Q4 2023 MediPharm Labs Corp Earnings Call
We see some some big news last week.
Moving from the narcotics.
For one which a lot of people were expecting could drive a lot of growth in the medical market. There. So can you.
Speak to us in terms of a high level in terms of where you stand and all your operations.
Speaker Change: <unk> right, yet Masada agreement Youre talking about Dronabinol and clarify the Dronabinol is that separate from starting here and then where do you stand in terms of the relationship with start up it seems like with the more traditional prescriptions you might be able to leverage that relationship with their sales force a lot more. So if you can really dive into more detail in terms of your plan of action with the change in Germany that would be appreciated.
Speaker Change: Thank you.
Speaker Change: Hey, Erin Thanks for the question, it's Dave I'll, let Keith our German expert that take take this one there's lots of questions there and there's lots of good opportunities in Germany. So Keith go ahead.
Keith: I think there were really excited about the legislation changes a little bit faster even than we expected we thought that the federal representatives might have sent it back.
Keith: For a further comment so we're really happy with where things are at now and we're really excited about what it can do I think for us it's the removal of that narcotics license. So.
Keith: As you know the legalization itself is based around.
Keith: More personal possession and personal cultivation to start thats, what theyre, calling tier one and tier two hopefully will be somewhat of a commercial program, but by maroon. The narcotics license that allows us to flow goods easier allows our pharmacy partners to store goods easier and even places like.
Keith: And our distribution channel, where there's no special storage requirements and things like that so I think that there's a really good opportunity there to see additional growth you asked a little bit about where our businesses in Germany, and how it's broken up our main partner there remains to be statin and status.
Keith: Large European G.
Keith: <unk> and wellness focused company right.
Keith: Right now Theyre doing great in the oil category. So you know when it comes to flower. There are a lot of patients that are looking to that are more discerning customers and looking for you know the next tightest coolest flower and what that is really focused on is the medical patient and those medical patients are using that oil product and there are a number of them now.
Keith: In that category in Germany today, and it continues it continues to grow with.
Keith: With the acquisition of vivo, we did pick up the Beacon health <unk>.
Keith: <unk>, which has its own suite of licenses.
Keith: Our import manufacturing and distribution and we use that.
Keith: To strengthen our backend and we do have a few skus that we do distribute under that beacon for him.
Keith: But it's not a large piece of our business today, it's something that we look to grow.
Keith: In the future.
Keith: And then lastly, I'll just touch on Dronabinol as you mentioned <unk>.
The THC isolate and it's used as a compounding product and traditionally a lot of the production has been done synthetically and that synthetic chemical production is a very high cost and so we were able to do is we're able to do a natural.
Keith: Process here at our factory in Berry under GMP pharmaceutical conditions, and we can make that at a larger scale and arguably also had a more competitive price.
Keith: And we have started selling them out in the market in Q4 than in Q1.
Keith: Sales have picked up drastically for that product, it's not something that's distributed by scatter.
Keith: It's really us there's like an API in a compounding as from specialty pharmacy.
Keith:
Keith: That are themselves are more focused on their brand. So they have the Canada, Canada starter brand.
Keith: And they continue to grow that brand and so the generic product we do a through a number of other distributors and it's more of a distributor pharmacist relationship for the actual product.
Speaker Change: Alright, great really appreciate that Keith.
Speaker Change: I would like to dive a little bit more in terms of simply with.
Speaker Change: SCADA and Germany so.
Speaker Change: Have your conversations been with the company are they planning to put more and more manpower to where do they believe that there's going to be a big increase in terms of the physicians that will adopt <unk> and no longer has to be there in the yellow prescription narcotics. It can be just much much more of the lower barrier recordkeeping et cetera from how I understand it and how much from were from <unk>.
Speaker Change: <unk> saw that what started approach in terms of the thing that will open up physicians and patients and then also can you surmised terms of the agreement was at a five year agreement for you guys, there and any updates on potentially extending that thank you.
Speaker Change: Yes, we so scatter is I'm also excited about the changes I think you kind of nailed the one areas that it's easier for prescribers now not being in narcotics. So other physicians would be more comfortable with prescribing. It. They have started has one of the largest sales teams in Germany on the.
Speaker Change: Medical cannabis side.
Speaker Change: And so they'll look to leverage that further and then I think you know when you think of stat of themselves. They also.
Speaker Change: Our marketing hundreds of other pharmaceutical products to physicians in Germany and throughout Europe, and so it's now how do they leverage those relationships further.
Speaker Change: To possibly talk about cannabis medical cannabis products.
Speaker Change: With those physicians, who really wouldn't have prescribed it before based on that narcotics handle. So there is a really big opportunity there and we continue to look at that and in Germany and in other jurisdictions.
Speaker Change: I think you.
Speaker Change: You mentioned the contract the contract has a five year contract with them some options to extend and the five years actually started from the first delivery. So even though we signed it in October of 2020. The first sales started in February of 2021. So we are under the original contract till February of 2000.
Speaker Change: 26.
Speaker Change: And then we'll have some options to extend without any heavy lifting on the actual agreement side.
Speaker Change: Their business continues to grow on their side, especially with their higher margin product and the oil. So they are happy with the business and I.
Speaker Change: I see this growing you know far beyond that 2026 and date of the original agreement.
Speaker Change: Okay, great. Thanks, so much for the color and details underlying the Q.
Speaker Change: Thanks Darren.
Speaker Change: If you would like to ask a question. Please press star one on your telephone Keypad. Your next question comes from the line of Scott Fortune from Roth M. Kam. Please go ahead.
Scott Thomas Fortune: Yes, good morning, and thank you for the questions.
Scott Thomas Fortune: A real good color on the German side as we think that's a big opportunity maybe didn't get into kind of other international markets. The Brazilian side is a little bit there and then just provide more color around the Canadian market as we see the excise tax here relief for the industry and just the opportunities there for positioning and grow.
Scott Thomas Fortune: <unk> to the Canadian market in 'twenty four would be helpful. How you guys are seeing that play out here.
Speaker Change: Yeah. Thanks, Thanks for the question Scott again.
Speaker Change: Keith talked to all of those and maybe I'll ask Keith.
Speaker Change: You're talking about our revenue growth opportunities. So I think there is Brazil, but theres also Australia. So I'll just ask Keith to also touch on Australia before he.
Speaker Change: <unk> addresses the Canada piece, so I think all of the areas you highlighted have some good growth opportunities and some of them are are emerging and we will see in 2024. So Keith maybe you want to cover those.
Sure.
Keith: Thanks for joining us this morning.
Keith: Brazil, something that's really exciting for us we have.
Keith: <unk> really been a pioneer in the industry are doing.
Keith: The proper path of.
Keith: Authorized prescription product in Brazil, So Brazil started like a lot of other companies with compassionate care.
Keith: And there wasn't a lot of regulations to bring into that the Brazil health regulatory and visa.
Keith: Has now push towards more of the authorization, there's probably only a dozen authorization today.
Keith: <unk> holds two of those having.
Keith: Having that authorization, even though they accepted our Canadian.
Keith: GMP drug establishment license to begin with so the export they wanted to come and do an actual inspection.
Keith: All of our facilities. So in December in Q4, they were here for a week and they when they did their thorough inspection of our facility.
Keith: And we are the first facility in North America that visa is inspected.
Keith: Through to completion.
Keith: <unk> cannabis and cannabis manufacturing so it's something that we're really quite proud of on the commercialization side. We have signed an agreement with a large pharmaceutical company in Brazil.
Keith: We are looking forward to disclosing further later and really what that does is it gives us access to that market in a bigger way than we have been opt.
Keith: Operating there in the last year and so we're just waiting on the next major milestone there is we're waiting on that one more product.
Keith: Authorization from and visa its a long process, where you submit a whole dossier that includes everything from product characterization to boast a stability studies and end use stability. So it's not something that something could speed up and it.
Keith: Creates a competitive moat for timing so no matter how much a competitor wants to do as far as spending resources on it they can only catch up so much with those so it's really a good opportunity there and we're looking forward to doing some meaningful meaningful things in Brazil in the back half.
Keith: Of this year.
Keith:
Keith: On the international side, especially on Germany, and Brazil, I think what's really important is is Australia. We've made really big strides in Australia since acquiring vivo and taking over the BK medical brand in Australia.
Keith: In Q4 was our first full quarter of oil and vape sales. There. So flower has been a great power brand there since 2018, one of the top five flower brands on a consistent basis.
Keith: In Australia, which like every other market is the more popular products, but what we did is we launched our oil and base and then in particular in <unk>.
Keith: What we saw as a great opportunity because the rules got stricter at the same time as we launch so debates had to be GMP. So same thing around process validation and stability was things that were needed and so what that did is it reviewed removed a lot of skus from the market. So are our competitors were forced to lead the <unk>.
Keith: With those skus.
And then we're able to see growth there. So we have big plans to.
Keith: Maintain leadership in that category in.
Keith: In Australia going forward and we have some new sales.
Keith: Folks in Australia medical sales liaisons, who are talking with physicians and we think that we can continue to grow that brand.
Keith: Since acquisition.
Keith: I will touch on the Canadian market as well, it's a very large market for us probably the largest addressable market for us.
Keith: Where we have seen growth in different ways. In 2023, we probably took a step back from some of our activities. There just as we saw some ups and downs in the industry was doing in particular.
Keith: You mentioned, an excise tax I think there was probably too much repreve for some of our peers and excise tax, especially through the pandemic. So they were able to sell products that are at even further than a loss.
Keith: Then companies like ourselves who are paying excise.
Keith: On a regular basis and are keeping our diligently keeping our counts up to date.
Keith: So we took a step back that's changed now.
Keith: The exercise even though there are still some large there are some very large outstanding balances with some of our peers.
Keith: What we don't have is just the wide open repreve. So even if you have a balance there now those are licensed producers are now being forced to be current and what that does is I think it helps even out you know the playing field as far as pricing goes in marketing goes.
Keith: So we have taken the time in 2023 to kind of re look at that portfolio and a relaunch and refresh some of it and a lot of that happened in Q4 to set up for a successful 2024.
Keith: So in Q4, we launched a number of additional products 15 different skus in the Canadian market, which is big for many farms Ah and a lot of that was focused around wellness type products like capsules in EBIT launched a wellness focused a minor cannabinoid vape, which.
Keith: Wellness focused beeps, we're not something that we're in Canada before we launch those products are in November and December. So we look to see the success in that in 2024, and wellness is kind of where we play within that market and where we you know when a when it comes to that and we've seen that when our market share in small categories like canvas oil.
Speaker Change: Yes, the only other thing I might add.
Speaker Change: Scott was the great unknowns about excise tax what happens you know there were some in the recent.
Speaker Change: Canadian report there was some recommendations for eliminating a medical or reducing medical excise, so who knows where that will come together and there is lot of speculation about changing.
Speaker Change: To a percentage basis or excise tax overall, so some of the things that will benefit the entire industry would benefit us as well.
Speaker Change: And then some of the things like related to medical would uniquely benefit players who are have a significant presence in the medical space like us so.
Speaker Change: If all of those recommendations came forward, we probably would benefit more than average from the excise tax reform again, if any if any does occur.
Speaker Change: I appreciate all the color. Thank you just I don't know if I missed out on some of the comments earlier, but kind of looking at M&A, obviously, a good balance strong balance sheet here, you've mentioned a lot of Canadian opportunities that you you know you'll be diligent there, but finally, he don't want to find similar partners.
Speaker Change: The vivo, but are you looking at potentially adding potential opportunity to sell into the international opportunity with categories or products to fully utilized.
Speaker Change: You're manufacturing your facilities, there just kind of how how are you looking at kind of approaching M&A and the opportunities there with these international markets potentially open up for you here.
Speaker Change: Yes, that's a good question on M&A and we are still actively as we've said looking at M&A and our balance sheet puts us in a really strong position to consider M&A. We are looking for ones that would be accretive. So that's obviously important to us I think synergy is the important thing for veeva.
<unk> had lots of synergy in terms of the international opportunities, but also from a cost perspective, many of the of the folks that we're talking to or considering now.
Speaker Change: One of the things that they value out of a potential partnership going forward is our international presence. So as you know.
Speaker Change: Some companies have an international presence from a Canadian perspective, but most Canadian Lps do not so we're also looking at international opportunities.
Speaker Change: But a lot of I would say a lot of Canadian Lps.
Speaker Change: Don't have any international presence and so we represent significant synergy for.
Speaker Change: For growth opportunities revenue synergies as we look at being able to use our channels for anyone that we might acquire or work with them to grow their business through our international channels and we're doing that.
Speaker Change: We're doing that on a licensing agreement perspective in and looking at many deals with companies to do that not in a full M&A perspective, but also that's certainly one of the things.
Speaker Change: And one of the synergy opportunities we look at as we consider M&A and I'd just say, we'll be really thoughtful as we were with vivo vivo I believe was extremely successful for us.
Speaker Change: In terms of driving shareholder value and I think I think anything we look at in the future we would.
Speaker Change: We would hope to similarly.
Speaker Change: [noise] be positive and accretive for shareholders.
Speaker Change: That's helpful. If I could slip one more in on there.
Speaker Change: The additional cost cuts here on kind of the opex side and fully.
Further optimizing utilization, but can you provide a little more color or detail less on these additional cost reductions and added contract manufacturing.
Speaker Change: A little more color on that would be helpful from 424 here.
Speaker Change: Yes, so two different things there on the cost side, we have been constantly going through different waves of restructuring focusing in different areas and in Q4, we.
Speaker Change: We had a further round of restructuring that had some significant numbers of FTE departures from the organization. Some of that is partially reflected in Q4, but most of that we will actually see in Q1, and the subsequent 2024 quarters or so.
Speaker Change: It's just a way of saying that the improvements we've seen on EBITDA and the improvements we've seen on the cost side of things are not fully baked in yet we have further.
Speaker Change: <unk> and further positive.
Speaker Change: News coming as decisions, we've already made and frankly already implemented I get worked in and then having said that we are constantly looking at incremental opportunities to streamline to leverage to get maximum optimization of facilities and so we would.
Speaker Change: Aside from revenue growth, which also is driving.
Speaker Change: Improvements in EBITDA, we still have further things on the cost side that are going to improve our EBITDA performance and maybe specifically on the contract manufacturing.
Speaker Change: Both from an international perspective, and a domestic perspective, it's been very active over the last I'll say six months.
Speaker Change: In terms of many and Keith mentioned, the Australia opportunity, where where a number of manufacturers, we're no longer able to provide GMP products for the market and our activity level of many people coming to US now, Australia, and Brazil, and other places, where we and as the rules get.
Speaker Change: Victor.
Speaker Change: Where companies can meet the standards and so we've had lots of activity in terms of new business opportunities over the last six months and similarly in Canada for a variety of reasons cost related a lot of quality related and a lot related to existing outsourced partners, having troubles, whether that's <unk> or.
Speaker Change: Other <unk> or other troubles, we have seen an uptick in I'll say manufacturing optimization contract manufacturing.
Speaker Change: Really from a number of of sources, who may have been with.
Speaker Change: If other competitors are.
Speaker Change: Looking to our.
Speaker Change: I'll say a better.
Speaker Change: Quality and a better financially secure a partner opportunity. So there's been a number of those and we hope to we hope that that also as those work into our results.
Speaker Change: Further EBITA and revenue improvement.
Speaker Change: Improvement I don't know if Keith or.
Speaker Change: Greg do we got to that great.
Speaker Change: Okay.
Speaker Change: So the questions I appreciate it.
Greg: Thanks, Scott Thanks, Scott.
Speaker Change: We currently have no further questions in our queue at this time I will now turn it over to the Matt firm Labs.
Matt: Management for closing remarks.
Matt: Great. Thank you operator, thank you everyone for joining us just a reminder.
Speaker Change: That the full text of the Oh, the conversation here will be online in the next several hours so.
Matt: If there was any challenges on timing youll be able to see and hear the ear or hear the entire script. So thank you everyone for joining us we're very excited about the results. We're able to present were very excited about 2024, and we will see you are we will see for Q1 results.
Speaker Change: Thanks for joining.
Speaker Change: This concludes today's conference call. Thank you for your participation and you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
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