blue-sky assets is Extrinsa, a topical gel to treat female sexual dysfunction (FSD), which has the potential for blockbuster sales.

Last year, Callitas received a successful response from the US Food and Drug Administration on its pre-investigational new drug application for Extrinsa.

Thompson said that Extrinsa could be a US$1bn opportunity. Addyi, the only drug currently approved for the treatment of female sexual desire disorder was purchased by Valeant Pharmaceuticals International Inc (NYSE:VRX) from Sprout in 2016 for more than US$1bn.

Valeant had estimated that sales would ramp up to US$1bn annually for this drug, and it makes no claims to treat orgasm disorders, so the potential market for Extrinsa should be higher.

Thompson said there are prescribing restrictions on Addyi, but Extrinsa is “a lot different”.

“Women can’t have alcohol when they are taking it. There are negative side effects. Our drug is a lot different, but it’s going to take a few years to get it to market with FDA approval,” said Thompson.

“We are the opposite of that drug, which is taken daily. Ours is topical, non-systemic, meant to be used just with intercourse. It’s episodic and non-hormonal so we have checked all those safety boxes,” he added.

Blockbuster potential for C-103

The company is also working on C–103, a reformulated weight-loss treatment that was formerly called Orlistat (which had unwelcome side effects). The firm has targeted US$500mln in revenue from C-103 from the US market alone as first-year revenue once approved by the FDA.

The aim is to launch Phase 2 dose-finding studies, solidify the chemistry and plan the non-clinical testing. The differentiator behind C-103 is that it stops fat absorption and eliminates the side effects patients on the previous drug experienced.

Meanwhile, the company has launched ToConceive in North America for couples struggling with the inability to conceive. ToConceive was developed by Thompson’s father based on the science behind the 2010 Nobel Prize in Medicine for in vitro fertilization (IVF) and sperm capacitation.

It's FDA-cleared and clinically proven to increase a woman’s own natural conception lubrication, called transudate.

All hail CannaStrips

The cannabis industry is growing like kudzu with Canada’s legalization of marijuana sales and is on the prowl for hot new medical marijuana delivery technologies.

“Smoking is the traditional drug delivery vehicle, but people sometimes don’t like to smoke or eat it,” said Thompson.

So Callitas developed a unique delivery technology that helps achieve more precise dosing — a tricky undertaking when it comes to medical cannabis.

“We have a unique delivery technology that helps to get a fixed, metered dosage to an individual or patient,” said Thompson, explaining that the company had come up with oral strips that dissolve instantly on the tongue to deliver tetrahydrocannabinol (THC).

The CannaStrips have patent-pending  status from the US Patent Office. Callitas plans to license the technology to manufacturers and distributors in North America.

It has signed partnership agreements with two undisclosed California companies to market and sell CannaStrips for THC and cannabidiols (CBD), a medical component of cannabis that doesn’t get users high.

“Our patented and patent-pending technologies have the potential to be game-changers as delivery mechanisms for CBD and THC,” said Thompson.

WATCH: Callitas Health plans to launch CannaMint strips this summer

In May, Callitas said it had contracted with a “confidential OTC pharmaceutical development and custom packaging company” to contract manufacture and package CannaStrips for worldwide distribution.

Callitas is now in discussions with Canadian companies to get CannaStrips into the Canadian market.

“By paying a license fee companies will be able to buy the strips from us as blanks at wholesale,” said Thompson.

Pediatric orphan drug golden ticket

Priority review vouchers, as they're known, were created by the US Congress in 2007 to encourage the development of drugs for neglected rare illnesses affecting children.

Callitas says it can fill an unmet pediatric need with MACS, its proposed treatment for a genetic disorder that causes what is labeled Urea Cycle Disorder in neonatals and infants. If untreated, ammonia, a highly toxic substance, builds up in the bloodstream posing serious risks.

In 2017, the company filed orphan drug and rare pediatric disease designation request letters with the FDA for MACS. In March, the FDA requested additional scientific and manufacturing information to approve the requests.

“Prior to filing the requests, we had already begun working on the drug product formulation and manufacturing development, as well as consulted Camargo on the clinical protocols and lab selection process for animal model testing,” said Thompson.

The company has until January 2019 to submit the additional data to the FDA or file for an extension.

For a blockbuster drug, a priority voucher can be worth as much as US$322mln. If Callitas hits the jackpot with MACS, it can redeem the voucher for fast-track review of other drug treatments or sell it to another drug company.

“The orphan drug status would give us additional exclusivity on that drug product. It would also give us a treatment for infants that are born with this condition who aren’t able to get treatment,” said Thompson.

Investment thesis

Callitas clocked revenue of C$642,786 in December 2017. Like most health care companies undertaking drug development, it has operating losses. But it has been on a tear of late, working on strategic partnerships with companies in Korea, the Middle East, Mexico, South America and Europe on shared drug development and market rights.

“We are working on our partnering strategy and raising funds to support clinical development for Phase 2b studies for Extrinsa and the C-103 reformulated weight-loss treatment,” said Thompson, who is confident both products will come to market in a couple of years.

On the OTC side, a partnership with leading condom-maker LifeStyles brings Callitas’ products into international and US markets. The company recently signed a non-exclusive licensing and technology pact with LifeStyles Ltd for its patented arousal gel and lubricants for use on condoms and as a standalone product for retail around the world.

LifeStyles is the world’s No. 2 condom-maker and traces its roots back to Australian entrepreneur Eric Norman Ansell, who started making condoms in 1905.

“It should be a great partnership for us,” said Thompson. Callitas will receive a variable, single-digit royalty on net sales of all products sold worldwide by Lifestyles on any of their brands.

A diversified health and wellness play can make investors a lot of money as the margins are high and the opportunities big. With a broad portfolio and high hopes, there is much to look forward to from Callitas this year.

Contact Uttara Choudhury at [email protected]

Follow her on Twitter: @UttaraProactive

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