Medicinal cannabis and hemp company ECS Botanics Holdings (ASX: ECS) has revealed it has entered into a collaborative supply and toll processing agreement for cannabis biomass extraction with pharmaceutical company Sun Pharma.
Sun Pharma is an Australia-based subsidiary of Sun Pharmaceutical Industries, the fourth largest specialty generic pharmaceutical company in the world.
With global revenues in excess of US$4.5 billion (A$6.2 billion) and supported by more than 40 manufacturing facilities, Sun Pharmaceutical Industries provides high quality, affordable medicines for patients in more than 100 countries.
Under the terms of the deal, Sun Pharma will supply resin to ECS as part of an offset agreement against the purchase of ECS’ 100% owned SepareCo Supercritical carbon dioxide extractor and ancillary equipment.
ECS agrees to supply a minimum committed volume (600kg to 1750kg) of cannabis biomass over a five year period, from which Sun Pharma will produce the resin for ECS.
In addition, ECS Botanics will supply Sun Pharma with additional biomass for their commercial requirements.
Based on indicative volumes (which are not binding on Sun Pharma) this equates to potential total revenues for ECS over the first five years of the agreement of between approximately $6.6m and $9.8m, subject to quantity and yield of the biomass supplied to Sun Pharma.
Sun Pharma will install the extractor at its Port Fairy pharmaceutical facility in Victoria and produce Goods Manufactured Practice (GMP) certified decarboxylated winterised resin for ECS.
For Sun Pharma to produce this resin, ECS has agreed to supply cannabis biomass over a five-year period at “no less than 55% of Sun Pharma’s annual cannabis biomass requirements, which at this stage are still unconfirmed.
The resin produced will be used in the formulation of final dose form medicinal cannabis products.
ECS and Sun Pharma’s deal is for up to 10 years with commercially standard termination provisions. No conditions need to be satisfied in respect of the arrangement, nor are any board changes required.
Deal brings manufacturing expertise and reduces costs
ECS has highlighted several benefits of this collaboration including the opportunity to earn significant revenues from the sale of biomass, a reduction in the manufacturing cost of ECS oils and freeing up capital that was previously set aside for the installation of the carbon dioxide extractor.
Instead, ECS said this reserved capital will be diverted for further investment in cannabis cultivation and dried flower production capacity.
ECS executive general manager Nan-Maree Schoerie said Sun Pharma will be an integral partner in the company’s supply chain.
“This aligns perfectly with out strategy to form partnerships with companies with strong pharmaceutical credentials.”
“Medicinal cannabis is a relatively young industry and engaging with a partner with years of GMP manufacturing expertise is good for patients. Both companies aim to deliver high quality, affordable medicinal cannabis products,” Ms Schoerie said.
ECS managing director Alex Keach added that partnering with a globally significant company is encouraging for ECS’ major expansion plans to drive revenue growth and continually lower production costs.
“This arrangement positions ECS Botanics to capture a greater share of the existing medicinal cannabis oil market in Australia and overseas,” he said.