Q4 2021 Medipharm Labs Corp Earnings Call

April 1, 2022

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the MediPharm Labs Corp. fourth quarter and fiscal 2021 financial results conference call.

Please be advised that today's conference is being recorded.

Before we begin, please note the following caution respecting forward-looking statements, which are made on behalf of MediPharm Labs Corp. and all of its representatives on this call.

Statements made on this call will contain forward-looking information that involve risks and uncertainties. Actual results could differ materially from a conclusion, forecast, or projection in the forward-looking information.

Actual results could differ materially from a conclusion, forecast, or projection in the forward-looking information.

Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information.

Additional information about the material factors that could cause actual results to differ materially from the conclusions, forecasts, or projections in the forward-looking information and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information are contained in MediPharm Labs Corp. filings with the Canadian and provincial security regulators, which are available on the SEDAR website at sedar.com.

with the Canadian and provincial security regulators, which are available on the SEDAR website at sedar.com.

I will now pass the call to Bryan Howcroft, CEO of MediPharm Labs Corp. Please go ahead.

Bryan Howcroft: Thank you operator, and good morning everyone. We appreciate you joining us for MediPharm's Q4, and fiscal 2021 financial results conference call.

Joining me on the call today are Keith Strachan, MediPharms's President and Greg Hunter, the company's CFO.

As most of you know, I joined MediPharm as CEO in late November of last year. At that time, I saw a company with all the attributes required to become a true leader in the global precision-based cannabinoid space.

At that time I saw a company with all the attributes required to become a true leader in the global precision based cannabinoid space.

In the five months since joining, I've gotten to know the business and the team better. We're all very confident that MediPharm is well-positioned to achieve leadership in this space.

Every member of our team would certainly acknowledge that the Pharm opportunity is long-term in nature. However, it is our belief that there are very few companies in existence today that have the appropriate licensing and sophistication to capitalize on these opportunities.

We believe that MediPharm will benefit highly from exposure to what the team expects will be one of the most profitable sustainable opportunities in the global cannabinoid space.

As the company pursues this longer-term opportunity, our team continues to execute on short and mid-term avenues to growth and profitability, both in the international and domestic markets.

During 2021, in a challenging environment, particularly on the domestic front, the MediPharm team, led by Keith and Greg, executed against several important initiatives designed to set the company's core squarely towards these objectives.

Particularly on the domestic front the Megafon team led by Keith and Greg executed against several important initiatives designed to set the companys core squarely towards these objectives.

Before I pass the call over to Keith to provide additional granularity on the team's effort, we'd like to take the opportunity to thank all of our shareholders for their patience and ongoing support as the team continues to position the company to not only achieve its long-term objectives but to generate shareholder value along the way.

I will now pass the call over to Keith.

Keith Strachan: Thanks, Brian. As Brian mentioned, the MediPharm team made meaningful progress in 2021. This progress was across our three primary market focuses: pharmaceutical precision-based cannabinoid, international medical, and domestic retail.

Broadly our team brought in additional focus to the business as we progressed through 2021, hitting important milestones that set the company up for growth over the next 12 months. Our team opened key new markets, both domestically and internationally, introduced new innovative products, and intensified sales and marketing efforts to execute on revenue opportunities.

On revenue opportunities.

I will start with precision-based cannabinoid.

During 2021, we received the cannabis drug license as well as the GMT drug establishment license from Health Canada. These key licenses enable the company to leverage the infrastructure built over the past several years to enter the cannabis-based pharmaceutical and active pharmaceutical ingredient or API supply chain now and [inaudible].

These key licenses enable the company to leverage the infrastructure built over the past several years to enter the cannabis-based pharmaceutical and active pharmaceutical ingredient or API supply chain now and [inaudible].

Gail.

Last quarter I highlighted how the receipt of the drug establishment license has allowed us to start the supply qualification process in several jurisdictions, and while we're just getting started, we saw initial API sales to two different well-established Pharma companies during Q4.

In addition, we continue to work in partnerships with organizations like Mcmaster University to develop drugs containing cannabis candidates. The API segment alone will be an absolutely massive opportunity as it develops.

To put the potential growth in perspective, the US Cannabis pharmaceutical market was worth $943 million in 2021, according to Grand view research. Compare this with the traditional Pharma API business alone, which was worth 159 billion US in 2020.

159 billion in 2020.

When looking at the FDA, CMS database, MediPharm is one of only 14 companies globally and one of only two in North America that can meet demand in this market currently.

One of only two in North America that can meet demand in this market currently.

Clinical trial work is long-term by nature and a bit of a numbers game. To be successful, you need more shots on deck. This is exactly the approach we're taking and sharing that our APIs and formulations, where possible, are part of ongoing trials, which we expect will give us the best chance possible of becoming part of a long-term, highly profitable supply chain if these new drugs receive US, FDA, and global market authorization.

The supply chain. If these new drugs received U S FDA and global marketing authorization.

Post Q4, we entered the US Pharma market leveraging our drug establishment license to registered CBD API with the USFDA through the DMS program, aiming at commercial opportunities and novel pharmaceutical development and generic drug spaces.

Amy not commercial opportunities and novel pharmaceutical development and generic drug spaces.

This is significant as this is the only US DMD for CBD helped by a Canadian company and the only natural CBD BMS at commercial scale in North America. MediPharm farm is serous about winning in this market and is positioned to do so.

MediPharm farm is serous about winning in this market and is positioned to do so.

Now, let's turn to International Medical where we also saw some important progress in 2021, and particularly here in the fourth quarter.

Our team opened several new markets during the year, but I'd like to focus my comments today on Germany, given it's already the largest medical market globally and is expected to grow to be worth $7.7 billion euros by 2028 and will remain our primary focus for this segment of the business.

International sales more than doubled in 2021, driven by shipments to customers in Germany, including the completion of our first shipment [inaudible], a leading European consumer healthcare and generics company with a product presence in 120 countries.

We grew our customer base throughout the year shifting to seven customers in the German market. This is compared to five when we spoke on our Q3 call.

This is compared to five when we spoke on our Q3 call.

During 2022, we will focus on deepening penetration with existing customers as well as adding new customers as our sales team continues to build a presence on the ground.

Given the fact that we only started to sell EU GMP certified dry flower and oil in March 2021, we see substantial room to grow in both Germany and in other global markets.

Turning over to our domestic business.

In Canada, MediPharm launched several new innovative products during 2021. This included products like high CBD and high THC oil formulation and industry-first CPN formulations in both oil and base formats.

This included products like high CBD and high THC oil formulation and industry first CPN formulations in both oil and based formats.

The primary thrust of our product strategy is targeted at the health and wellness consumer who doesn't mind paying for arguably the highest quality in many cases, most differentiated products in the market.

In Q4, MediPharms CPG product was also accepted for sale by provincial distributors with initial deliveries planned for Q1 2022.

Our premium product offering is resonating with customers demonstrated by the market position of MediPharm Labs' line of premium cannabis oils. After only 14 months of sales, we are number four across the cannabis oil category according to high fire data in Q4, just taking the third spot with double our Canadian branded sales.

With double our Canadian branded sales.

Our company's CBD dominant oil line was also named CBD brand of the year at the 2021 Kind Awards, which is based on the feedback from over 200 frontline staff and the Horsley Discerning group.

Horsley Discerning group.

In February of this year, we announced the acquisition of shelter cannabis brands, which add highly reputable, especially dry flower and pre-rolled products to our portfolio. This fills a key gap in our Canadian product offering, while leveraging existing infrastructure and overhead and opening the opportunity to expand our current international flower business over time.

This fills a key gap in our Canadian product offering, while leveraging existing infrastructure and overhead and opening the opportunity to expand our current international flower business over time.

During 2021, we made investments in our sales force, which led to new listing with Ontario, Alberta, Nova Scotia, in BC, and the entry into new markets like Quebec, and New Brunswick.

With a qualified sales force on the ground and maturing in the field, we see significant opportunity to deepen the presence of existing products on the shelf, while establishing a pipeline [inaudible] sales growth for new products as they are introduced. We are strategically positioned in the Canadian market and see room to run. I'll now pass the call to Greg to discuss MediPharm's financials. Greg?

<unk> sales growth for new products as they are introduced.

We are strategically positioned in the Canadian market and see room to run.

Now pass the call to Greg to discuss <unk> financials.

Greg.

Greg Hunter: Thanks Keith and good morning everyone. 2021 saw revenue decline as expected given the weakness in the Canadian bulk distillate and concentrate markets. Revenue for 2021 was $21.7 million compared with $36 million in 2020.

Despite the year-over-year headwind, our team made progress with several key initiatives that will prepare the company for growth as we continue to advance towards profitability.

International sales of $9.5 million more than doubled in 2021, representing 44% of total revenue compared to $4.3 million in 2020, which represented 12% of total revenue.

Germany was a new market for us in 2021 with the launch of EU GMP dried flower and oil. German revenue was $5.2 million in 2021 and will remain a strategic priority for MediPharm given the size and growth of this market.

German revenue was $5 2 million in 2021 and will remain a strategic priority for <unk>, given the size and growth of this market.

As Keith mentioned, we had our first pharmaceutical sales in 2021. While the overall number was relatively small, it was an important milestone for MediPharm as the product was delivered to two reputable Canadian pharmaceutical companies.

Overall number was relatively small it was an important milestone for <unk> as the product was delivered to two reputable Canadian pharmaceutical companies.

In addition, we are excited about our recent acquisition of shelter wildlife and shelter craft and expect shipments out of our Barrie facility to start in Q2. This addition will drive both revenue and improved profitability in 2022.

This addition will drive both revenue and improved profitability in 2022.

Turning to the P&L performance for the fourth quarter.

Q4 revenues increased 6.4% sequentially from $5.4 million in Q3 to $5.7 million in Q4.

International revenues decreased 23% sequentially to $2.2 million as Australian revenue declined from $1.8 million in Q3 to $0.9 million in Q4.

German revenues grew 21% sequentially from $1.1 million in Q3 to $1.3 million in Q4. International revenues represented 38% of total revenues in Q4.

Canadian domestic revenues grew 40% sequentially from $2.5 million in Q3 to $3.5 million in Q4. With the strategic investments we've made in sales and marketing, expanded distribution points, entry into new provinces, and shelter brands, we are confident that we will continue to improve domestic revenues.

Revenues.

We generated our first sales to New Brunswick in the quarter and are in the process of listing Newfoundland and Labrador.

Gross profit for the quarter of -$5 million was impacted by a $2.4 million inventory write-down and $1.5 million of accelerated depreciation for machinery no longer required.

By a $2 4 million inventory write down and $1 5 million of accelerated depreciation for machinery no longer required.

Adjusted for these two items, gross profit was -$1.1 million, which improved versus Q3 adjusted gross profit of -$1.4 million.

While the adjusted number was still negative, Q4 was the second sequential quarter of improvement. During Q4, we were able to renegotiate pricing on EU GMP flower to help improve our margin profile. This will take some time to work its way through the supply chain and we expect to see improved margins in the back half of 2022.

During Q4, we were able to renegotiate pricing on EU GMP flower to help improve our margin profile. This.

This will take some time to work its way through the supply chain and we expect to see improved margins in the back half of 2022.

We also implemented an automated bottling line to produce pinchers during Q1 2022. While we don't expect any significant short-term margin improvement from this investment, we expect it to pay off as we scale.

General and administrative expenses in the quarter increased sequentially from $4.6 million in Q3 to $10.4 million in Q4, driven by a receivable impairment of $6.1 million for one customer. This receivable was aged in excess of 365 days. Adjusting for this impairment, general and administrative expenses declined sequentially to $4.3 million.

This receivable was aged in excess of 365 days.

Adjusting for this impairment, general and administrative expenses declined sequentially to $4.3 million.

Despite the credit impairment, we will continue to aggressively pursue our collection rates.

Marketing and selling expenses in the quarter increased sequentially from $0.9 million in Q3 to $1.4 million in Q4. The increase was driven by investments in sales employees, advertising, and promotional activities to drive future revenue growth in 2022 and beyond.

The increase was driven by investments in sales employees, advertising, and promotional activities to drive future revenue growth in 2022 and beyond.

R&D expenses increased sequentially from 280,000 in Q3 to 580,000 in Q4. These expenses will vary as we selectively invest to advance our capabilities and product portfolio.

Other operating expenses increased sequentially from $0.6 million of income in Q3 to $4.2 million of expense in Q4, driven by a fixed asset impairment charge of $4.2 million.

Adjusted EBITDA for Q4 was -$6.6 million, which was consistent with Q3.

Moving to the balance sheet.

I have already mentioned, a few impairments and write downs that occurred during the quarter. Our team has been focused on cleaning up the balance sheet throughout the year and we believe most major impairments and write downs are behind us.

Our team has been focused on cleaning up the balance sheet throughout the year and we believe most major impairments and write downs are behind us.

Trade and other receivables decreased $12.2 million from $29.1 million in Q3 to $16.9 million in Q4. This decrease was driven by improved collections and a $6.1 million impairment from one customer. Despite the impairment, we will continue to aggressively pursue our collection rates.

This decrease was driven by improved collections and a $6.1 million impairment from one customer. Despite the impairment, we will continue to aggressively pursue our collection rates.

As discussed in previous quarters, there was one large customer owing a total of approximately $8.5 million at the end of Q4, which is subject to legal proceedings and we remain optimistic in its collection. Adjusting for this one customer, trade and other receivables is approximately $8.4 million.

Adjusting for this one customer, trade and other receivables is approximately $8.4 million.

Our cash balance on December 31 was $34 million, which decreased from $38 million at September 30.

During the quarter, we made all remaining payments on our convertible debenture, leaving MediPharm virtually debt-free and with outright ownership of our two GMP facilities in Canada and Australia.

I would echo Brian's comments and thank our shareholders for their patience as we continue to execute with a consistent focus on building shareholder value.

With that, I'll turn it over to the operator to open the line for questions.

Operator: At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad.

Our first question comes from the line of Aaron Grey from Alliance Global Partners. Your line is open.

Aaron Grey: Hi, good morning and thank you for the questions.

Thank you for the questions.

So the first question from me, I wanted to talk about recreational business adding flower and pre-rolls to the portfolio. So can you guys talk about the timing Q2, how meaningful do you expect that to be maybe additional investments in terms of procuring flower from third parties and otherwise? And then the ability to sell it internationally as well as how you're looking to allocate between both Canada as well as supporting some of our international markets? Thank you.

I wanted to talk about recreational business, adding flower and pre rolls to the portfolio.

So can you guys talk about.

The timing to Q, how meaningful do you expect that to be maybe additional.

Investments in terms of procuring flower from third parties and otherwise and then the ability to sell it internationally as well just how youre looking to allocate between both Canada as well as supporting some of our international markets. Thank you.

Keith Strachan: Hey, Aaron. Good morning, and thanks for joining the call. This is Strachan the President.

Yes.

Yeah, I think that's a great question. We're really excited obviously to be expanding our Canadian recreational businesses. You saw in Q4, we had some great results in that area and I think that we have built the infrastructure and we have everything in place to deliver to these provinces on a weekly and sometimes twice a week basis. So it makes sense to fill up those skids and get the flower and pre-rolled product on that.

In that area and I think that.

We have built the infrastructure and we have everything in place to deliver to these provinces on a weekly and sometimes twice a week basis. So it makes sense to fill up those skids and get the flower and pre rolled product on that.

It is, as far as capital goes, it's very capital-light. There is no significant investment on our end in order to get this going. The shelter brands themselves as you saw in our press release there are 100% performance-based so we were paying them a royalty only based on the performance of those actual brands.

There is no significant investment on R&D in order to get this.

Joey the shelter brands themselves as you saw on our press release there.

100%.

Performance based so we were paying them a royalty only based on the performance of those actual brands and then just to address the last part of your question I really well into our international business.

And then just to address the last part of your question, it ties really well into our international business. As you know we have been selling EU GMP flower mainly in Germany since March 2021 and that's been a great business for us. We actually just recently also made deliveries into the UK and we will continue to expand that business. So there is no outlay as well on buying flower, we will just more strategically buyback flowers, so that it can be put into different markets and further leverage that buying power as those two business lines grow for us.

In Germany.

Since March 2021.

That's been a great business for US we actually just recently also made deliveries.

The U K and we will continue to expand that business. So there is no.

Outlay, well on buying flower will just more strategically buyback flowers. So that it can be put into different markets and further leverage that buying power.

Those two business lines grow for us.

Aaron Grey: Okay, great. Thanks. And the second question from me I, just want to talk about Germany [inaudible], you guys are still pretty bullish on the long-term. But near term, obviously, we're seeing some slower trends there than we had expected due to COVID-19 over the past two years or so. So what's your relationship with [inaudible]? Can you talk about some things that they are hearing? One of the big hurdles I think has been in terms of physician adoption. So can you talk about some of the work you've done in terms of the sales force kind of getting in front of physicians are getting more adoption and prescriptions to patient base out there? Thank you.

Repaired remarks, you guys are still pretty bullish on the long term.

But near term, obviously <unk> seen some slower.

So slower trends there than we had expected due to COVID-19 over the past two years or so so what's.

What's your relationship with <unk> can you talk about some things that they are hearing one of the big hurdles I think has been in terms of physician adoption. So can you talk about some of the work you've done in terms of the sales force kind of getting in front of physicians are getting more adoption and <unk>.

Prescription to patient base out there. Thank you.

Keith Strachan: Yes, great question. Thanks Aaron. I just spent some time in Germany. I was there last month meeting with the [inaudible] team, going over ways that we can increase our business, and they're really excited and they're seeing more and more physicians adopt this and less stigma around the opportunity of candidates as a medical product.

Great question. Thanks Darren.

I just spent some time in Germany I was there last month meeting with the static team going over ways that we can increase our business and.

They're really excited and theyre seeing more and more physicians.

Adopted.

Stigma around the opportunity of candidates as a medical product.

With that of itself, they are really looking at this like another any other drug products that are really winning kind of patient by patient or physician by physician. So even though the ramp-up is slow in some cases, it is very sticky, so once they have those patients they are able to keep them.

Barry.

It is very sticky so once they have that patients are able to keep them.

I think Germany in general, we've seen the increase in patients kind of month-over-month as we look at the data and I think that will continue to grow. We have a new government in Germany, and that coalition government has looked at cannabis, even legalization for adult use, so I think that will bring even more wellness consumers into the market there. So there's still a ton of opportunity and we will continue to focus on that region for our [inaudible].

The increase in patients kind of month over month as we look at the data and I think that will continue to grow.

We have a new government in Germany, and that coalition government and looked at.

Candidates, even legalization for adult use so I think that will bring even more wellness consumers.

Into the market there so theres still a ton of opportunity and we will continue to focus on that region for our E Mail.

Aaron Grey: Alright, great. Thanks for the color, Kevin. I'm going to jump back into the queue.

Operator: Your next question comes from the line of Scott Fortune from ROTH Capital Partners. Your line is open.

Scott Fortune: Good morning, and thank you for the questions. Congrats on moving into new categories and new products.

Congrats on moving into new categories and new products.

How should we look at continuing product innovation in different categories, different formats going forward that you see there is wide space opportunities from that standpoint? If you can help us understand kind of future growth. You still have a lot of build to go on the existing categories and new products that you think MediPharm can brand and go on their own from a standpoint.

Help us understand the kind of future growth.

He is still a lot of build to go on the existing categories and new product set that you can take that.

Thanks, Brandon and go on their own from a standpoint.

Thanks Scott. Great question I think MediPharm, something that we've always been proud of is our innovation in our product pipeline. We have a great R&D team, who do a lot of hard work and has developed formulations and product method delivery for both our own brands and some of our partner brands such as a valuation canopy brand, so we work really hard on that. I think as far as the future goes, we saw the great success that we had with launching CDN in Canada as one of the first that have a CDN offering and the first to have a vapable CDN. We're doing the same thing with CDG. We've already delivered it to the provinces. It should be on sale for retail stores in the next few days, so it's really exciting for us to have one of our first vapable CDG products.

Great question I think many farm something that we've always been proud of is our innovation in our product pipeline, we have a great R&D team, who do a lot of hard work and develop.

Formulations and product method delivery for both our own brands in some of our partner brands such as a valuation canopy brand. So we work really hard on that I think as far as the future goes we saw the great success that we had with launching CDN and.

And Canada is one of the one of the first that have a CDN offering and the first to have available CDN. We're doing the same thing with <unk>, we've already delivered it to the province as it should be on sale for retail stores in the next few days, so it's really exciting for us.

And then, now that we have this dry flower, there's a lot of other opportunities there as far as product innovations, like if we want to make a wellness dry flower where we have like inhalable CBD that's also infused with CBD isolate or resin, so that consumer or a patient to get that extra CBD. So we'll continue to look at that and they will fall under a different brand depending on who that consumer is. And then continuing from there, as we mentioned in the call, we ranked number four in cannabis oils across the country, so we'll continue to innovate that portfolio as well. So we'll look at things like CBD a CBDA as a differentiated offering there and then look at different delivery methods, whether that be like a capsule or a spray and things like that. So we're trying to make sure that we have consistent refreshing skews to keep those consumers coming back.

A lot of other opportunities there as far as product innovations like if we want to make a wellness dry flower, where we have like inhalable CBD that also infused with CBD isolate our residents so that that that consumer or a patient to get that extra CBD. So we'll continue to look at that and they will fall.

Under a different brand depending on who that consumer is and then continuing from there we are.

<unk>.

We mentioned in the call we ranked number four in <unk>.

Cannabis oils across the country. So we'll continue to innovate that portfolio as well so things like CBD a our CVA.

Differentiated offering there and then look at different delivery methods, whether that be like a capsule or our spray and things like that so we're trying to make sure that we have consistent refreshing skews to keep those consumers coming back.

Scott Fortune: I appreciate the color there, thanks. And then, last question from me, as you're looking to the active pharmaceutical ingredient side as that plays out over a longer-term, what you're doing on growing cannabinoid markets, I know you have an opportunity here to go after some of the [inaudible] or that side. Can you refresh us on the timing and the opportunity for developing your own specific active ingredient for that market per se?

Youre doing on growing.

Cannabinoid markets.

I know you're.

I have an opportunity here to go after some of the.

Electrical or that side can you refresh us on the timing and the opportunity for.

Developing your own.

<unk> active ingredient for.

That market per se.

Keith Strachan: Okay. Thanks, Scott. That's the part of the business that I'm most excited about. I think that our company is built as a pharmaceutical company and it has really grown in shape of that. In 2021, we hit some great milestones there. The biggest one getting our drug establishment license, which is very unique to us as a cannabis producer in Canada and then the next one would be our drug master file. So having that drug master file in place with the USFDA allows pharmaceutical companies to buy our API. So that API can then be sold into different formulations that are actually marketable drug products. So think of the next Epidiolex or the next [inaudible] and what pharmaceutical company is going to launch that. So we're working really hard on that. I think we mentioned on the call that we've already sold development material to pharmaceutical companies who are developing either a novel or generic drugs and we will continue to build with those companies. It is a longer sales cycle, hence why we've put some resources entity at a lease market to help pay for that. But when that sales cycle does come to fruition then we will be ready and we'll be able to take advantage of that massive opportunity.

Thanks, Jonathan.

Part of the visit that I'm. Most excited about I think that our company is built as a pharmaceutical company and it has really.

Rone and shape of that in 2021, we hit some great milestones there the.

The biggest one getting our drive establishment license, which is very unique to us in the cannabis producer in Canada and then the next one would be.

Our drug master file so having that.

That drug Master file.

In place with the U S FDA allow us pharmaceutical companies to buyer API, so that API.

We saw.

Into different formulations that are actually marketable dropbox, so think of.

The next step of dialects are the next Saturday and less what's pharmaceutical company is going to launch that so we're working really hard on that I think we mentioned on the call that we've already sold development material to pharmaceutical companies, who are developing either a novel or generic drugs and we will continue to build with those companies. It is a longer sales cycle.

Hence why we've put some resources entity I don't lease market to help pay for that but when that sales cycle does come to fruition.

Then we will be ready and we'll be able to take off.

Take advantage of that massive opportunity.

Scott Fortune: Thanks, I will jump back in the queue.

Thanks, I will jump back in the queue.

Operator: Your next question comes from the line of Amy Chan from BMO Capital Markets. Your line is open.

Amy Chan: Hi, Good morning. Thanks. First question is on the data relationships. So could you just comment overall like is [inaudible] happy with the partnership so far? Is it supply on year-end that's keeping revenue growth a bit more gradual or is it that there's just much higher competition and product saturation in Germany than you expected? And also, can you tell what you said that one STADA onboard the patient is very sticky and they're able to keep them?

And product saturation in Germany than you expected and also can you elaborate can you tell what you said that one scatter onboard the patient is very sticky and they're able to keep them.

Keith Strachan: Yeah, thanks Amy. I'm happy to elaborate a little bit more on the STADA relationship. I don't think that there is a supply problem. I think, as you know in the industry, there is a lot of supply. Obviously, when we're selling GMP flower there is a little bit less options, but there is a lot available if they would like to start or any other of our German customers are looking for expansion there, so I don't think its the supply base. As I mentioned, they do take a bit of a slower growth. We are really happy with the program. STADA themselves they have a cannabis business unit and that cannabis business unit has over 20 employees. So you can kind of, even look at that having a business unit with 20 employees you can imagine the investment that they put into this and that gives them that opportunity.

Happy to elaborate a little bit more on the shallow relationship I don't think that there is a supply problem and I think as you know in the industry. There is a lot of supply obviously, when we're selling GMP flower.

It is a little bit.

There is a little bit less options, but there is a lot of available.

If they would like to start or any other of our German customers are looking for expansion. There. So I don't think its the supply base as I mentioned they do.

Take a bit of a slower growth there.

We're really happy with the program.

That themselves they have a cannabis business unit that Canada business unit has over 20 employees.

It kind of even look at that having a business unit with one employee you can imagine the investment that they put into this and that.

Yes.

So really with this STADA opportunity and continuing to grow and get those patients, it's really important for them to get that stickiness. And so what I mentioned on that stickiness, there's two different kind of markets within Germany. There's those who are going to candidate-focused pharmacies and buying almost like as a spot consumer and then those who are having firm prescriptions from their doctor. And so the doctor would have an option to write a prescription for let's say high THC, in which case the patient or the pharmacist to put them into any sort of high THC offering, whereas with the other option for a doctor is to actually name the product. So the STRADA brand is called CannabisSTADA, so if they write CannabisSTADA22 on there then that patient can only fill that strict with CannabisSTADA22 in order to fill it, and then refills would be that same product unless they went back to the physicians. So that's where you get the stickiness. It's having those relations at the physician level and getting them signed onto your actual product. Given that STADA has been in the pharmaceutical business for 100 years, this is something that they're very good. So we're seeing month-over-month growth, that is very encouraging. But as you mentioned, it is slower as they take more of our approach of getting them patient by patient.

With this data opportunity and continuing to grow and get those patients it's really important for them.

That stickiness and so what I mentioned on that thinking.

There's two different kind of market then within Germany.

Those who are going to candidate focused pharmacies.

And buying almost like as a spot consumer and then those who are having.

Firm prescriptions from their Doctor and so the Doctor would have an option is to write a prescription for let's say high THC in which case the patient or the pharmacist to put them into any sort of high tech the offering whereas with the other option for a doctor is to actually name the product so.

The Saturday brand in Canada.

Kind of a data so if they rate Canada stat of 22 on there then that patient can only fill that strict with candidates out of 'twenty two.

In order to fill it and then rebuilds would be that a product unless they went back to the physicians. So that's where you get the stickiness is having those relations at the physician level and getting them signed onto your actual product.

That has been.

In the pharmaceutical business for 100 years. This is something that they're very good at is overseeing.

Month over month growth that is very encouraging but as you mentioned it is slower as they take more of our approach of getting them patient by patient.

Amy Chan: I understand. Okay, so they're going that stickier route and so it takes time to establish the relationship and educate the physicians specifically of their own product, hoping that this laser physician will like their specific product and that whole process just takes longer than say going to the former route of just writing high THC.

Going to the former of just just riding high THC.

Keith Strachan: Yes, that's correct. In some cases, a producer may take advantageous load-ins and try things like discount sales to the pharmacies and that's more of like a one and done strategy, whereas we're doing that slow build and really doing the physician education on some of it. Really that wraps back in to elaborate more with the MediPharm ecosystem. We're very heavily involved in the clinical area, so we have multiple trials going on; some of the more notable ones with Mcmaster University. So it's actually MediPharm product. Particularly in most cases, our CBD 50, that's being used by patients in multiple trials and then we could take initial data from that, and then we can use that for things like physician education. So that's where it's getting more and more sticky where a brand can just come out of nowhere and launch something and try to take those patients.

In some cases.

Producer May take advantageous load ins and try things like discount sales the pharmacies and that's more of like a one and done strategy, whereas we're doing that slow build and really doing the physician education. Some of it is really that wraps back and elaborate more with the ecosystem. We're very heavily involved in.

The clinical.

Area. So we have multiple trials going on some of the more notable one with Mcmaster University. So it's actually many farm product.

Particularly in most cases, our CBD 50.

That's been used by patients in multiple trials and then we could take initial data from that and then we can use that for things like physician education. So that we're getting more and more sticky where our brand can just come out of nowhere and launch something and try to take those patients.

Amy Chan: Right. Okay, that's helpful. And then my second follow-up is, can we just go back to the initial API sales you've made in the fourth quarter? So I wasn't sure if I fully understood like is this just these two Pharma companies who just need some initial material as they were doing studies? Or like are these drug products that they are eventually looking to commercialize and you maybe like the recurring supplier?

That's helpful.

And then my second follow up is.

Can we just go back to the initial API sales you've made in the fourth quarter. So.

I wasn't sure if I fully understood like is this just these two pharma companies like a <unk>.

Need some initial material as they were doing studies or like are these.

Our products are drug products that are eventually looking to commercialize and you maybe like.

The recurring supplier.

Keith Strachan: Yeah, it's actually two different distinct routes. So with API, we really have three routes of business. It can be someone who is doing studies for a clinical trial, so they're doing like a new novel drug. The other route would be someone who is launching abbreviated new drug application with the FDA, which would be your classic generic, and then there is another type of generic with the FDA, where it's a different delivery method and we have clients that fit into all three pillars.

It's actually two different distinct route so with API, we really have three routes of business. It can be someone who is doing.

Studies for a clinical trial, so they're doing like a new novel drug.

It would be someone who is launching abbreviated new drug application with the FDA, which would be your classic generic and then there is another type of generic with the FDA, where it's a different delivery method and we have clients that fit into all three pillars.

Our sales in Q4 is two types. One is a reputable pharmaceutical company that is building on a new drug product. So they're now doing development factors, so they're actually making batches with our API so that they could put it on stability and start some of their initial like toxicology and safety study. And then the other client is really looking at the generic opportunity in Canada. If you look at the [inaudible] pharmaceutical portfolio, there's a bit of a patent cliff come 2026, so they're eyeing up that patent cliff. And if you look in the FDA Orange book, our patents on the Epidolex could start to be challenged in September of this year. So in order to put in a challenge with the FDA under an abbreviated new drug application, you would actually have to have material on, let's say, like three batches that will be on stability. So where we're selling product into these pharmaceutical companies, they're working on those development batches. So they are pretty far along, it's not just phase I of a four-phase process. They would be pretty far along in that process, but they still have to go through the long abbreviated new drug application process.

Reputable pharmaceutical company that is building on our new drug product. So they're now doing development factors, so theyre actually making batches with our API.

So that they could put it on stability and start some of their initial like toxicology and safety study and then the other client is.

We're really looking at the generic opportunity in Canada, if you look at the.

Jazz pharmaceutical portfolio Theres, a bit of a patent cliff come 2026.

And of that patent Cliff and if you look at the if you look at the FDA Orange book.

Our patents on the dielectric to start to be challenged in September of this year. So in order to put in a challenge with the FDA under a abbreviated new drug application you would actually have to have material, let's say like three batches that will be on stability, so where we're selling product into these pharmaceutical companies their work.

On those development batches, so they are pretty far along if not just.

Phase one of our four phase growth that they would be pretty far along in that process, but they still have to go through the long.

Abbreviated new drug application process.

Amy Chan: And for both of these, would you be the exclusive supplier as they go further and further down the line and into commercialization down the road?

Are you would you be the exclusive supplier as they go further and further down the line and into commercialization down the road.

Keith Strachan: No, in neither case are we considered exclusive at this point. Obviously, as a pharmaceutical company, there are two things; one you don't want to have all your--especially in today's uncertainties of supply chain, you usually don't have one supplier, which is very common in the pharmaceutical industry. As well as because they are in the application phase, they don't really want to sign up for something, let's say they go and challenge the patent and they move and they lose that challenge [inaudible] pharmaceuticals they don't really want to be on the hook for that supply.

Obviously as a pharmaceutical company. There is two things one you don't want to have all your especially in today's uncertainties of supply chain you usually don't have one supplier, which is very common in the pharmaceutical industry as well as because they are in the application phase. They don't really want to sign up for something let's say they go and challenge to the patent and they move and they move that out to jazz.

Critical they don't really want to be on the hook for that supply.

There are some things that we do and we provide them with R&D support, we think that we've done the most characterization on natural CBD probably across the world. And knowing what every single impurity is in that 1% when 99% is CBD, everything else that's in that 1%, so that's where we get it. And then really even though we wouldn't be exclusive, once they name us in their application, so we have our US drug master file, once they do their filing for abbreviated new drug application, they cross-reference our drug master file for the FDA and then at that point, it becomes pretty hard for them to change suppliers. So although in agreement we might not be exclusive, there are multiple ways that we are able to work with them, so we get again, some stickiness in that relationship.

And knowing what every single impurity is in that 1% when the 99% of CBD everything up to 91%. So that's where we get it and then really even though we wouldn't be exclusive once they name us in their application. So we have our U S drug master file once they do their filing for abbreviated new drug application They cross.

Ross reference our drug Master file for the FDA and then at that point, it becomes pretty hard for them to change suppliers. So.

Although in agreement, we might not be exclusive there is multiple ways that we are able to work with them. So we get some again some stickiness in that relationship.

Amy Chan: Got it. Okay, that's it from me. Thank you very much.

Operator: And there are no further questions at this time. Mr. Bryan Howcroft, I turn the call back over to you for some closing comments.

Bryan Howcroft: Okay, thank you very much, Operator. Look we appreciate all of you for joining us today and certainly your ongoing support.

We look forward to speaking with you in May for Q1 earnings, so wishing everyone a great day. Thank you very much.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

Please wait the conference will begin shortly. [music]. Okay. Sure. [music]. Yes. Yes. Yes. Yes. Sure. [music].

[music].

Okay.

Sure.

[music].

Yes.

Sure.

[music].

Q4 2021 Medipharm Labs Corp Earnings Call

Request a DemoDemo

LAB

MediPharm Labs

Earnings