On Thursday, Wesana Health (CSE: WESA; OTCQB: WSNAF) made a major announcement. Following a planned strategic review of their assets, Wesana is considering options “including, but not limited to, a sale of all the assets under the care delivery division,” including all of their psychedelic therapy clinics.
The core reasoning, according to the press release, is that Wesana wants to focus its efforts entirely on their drug development division.
Prior to this announcement, Wesana was operating under a philosophy centered on “developing the novel therapies of tomorrow and delivering new care paradigms today.” If this strategic review does result in the sale of their clinics and other today focused ventures, then Wesana will be decidedly much more focussed on tomorrow.
In addition to the two Chicago clinics they may consider selling, the company also wants to offload Wesana Solutions, a platform working on improving clinical protocols, and PsyTech Connect, a communications platform for psychedelic practitioners with over 8,000 members.
Assuming these sales do end up being completed — it is not yet certain — Wesana will essentially be left with their SANA-013 program. In their drug development, Wesana is working on what they call “combination therapy.” This entails a patient with Traumatic Brain Injury first receiving a large dose of psilocybin (SANA-103) paired with therapy, and then receiving take-home microdoses of a combination of psilocybin and CBD. If they are still on track, they plan to launch a Phase 1 safety trial late in 2022.
Wesana is also negotiating a potential partnership with MAPS to investigate using MDMA to treat Traumatic Brain Injury. This sale is unlikely to affect these negotiations, though at the time of writing I have not yet received confirmation of this.
Now that we have the facts of the matter, two questions arise. First, what does this mean for Wesana? And second, what does this mean for the wider psychedelics industry?
On the first question, no matter how you dice it, this seems to be an abrupt about face for Wesana. For example, Wesana only acquired PsyTech eight months ago, in September. Obviously, at the time they expected PsyTech to be a large part of their company going forward, or else they would not have made the purchase. The all stock acquisition cost Wesana 7.4 million shares, worth more than $30 million (CAD) on September 9, when the sale was announced and their stock was $4.10. That same 7.4 million shares is now worth around $3.6 million, with their stock around $0.49.
It is unclear how much they hope to sell PsyTech for.
Likewise, it was less than two months ago, on March 11, that Wesana published a press release celebrating that “construction is underway for its third mental health clinic, expected to open in Spring 2022.” It is clear that at the time Wesana still hoped to expand its psychedelic therapy clinics, so again something changed.
The most likely reason behind this abrupt strategy change is money. Simultaneously running their drug discovery program, operating and building out a clinic network, and creating online communities is very expensive. In fact, in 2021, Wesana had a net loss of more than $34 million, though much of that can be attributed to stock transactions. Still, the company spent more than $15 million on administrative and research expenses.
For a company that had only $6.5 million in the bank, as of the end of 2021, this is obviously not sustainable. Furthermore, with a market cap of under $10 million, raising capital through dilution to fund all of their projects also seems unlikely.
If Wesana could get even half of its investment in PsyTech back, so around $15 million (I have no idea if this is possible), plus some cash for their clinics, while perhaps cutting their costs drastically by only focussing on SANA-013, then maybe the company can ensure a financial runway for at least a year, maybe even two. Ultimately, they will have to get their spending down significantly until a time when their stock price rises again.
So, in sum, the management at Wesana likely felt their best chance at success was to strip down the company to its core focus, the SANA-013 combination therapy trials. In the most recent press release, Wesana discloses the positive interactions they have had with the FDA regarding their development, so slimming down the company to just its core focus may give investors more confidence.
Moving on to the implications for the wider psychedelics industry and psychedelic stocks, recently I have been discussing how I believe that in order to counteract a lack of capital in the industry, many psychedelic companies will be forced to merge, or be acquired by larger firms. Originally, this prediction seemed to be coming true, with Numinus acquiring Novamind. However, in the last couple of weeks we have now seen two companies effectively taking the opposite approach, slimming down their companies to their core competencies.
First, Field Trip Health announced that they were splitting into two separate companies. Essentially, one of the new companies, Reunion Neuroscience, will work on drug development, and the other, Field Trip Health and Wellness, will operate clinics. Now, Wesana is selling its clinics and other assets to focus solely on drug development.
It is possible that this could be a new trend in the psychedelic medicines space. Companies, limited by the available capital, work solely on their main focus, and let others work on other areas. Once is an anomaly. Twice, a coincidence. If we see a third company take this route, we will see a trend.
Of course, even if this is the case, that doesn’t mean that we won’t also see continued consolidation. For example, we don’t yet know who will snap up Wesana’s clinics, but it could be an established company such as Numinus. It is also possible that after a year or two of operations, if Wesana proves in Phase 1 and 2a clinical trials that SANA-013 is a promising drug candidate and treatment regimen, their company will merge with or be absorbed by another drug development company. After all, if their stock price doesn’t rise significantly in the coming year or two, they will eventually feel a cash crunch again.
In sum, this is a major pivot point for Wesana Health. Though it may have been brought upon by financial necessity, if they can succeed in ultimately commercializing SANA-013, it may prove in the long-term to have been a solid move.
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Full Disclosure: James Hallifax holds positions in MindMed, Compass Pathways, atai Life Sciences, the Horizons Psychedelic Stock Index, and the Advisor Shares Psychedelics ETF.
The views of the author are for informational purposes only, and should not be construed as financial advice, but rather his own personal opinion. Furthermore, the views of the author are not necessarily representative of Psychedelic Spotlight. His views and opinions are his own.
