Strategic collaboration with Valeos to accelerate production and supply of high-THC medical cannabis

London, 11 September 2024 - Celadon Pharmaceuticals Plc (AIM: CEL), a UK-based pharmaceutical company focused on the development, production and sale of breakthrough cannabis-based medicines, announces a strategic collaboration with Valeos Pharma A/S (“Valeos”), a Danish pharmaceutical company and licenced producer of medicinal cannabis.

Celadon and Valeos have entered into a framework agreement whereby Celadon has agreed to licence certain of its genetics for cultivation by Valeos.  This will enable Valeos to support Celadon in accelerating the supply of pharmaceutical-grade EU-GMP cannabis Active Pharmaceutical Ingredient (“API”) products to its existing  and prospective European customers (the “Supply Agreement”). Celadon and Valeos have also entered into a know-how licence agreement whereby Celadon will use its knowledge and expertise in facility design, cultivation techniques and operating processes (“IP”) to seek to increase the yield and quality of cannabis grown from the Valeos cultivation rooms (the “Know-How Licence Agreement”). For the purposes of this announcement, the Supply Agreement and the Know-How Licence Agreement are together the “Agreements”.

Valeos, which was founded in July 2018, has an existing growing facility, licensed by the Danish Medicines Agency, that has cultivation rooms capable of producing annually an estimated 1.5 tonnes of pharmaceutical grade medical cannabis API, finished to EU-GMP quality standard and is supplying pharmaceutical grade cannabis to customers in Germany and other European countries.  

Under the terms of the Agreements, Celadon will:

1. Purchase medicinal cannabis products, cultivated from both its and Valeos’ own genetics, to supply product to its existing European customer and prospective customers. 
2. Licence the IP to assist Valeos in refitting their existing cultivation and growing rooms at its Danish EU-GMP facility. 
3. Provide Valeos with access to its leading pharmaceutical medical cannabis genetics for an agreed fee. Through the use of its IP and genetics, Celadon and Valeos are targeting to increase the product yield and quality of Valeos’ growing rooms by up to 100% , c.3 tonnes of annual cultivation capacity, which could be worth up to c.£30m of pharmaceutical grade medical cannabis per annum (assuming a price per gram of £10).

The main benefits of the Agreements to Celadon are:

1. The harvests grown under licence by Valeos will enable Celadon to supply product to its current European customer ahead of completing the fit out of Celadon’s Phase 2, which could be worth up to c.£8m per annum, and generate a margin on the difference between the price received from its European customer and the price paid to Valeos. 
2. In return for the 5 year licence and the use of its genetics Celadon will receive 50 per cent. of the increased contribution from the refitted facility, based on increased yield and/or increased pricing above an agreed minimum level.  Subject to the level of sales and increase in yield generated by Valeos this could be worth up to £1.7 million per annum to Celadon, who has the annual right to choose whether this is settled in cash or equity in Valeos.
3. Celadon will establish a Danish subsidiary, which will need to obtain appropriate Danish Medicines Agency licences, which will mean that Celadon will be supplying product from within the EU allowing Celadon to better service the growing European demand and benefit from the recent relaxation in the key German market, with a significantly simpler EU-based supply chain.
4. Celadon will have the first right of refusal under the Supply Agreement for at least 3 and up to 5 years to the harvests produced by Valeos from Celadon’s genetics allowing it to start supply of its exclusive genetics to its current and prospective European customers.

Production in Valeos’ refitted rooms, using Celadon’s IP, is expected to commence in Q1 2025.

The strategic collaboration between Celadon and Valeos has been agreed for a period of five years for the Know-How and Licence Agreement IP agreement and for the Supply Agreement for at least 3 and up to 5 years, following which both parties have the option to extend the Agreements. Celadon will support the operation of Valeos’ new growing rooms to ensure that they deliver on increased yield of the new genetics.

The supply of cuttings by Celadon to Valeos under the Supply Agreement is subject to Celadon receiving a specific export licence from the Home Office, and Valeos obtaining an equivalent import licence under Danish regulations.

The Company’s admission to trading on AIM is subject to a special condition, details of which are set out in the Company’s Admission Document dated 28 February 2022 at page 4. The Company confirms that its medicinal cannabis-related business to be conducted in Denmark, further details of which are set out above, will not be deemed to constitute an acquisition resulting in a fundamental change in the Company’s business for the purposes of AIM Rule 14. Notwithstanding the above, the Special Condition will continue to apply.

James Short, Chief Executive Officer of Celadon Pharmaceuticals, commented:

“We are delighted to have formed a strategic collaboration with Valeos. We have been impressed by what its team has achieved and by its rigorous approach to pharmaceutical product standards. Having access to an EU-based supply brings significant supply chain advantages to Celadon, and the immediacy of the additional capacity, which amounts to up to an additional three tonnes of annual product.  The Agreement increases the current capacity of Celadon by up to 20 times by utilising the services of Valeos as our outsourced manufacturing partner. By outsourcing growing, but utilising the IP of Celadon, the Company believes it will be able to bring forward its path to profitability.

The Company intends to continue with the fit out of its Phase 2, which would also have the potential to generate a further 3 tonnes of annual cultivation capacity, which could be worth up to c.£30m.

“Valeos’ interest in Celadon’s cultivation know-how and practices is testament to our position as a premium quality cultivator. Meanwhile, supplying our existing European customer and prospective European customers from Valeos’ Danish facility will be logistically simpler than doing so from the UK, and will allow us to expedite the servicing of our current and prospective European customers.”

Morten Snede, Chief Executive Officer of Valeos Pharma A/S, commented:

“Celadon has developed valuable know-how and process IP to enable the operation of a fully controlled indoor facility in the UK that has consistently produced higher yields of pharmaceutical-grade cannabis than industry peers. I am therefore delighted that Celadon’s expertise will be made available to Valeos.

“Not only can Celadon claim to have an industry-leading cultivation process, but it also has access to leading pharmaceutical cannabis genetics, which can now be grown at Valeos under the supervision of Celadon’s expert team. Celadon’s IP is highly complementary to our own product offering, and I believe the combination will lead to enhanced outcomes for Valeos, Celadon, and most importantly, medical cannabis patients across Europe.”