PHARMACEUTICAL HIGH ON ITS NEW PAIN DRUG

Cat-310, From Toronto's Cannasat Therapeutics, Is Medical Marijuana Sans 'Buzz'

They've heard all the jokes, and then some.

No, Cheech and Chong aren't on the payroll. Neither is the Weed Man.
They don't have free samples, or the munchies. And their office
Christmas party wasn't any wilder than yours was.

But as a small pharmaceutical firm working on a medicinal product
derived from the same plant that's, um, high on the radar for
recreational purposes, some ribbing is to be expected.

Luckily they take it all in stride at Toronto-based Cannasat
Therapeutics Inc., one of a handful of companies in the world that is
researching and developing medicines derived from cannabis plants
(yes, that would be marijuana).

Their aim is something a lot more serious: to help people suffering
with chronic and neuropathic pain, depression, anxiety and movement
disorders using all the known benefits of cannabis - including being
a pain reliever, a relaxant, an anti-nauseant and an appetite
stimulant - minus the social stigma of smoking pot.

On top of that, their first product in testing, CAT-310, takes away
the so-called "buzz" of marijuana that makes some terminally and
chronically ill patients, particularly the elderly, uncomfortable and
anxious. This medicine is aimed directly at the $4 billion
neuropathic pain market that is mainly serviced by various opiates,
anti-convulsants and anti-depressants.

Cannasat's pursuit is all perfectly legal and has the backing of
Health Canada, including a narcotics licence, "and you have to be a
pure-bred pharmaceutical company to get one," notes chief executive David Hill.

His mission since Cannasat was launched in 2004 is to educate
investors about the benefits of what he refers to more scientifically
as "cannabinoids," the naturally occuring molecules unique to the
cannabis plant. The best known is THC (tetrahydrocannabinol).

The idea is to mimic smoked cannabis through the invention of a new
drug delivery technology that can be absorbed on the tongue, like a
thin wafer. It doesn't get digested by the stomach and processed by
the liver before reaching the brain, so it's similar to inhaling cannabis.

There are other products on the market using THC, including capsules
and an oral spray, but anything that lands in the stomach and is
processed by the liver increases the high, he explains.

"What we're trying to do is we've created a sublingual tablet so it
goes into the mouth, into the bloodstream and then into the brain.
What's compelling is when you take oral THC, it's five times more
psycho-active. When it goes through your stomach and metabolizes,
it's getting you high.

"So it's losing its efficacy and it's making you more stoned. So
we're trying to take clinically proven molecules and reducing the
high," Hill says.

One of the pluses is that THC is known to be an effective treatment
for neuropathic pain and nausea.

"Most people who are sick don't want to get high. And what doctors
are reluctant to do is prescribe medications that get you high," such
as opiates, which can also be toxic, make you nauseas and constipated.

"Cannabinoids are safe. They're virtually non-toxic. We all remember
from high school that if we drank too much we got sick. But if you
smoke too much pot the worst thing that would happen to you is you
fell asleep. And when you woke up the next day you might have been a
tad groggy, but really there's no hangover.

"We know from recreational data that when some people take (smoke)
too much THC it can cause paranoia, it can cause anxiety. Some people
love it to death. They think it's just wonderful. But for some people
it causes anxiety," says Hill.

Opiates such as Oxycontin and codeine can help with pain relief but
they've been proven to be highly addictive. THC is much less so, he says.

"The biggest problem with oral dosage forms of THC today, the spray
and the capsule, is that THC is a very thick, oily substance.

"Our solution is we have a nano-encapsulation technology. It takes
that oily substance and turns it into a powder, so that powder will
now dissolve in the saliva," and you don't have to swallow it, he explains.

"We know this works. If we can create a more elegant delivery system,
I think we have a very marketable pharmaceutical product," Hill says.

One person who is excited about the medicine's potential is Sara Lee
Irwin, Cannasat's director of public relations. When she was 32 years
old she was diagnosed with cancer in her pelvis and hip. Today at 50,
she walks with a cane and still suffers from chronic pain.

She's taken every powerful painkiller out there from Percodan to
Oxycontin but found she couldn't function normally in her daily life
because of the high, the constipation and the lack of appetite. She's
taken THC in oral capsules but she's never found it as effective as
smoking herbal cannabis.

Because of her condition, Irwin is one of the 2,000 people in Canada
legally allowed to purchase and use medical marijuana, which she
smokes three or four times daily to ease her suffering.

"I've switched over completely. It moves the pain off-centre and I
have a ravenous appetite," she notes.

When it comes to her company's mission: "I feel really good about
what we're doing, and I have a great interest in this," Irwin adds.

Recently Cannasat reached a milestone they hope will get them closer
to their goal of bringing a safe and effective product to market.

Earlier this month Cannasat successfully completed Phase I clinical
trials, the first key study in humans that now provides them with
important safety and medical data to launch them on to further
product development.

"It's an important first step for us. It keeps us on track to move
CAT-310 to Phase II testing by the end of 2008," he says.

It's at that point that the big pharmaceutical companies take notice
and could sign on as a partner to market and distribute the product.
They're already in preliminary talks with some, he says. They
estimate revenue potential of $500 million-plus.

"We're not doing this to be a little, wee company. We see huge
potential here," Hill says.

Cannasat went public last year on the TSX Venture Exchange and
continues to trade at or around its 52-week low of 17 cents a share.
Its market captialization is about $14 million.

Companies getting into Phase II of clinical trials, as they will be
next fall, are trading north of $100 million in market cap, he says.

"We have great potential to be a big company with institutional money
and move the research along further," Hill notes, adding their next
products will be aimed at treating mood disorders such as anxiety and
depression, and with localized pain.

But what about the public perception about pot?

"Now that we've established ourselves as a pharmaceutical company, I
don't see that stigma. It certainly hasn't held us back in Canada.
We've had a lot of support from Health Canada," offers Hill.

"I think the only stigma we have is that the average person, when
they hear about it, their first reaction is cannabis is somehow a
back alley drug. And I'm trying to show that (opiates) are a back
alley drug too.

"I'm not some closet pot smoker or anything. I got into this because
the company approached me with a business opportunity and I wanted to
do something that I could be really passionate about.

"I realized there's an enormous business opportunity here that could
really help people."

[sidebar]

DAVID HILL Q&A

Q. What were your total sales and profits in the last year?

A. We are an R&D company, and thus have no revenues or profits to
date other than government grants and interest income. Our company
has significant revenue potential and profits upon approval of our
drug product candidates.

Q. How much seed capital did you have when you launched and where did
you get it?

A. We have raised approximately $9 million since inception from
friends, family and sophisticated, high net worth individuals in
Canada and the United States.

Q. What's been your biggest success/failure so far?

A. Our biggest success to date is completing our first Phase I
clinical trial for CAT- 310. We have had challenges along the way,
but so far have not had any major setbacks.

Q. What are the biggest challenges facing your business?

A. From a scientific perspective we have less risk, as cannabinoids
are clinically proven and THC is an approved substance for
pharmaceutical purposes in both Canada and the US. Raising capital is
a risk for any early stage venture, but we've had a good track record
raising money, and have continued support from shareholders and other
interested parties.