PharmaDrug Inc said it has agreed to sell its German medical cannabis distributing subsidiary Pharmadrug Production GmbH to Khiron Life Sciences Corp in exchange for 5,500,000 common shares of Khiron and a non-interest bearing promissory note in the principal amount of $1.1 million, payable one year from the date of issue.
Pharmadrug Production has a Schedule I European Union narcotics license and German EuGMP certification allowing for the importation and distribution of medical cannabis to pharmacies in Germany and throughout the European Union.
"We are excited to be entering into this transaction with Khiron as it is a major step towards the company's shift into a pure-play biotech strategy,” said Daniel Cohen, the company's chairman and CEO in a statement.
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“We believe Khiron is perfectly positioned to take full advantage of the asset and believe PharmaDrug should ultimately yield the most value for Pharmadrug Production through and equity ownership in Khiron," he added.
PharmaDrug said the agreement provides for an adjustment to the purchase price of the promissory note at closing to account for certain payments that may be made between the date of signing of the share purchase agreement and the date of closing.
PharmaDrug said the decision to sell Pharmadrug Production was driven by two main issues: Firstly, the board of directors and management believe that the cannabis industry is at a point in maturity, where critical mass as well as vertical expertise is needed to be able to execute on a successful strategy, and secondly, Pharmadrug Production is a cash drag that adds no value to shareholders.
“The company is of the opinion that Khiron is perfectly positioned to yield the appropriate value from Pharmadrug Production. Khiron has vertical experience in growing and in building and operating medical clinics. A successful strategy in Germany requires a knowledgeable sales force to be able to educate both physicians and patients. Khiron possesses that knowledge and has an active medical sales force," it added.
PharmaDrug said it believes an equity position in Khiron will give shareholders the opportunity to realize further value by participating in a growing cannabis market in Germany as well as Khiron's ability to potentially outperform in the market.
It noted that upon completion of the sale, PharmaDrug will have exited from the cannabis industry and all European operations.
The parties are targeting a closing on or before the end of July 2022, the company said but noted that there can be no assurance that the transaction will be completed as proposed or at all.
The closing of the proposed transaction is subject to the satisfaction of customary closing conditions, including receipt of all necessary regulatory approvals.
PharmaDrug is a specialty pharmaceutical company focused on the research, development and commercialization of controlled-substances and natural medicines such as psychedelics, cannabis and naturally-derived approved drugs.
Contact the author at jon.hopkins@proactiveinvestors.com