By John Vandermosten, CFA

NASDAQ:LEXX

READ THE FULL LEXX RESEARCH REPORT

Lexaria Bioscience Corporation (NASDAQ:LEXX) has published a number of updates over the previous two months including the incorporation of a new subsidiary for consumer packaged goods (CPG) products, announcement of a new study in weight loss and diabetes control and initial data from the nicotine study. The company also reported its third quarter, fiscal year 2023 financial results.

3Q:23 Results

Lexaria filed its third quarter fiscal year 2022 Form 10-Q on July 14, 2023. The company reported 3Q:23 revenues of $93,000, and total operating expense of $2.5 million resulting in net loss of ($2.4) million or ($0.37) per basic and diluted common share.

For the third quarter ending May 31, 2023 and versus the same prior year period in 2022:

➢ Revenue totaled $93,000, down 7% from $100,000 on a decrease in Product revenues. These amounts were offset by an increase in intellectual property licensing and other sales;

➢ Gross profit declined to $80 from $81 while the product gross margin was up

➢ Research and development expenses totaled $1.6 million, up 118% from $752,000 tied to the multiple DehydraTECH investigational research programs underway, including analysis and execution of the hypertension, nicotine and diabetes studies;

➢ General and administrative expenses totaled $823,000, down by almost half from $1.2 million due primarily to a decrease in consulting fees, salary and stock-based compensation. Legal fees, advertising and promotion, and investor relations spending were also lower. This was partially offset by an increase in office expenses;

➢ Net loss was ($2.4) million, or ($0.37) per share, compared to net loss of ($2.4) million or ($0.41) per share.

As of May 31, 2023, cash and marketable securities totaled $3.4 million - a sequential ($0.1) million decline from the end of 2Q:23. Cash burn for the first nine months of FY:23 was approximately ($4.4) million.

CPG Product Subsidiary

Lexaria incorporated a new wholly-owned subsidiary called Lexaria Nutraceutical Corp. in order to optimize its DehydraTECH strategy that serves a number of markets that fall under different regulatory regimes worldwide. The strategy also enables Lexaria to more efficiently participate in M&A activity. The subsidiary, which is referred to as LEXX Nutra for short, has received a perpetual license to create consumer packaged goods and intermediate ingredients for any molecule save those associated with nicotine or cannabis. The subsidiary is also prevented from using the license to produce a pharmaceutical product. The parent also made modifications to other subsidiaries’ arrangements, amending the exclusive licensing rights of Lexaria Pharmaceutical Corp. to only pertain to the manufacture or licensing of pharmaceutical products, excluding nicotine.

Nicotine Updates

Lexaria announced receipt of Independent Review Board (IRB) approval for its human nicotine study designated NIC-H22-1 last November. The 36-subject study was designed to be a randomized, double-blind, cross over study in cigarette smokers. The pharmacokinetic (PK) evaluation dosed each individual three times over a period of several weeks using an oral nicotine pouch. The pouch contained either DHT nicotine, or competing brands on! or ZYN.

Dosing for the trial began in December 2022, and evaluated subjects with questionnaires and eight blood samples taken over the evaluation period to measure nicotine delivery to the bloodstream. Other biomarkers including blood pressure and heart rate were also taken. The goal of the study is to show whether or not DHT is able to provide better oral-tissue absorption and reduced negative experiences vs. the other participants in the study. Support for NIC-H22-1 was provided by previous animal model work demonstrating faster peak delivery of nicotine using DHT.

In May, Lexaria reported that dosing of the 36 patients was completed and in early August provided another update summarizing topline results. Results from the study demonstrated a statistically significant difference between Tmax for the DehydraTECH nicotine pouch and both comparable arms. Time to Tmax of 15.37 minutes was 2.3 minutes faster than what was produced in the on! arm and 3.1 minutes faster than the time measured in the ZYM arm. In percentage terms, this represented a 15% and 20% faster response to achieve maximum blood saturation levels.

Lexaria cited a pharmacokinetic (PK) study that quantified the time required for Tmax to be reached with a combustible cigarette at 8 minutes. Relative to this benchmark, the company put together a comparison of other nicotine delivery methods including the data generated from the NIC-H22-1 study. Of the eight comparable vehicles, DehydraTECH oral pouch was the fastest to Tmax relative to combustible cigarettes.

Another component of the study examined qualitative aspects of the DehydraTECH nicotine pouch that were determined with a patient survey. Six different categories were reported, examining both the desirable and undesirable attributes of nicotine consumption.

➢ Euphoria and Head Rush: The highest percentage of users reporting that they felt euphoric at all time points were the Lexaria users; and the highest percentage of users reporting they felt a head rush at the 5 and 30-minute marks were also Lexaria users;

➢ Tolerability: The highest endorsement score for users reporting "I tolerated this product well" were the Lexaria users, with statistical significance demonstrated at the second dosing visit in particular (p=0.007);

➢ Pleasure: The highest percentage of users reporting that they considered the experience "pleasurable" at the 30-minute mark were the Lexaria users, while the on! users reported the lowest percentage as "pleasurable" at this point;

➢ Mouth and Throat-burn: Lexaria scored best for percent enjoyment of the nicotine induced burning sensation in the mouth and throat. The highest percentage of severe mouth and throat-burn events were reported by users of the on! pouch;

➢ Nausea: The highest frequency of moderate and severe nausea effects was reported by users of the ZYN and on! pouches respectively; with the lowest frequency reported by users of the Lexaria pouch;

➢ Hiccups: Moderate to severe hiccups were only reported by users of the on! and ZYN products.

We anticipate that partner work with large global tobacco companies will expand now that data from the study are available. Lexaria plans to share summary data to identify interest from these potential collaborators.

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1. Compiled by Zacks’ analyst using company provided data.

2. Compiled by Zacks’ analyst using data included in Lexaria press release and sourced from Nicotine Chemistry, Metabolism, Kinetics and Biomarkers.