eSense-Lab strikes JV to develop and a sell new range of terpene products

By Meagan Evans. Published at Jun 15, 2020, in ASX Biotechs

Australian biotech company eSense-Lab Limited (ASX:ESE) continues to deliver commercialisation milestones, having just entered into a Joint Venture partnership with ANC Enterprises Pty Ltd, a manufacturer and wholesaler of high-quality Australian-made cosmeceutical products.

Under the JV agreement announced today, the two companies plan to produce a new range of skin care, hair care and hand sanitiser products with eSense’s proprietary terpene mix, starting with a 700,000 unit initial order.

With eSense contributing the proprietary terpene mix for the products in the JV, ANC brings manufacturing experience and facilities to the table.

ANC has 10 years of operating history and a 100% owned, 600 square metre GMP certified facility capable of producing 16,000 to 20,000 bottles per day, leading to five million bottles produced annually.

Terpenes are the organic compounds found in many plants that provide their unique aroma and flavour. eSense’s unique technology can analyse and reverse-engineer exact terpene profiles, which also enables the creation of unique terpene profiles of rare and high value plants.

Previously focused purely on developing terpene profiles of cannabis strains without psychoactive ingredients and with lower production costs by using alternate plant sources, the company is now broadening its reach to wider markets having recently strengthened its leadership team.

e-Sense is currently seeking innovative, evidence-based, commercial applications of terpenes in the multi-billion dollar medical, wellness, cosmetics and nutritional markets, and today’s announcement confirms its first foray into the Australian market.

Most people would be unaware of what exactly a terpene is if you asked them, however they are quite common and used regularly.

One of the most widely known terpenes is menthol — the key ingredient of Vicks® VapoRubTM. Menthol relaxes the muscles in the lungs and widens the airways.

Another example of a widely used terpene is carvacrol, which is found in oregano and thyme, and has historically been used as remedies for the common cold.

Armed with eSense’s unique plant profiling technology, the company is seeking out highly scalable, low cost / high volume market opportunities. Its new commercialisation strategy is expected to considerably reduce sales and distribution costs.

It’s early days for eSense under its new strategy and team right now, however getting these terpene profiles to market could deliver significant commercial value over the long term.

ESE’s terpene technology applied to skin care, hair care, and hand sanitizer products

Under the JV agreement with ANC Enterprises, eSense will provide specific terpenes uniquely developed for each product category — a range of skin care, hair care and hand sanitiser products. ANC will formulate and manufacture the resulting products containing eSense’s proprietary terpene mixes.

Established in 2012, ANC offers full-service contract manufacturing for products from creation of the formulation, packaging, design and manufacturing for third parties. It has significant experience in manufacturing unique products for uses in skincare, sports and nutritional supplements, infant milk powders, bath salts, essential oils and pharmaceuticals.

It currently manufactures natural plant focussed products including a skin-care brand which contains no artificial colours or ingredients, New Age BotanicalsTM. The range includes regenerating creams, nourishing creams, face masks and vitamin C creams.

ANC has invested heavily in innovative equipment and continues to make improvements to its processes so as to minimise waste and efficiently deliver more output to meet consumer demand from its GMP certified facilities.

ANC’s 100% owned, 600 square-metre GMP certified facility in Victoria is capable of producing 16,000 – 20,000 bottles from two 8-hour shifts per day, leading to five million bottles produced annually. Its leading edged bottling processes generates only 1% of wastage, compared to the industry average of up to 10% waste.

JV Terms

Under the JV agreement, the terpenes based skin care, hair care and hand sanitiser products are to be manufactured exclusively by ANC, with eSense to supply terpenes to the JV for an initial 10-year term on a cost plus arrangement.

The parties have agreed that on formation of the JV, a minimum of 700,00 initial orders will be made consisting of:

- 500,000 units of terpenes for hand sanitiser,

- 100,000 units of terpenes for skin care,

- 100,000 units of terpenes for hair care.

These minimum orders are based on the anticipated initial production run for products to be undertaken by the JV company. It is anticipated the JV will pay $100,000 upfront for the terpenes and remainder upon sales occurring.

The JV company will be owned 95% by eSense and 5% by ANC, based on an initial cash contribution to the JV of $95,000 by eSense and $5,000 by ANC.

ANC will have a 12-month option to increase its holding to 50% through an additional capital contribution. The amount that ANC will pay to acquire such shares will be $90,000 after 1 month and increase by $10,000 each calendar month thereafter.

eSense will make additional loan funds available to the JV for working capital purposes if required.

ANC will grant the JV a royalty-free, irrevocable, perpetual, license for use throughout the world of any formulations, service marks, trademarks and trade names for the products produced for the JV purpose, provided the JV Co pays ANC an agreed formulation fee for any product it develops.

The agreement does remain subject to certain conditions precedent, including mutual due diligence, receipt of any regulatory and shareholder approvals, and executing certain definitive agreements, including a shareholders’ agreement, supply agreements, manufacturing and distribution agreement.

CEO of ANC, Alex Blagojevic said:

The addition of eSense’s terpenes allows us to manufacture products with an added layer of potential therapeutic benefits. We are excited to have access to eSense’s terpene technology which will broaden and enhance the products we can make.”

CEO of eSense, Itzik Mizrahi, said:

ANC seemed like an obvious partner for eSense to further diversify its product offering. Its passion for natural, ethically made products aligns with our company’s ethos and goals.

“The joint venture agreement validates eSense’s updated commercialisation model as well as the growing recognition of terpenes and their unique and varied qualities in more markets. This agreement will see eSense’s terpenes used in a premium Australian-made product to be delivered straight to consumers.”

Appointed CEO in March, Itzik Mizrahi is a highly experienced executive in global big pharma.

Mizrahi brings a wealth of experience to eSense with over 20 years tenure in commercial, medical and clinical management positions in global pharmaceutical companies. As the previous Head of Clinical at Pfizer Pharmaceuticals Israel, and General Manager at Actelion Pharmaceuticals Israel, he had full accountability for clinical departments, operational efficiency and regulatory compliance.

As Country Manager (Israel) at Actelion Pharmaceuticals, he led commercial activity, and oversaw clinical trials, medical and regulatory processes. Under his leadership, Actelion Israel repeatedly overshot benchmark sales predictions and company goals.

Joint venture business model

eSense-Lab is operating a joint venture business model, whereby eSense is establishing JVs for the mutual development of products with different partners. It now has agreements across multiple revenue generating markets, resulting in a reduction of costs associated with sales and distribution, plus the benefits of shared research and expertise.

In addition to today’s JV announcement, eSense signed a letter of intent just weeks ago with private marine biotech company, SeaLaria, to produce antiviral hand sanitisers by combining eSense’s terpene strains with SeaLaria’s gelatinised red algae.

Research is continuing into terpenes’ anti-viral qualities to reduce the ethanol content in sanitisers.

eSense’s lab continues its testing of this gel-based, alcohol-free sanitiser with promising results of terpenes’ anti-viral synergistic effects. The addition of terpenes in sanitisers could reduce the harmful effects on skin, without compromising effectiveness.

Discussions are ongoing with several Israeli universities, hospitals and virology labs to establish further testing and research into the exact nature of terpenes as an anti-viral.

This presents significant opportunity as the global market value for hand sanitiser is expected to grow to reach US$8.09B at the end of 2025, up from US$1.20B in 2019.

With such a variety of applications, we can expect to see further partnerships and expanded applications for the use of eSense’s terpenes.

Terpenes anti-viral qualities

Terpenes are naturally occurring compounds (classified as phytochemicals), of which there are at least 20,000 different terpenes in existence.

Each plant has its own unique terpene profile which account for the flavour and fragrance of aromatic plants. A plant’s distinctive flavour and smell derived from its unique blend of terpenes (basil, mint, oregano and cannabis).

Terpenes are well described in literature for their anti-viral activity, playing a critical role in the defence mechanism of plants by protecting them from viruses, bacteria and insects.

They are pharmaco-vigilant substances that can reduce pain, and have anti-inflammatory, antioxidant, anti-bacterial, anti-viral, anti-parasite, anti-cancer, gastro protection, neuroprotection, anti-convulsant and sedative properties.

Similar to the cannabinoids THC and CBD, terpenes bond with a person’s endocannabinoids, delivering therapeutic effects.

Terpenes have already started to come into their own in the US mainstream, utilised across industries from aromatherapy studios to gourmet chefs, and being incorporated into everything from homemade brownies to vape juice.

With a new management team chasing down commercial opportunities across multiple large markets, starting with high demand hand sanitisers, eSense appears to be a small ASX listed stock on the move.

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