A tiny Melbourne biotech company with an innovative drug delivery system and a troubled past is making a well-considered move into the cannabis industry – even though executives find it pretty bizarre and terrifying.

Avecho Biotechnology (ASX:AVE) is hoping its proprietary vitamin E-based Targeted Penetration Matrix (TPM) technology can give it a leg up on its competitors in the race to have the first cannabidiol drug approved in Australia.

“Medical cannabis is a new space for us,” Avecho chief executive Dr Paul Gavin told Stockhead. “We’re pure biotech… we’re a bit terrified of the space.”

But Jazz Pharmaceuticals‘ (NASDAQ:JAZZ) eye-popping $US7.2 billion ($9.4 million) acquisition this week of the only company with an approved cannabis-based drug on the market, GW Pharmaceuticals (NASDAQ:GWPH), is an indication of what’s at stake.

Avecho, says Dr Gavin, has been watching the Australian medical cannabis industry ever since the sector was created in 2016 under the Turnbull government.

At first, “no one was doing drug development. Everyone was rushing into manufacturing.”

That’s changing with companies paying more attention to drug development and clinical trials – “all stuff we’ve done in our sleep for 20 years,” Dr Gavin said.

In 2019, a company that Avecho has worked with in the past, Athens, Georgia-based Purisys – the supplier to Botanix Pharmaceuticals (ASX:BOT), among others – asked Avecho executives if their TPM technology might be able to add any benefit to cannabinoids, Dr Gavin says.

Many medical marijuana companies deliver their drugs by simply having patients eat them – which only results in about three to eight per cent of the medicine being absorbed into the bloodstream, Dr Gavin says.

“Medical cannabis has terrible, terrible bioavailability,” he said.

Avecho ‘better positioned than anyone’

Avecho’s TPM involves encapsulating drugs with a tocopheryl phosphate mixture – an enhanced form of vitamin E – which increases their solubility and subsequent absorption.

The company has been working on using TPM to reformulate the general anaesthetic Propofol so it can be used for longer than 24 hours, but increasing the bioavailability of cannabinoid (CBD) has big implications for the cannabis industry.

In a regulatory shift, the Therapeutic Goods Administration on Monday began accepting applications to include products containing up to 150mg of CBD on the Australian Register of Therapeutic Goods as schedule 3 medicine, meaning they could be dispensed by pharmacists without a prescription.

“There are still concerns that it will be hard to demonstrate efficacy at the 150mg/day dose,” says Cassandra Hunt, managing director of Sydney-based cannabis consultancy FreshLeaf Analytics.

Dr Gavin says Avecho has been conducting studies indicating that TPM increases the bioavailability of CBD by as much 40 times in animal models – giving the company a big advantage in formulating an efficacious drug while staying within the low dosing limits set by the TGA.

“We’re probably better positioned to attack S3 [schedule three] than anyone – or most people,” he says.

Despite its long history in the Australian biopharmaceutical industry, Avecho is sitting at a market cap of around $43 million, having had a rough run several years ago when it was known as Phosphagenics. Its former chief executive admitted in 2014 to embezzling millions from the company, and four years later Phosphagenics lost what it thought was a slam-dunk licensing claim against a subsidiary of Mylan that it had invested heavily in.

But today the company has a new name, new leadership and its shares have been on the  move.

Avecho shares

‘Nobody else like us’

Dr Gavin says the company is hoping for a further re-rating from the market as it looks to begin midyear a phase 1 clinical trial assessing the bioabsorption of an Avecho softgel capsule.  This product would be taken into a subsequent pivotal Phase 2/3 trial that would be used to support drug registration.  This pivotal study could target a number of candidate indications currently under consideration, including anxiety or insomnia.

Data generated by the clinical trials could also lead to licensing deals in other markets, he said.

“I haven’t heard of anyone like us in the Australian cannabis space,” Dr Gavin said.

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