MediPharm Labs Reports First Quarter Results with Growth in Sales, Margin and EBITDA

TORONTO, May 15, 2023 /CNW/ - MediPharm Labs Corp. (TSX: LABS) (OTCQX: MEDIF) (FSE: MLZ) ("MediPharm", "MediPharm Labs" or the "Company") a pharmaceutical company specialized in precision-based cannabinoids, today announced its financial results for the three months ended March 31, 2023.

First Quarter 2023 – Select Highlights

Progress Towards Profitability

• Achieved strongest EBITDA⁽¹⁾ in two years as compared to prior quarters, reducing losses to ($2.1M) with continued focus on growing gross margin positive revenue segments, streamlining operations and reducing operating expenses. Adjusted EBITDA⁽¹⁾ of ($3.1M) with the inclusion of a one-time reversal of bad debt collected.^(3)(4)(5)
  
  
• Subsequent to closing of the Company's acquisition of VIVO Cannabis Inc. ("VIVO") on April 1, 2023 (the "Transaction"), the Company has implemented its plans to reduce the combined MediPharm and VIVO non-direct labour workforce by approximately 30%, since the announcement of the Transaction. This is in addition to previously announced significant restructuring efforts made separately by both companies in 2022. This reduction is expected to save over $4M on an annualized basis as MediPharm Labs progresses towards achieving positive EBITDA⁽¹⁾ synergies between $7M to $9M on an annualized basis.^(2)(3)(4)
  
  
• Q1 2023 saw growth in revenue of 20% on a year over year basis and slightly increased quarter over quarter despite the seasonality of the Canadian adult-use market. Operating expenses reduced by 47% as compared to Q1 2022.
  
  
• Gross profit was positive for the second consecutive quarter.

Continued Progress Solidifying Leadership in Cannabis-Based Pharmaceutical Industry

• Began in-depth correspondence with the United States Food and Drug Administration (the "FDA") in February 2023 regarding recent on-site inspection related to Drug Master File being submitted as part of an Abbreviated New Drug Application (ANDA) submission by an international pharmaceutical partner.
  
  
• MediPharm Labs is the first company in Canada to go through an in-depth Active Pharmaceutical Ingredient (API) filing review with the FDA for a natural cannabinoid molecule, according to the FDA inspection and foreign manufacturing site databases. The Company is also the first THC-touching facility in North America to have an on-site FDA inspection, according to the FDA inspection and foreign manufacturing site databases.
  
  
• In March 2023, one of MediPharm's US-based academic research partners received FDA approval of an Investigational New Drug (IND), which is expected to allow for participant dosing to begin in the coming months.⁽²⁾

Transformational M&A

• In December 2022, MediPharm entered into a definitive arrangement agreement with VIVO, pursuant to which MediPharm agreed to complete the Transaction. VIVO was previously listed on the Toronto Stock Exchange, and holds production, sales and research licences from Health Canada and operates an indoor cultivation site, a Canadian online medical cannabis sales platform, international branded sales in Australia and Germany, and a network of medical cannabis patient clinics.
  
  
• On April 1, 2023, the Transaction with VIVO was successfully closed. The Transaction resulted in the Company acquiring an EU GMP cultivation site, a Canadian online medical cannabis sales platform, an international branded sales platform in Australia and Germany, and a network of medical cannabis patient clinics.
  
  
• The pro-forma combined Company resulting from the Transaction is positioned to provide fulsome Canadian market coverage with cultivation and manufacturing expertise, and a full suite of dried flower & derivative products with both established medical and adult-use wellness distribution channels.⁽²⁾
  
  
• Management believes they are on track for achieving positive EBITDA⁽¹⁾ synergies between $7M to $9M on an annualized basis.^(2)(3)(4)(5)

Solid Balance Sheet

• MediPharm ended Q1 2023 with $20.2M of cash, materially debt free and having outright ownership of its assets, including its GMP facility in Ontario. Subsequent to quarter close, the Transaction with VIVO resulted in the outright ownership of two manufacturing facilities, several clinics, several parcels of land and $2.5M in debt which matures in 2024.

Management Commentary

David Pidduck, CEO, MediPharm Labs commented, "Revenue, gross profit and EBITDA⁽¹⁾ all improved versus prior year, versus prior quarter and versus trailing twelve months. All key metrics both financial and non-financial are going in the right direction and according to plan. We are exactly where we planned to be for readiness to implement the VIVO integration."

Greg Hunter, CFO, MediPharm Labs added, "In Q1, we continued to make progress by growing our revenue base, improving gross margin, reducing expenses and reducing cash burn as we drive towards profitability. Sales and Adjusted EBITDA⁽¹⁾ improved year over year and sequentially and gross profit was positive for the second consecutive quarter. In addition, we implemented a restructuring plan post-closing of the Transaction with VIVO, which we expect will save over $4M on an annualized basis⁽²⁾ as we progress towards our synergy target. I am pleased with the progress we made but we still have more to do as we move towards positive EBITDA⁽¹⁾ and cash flow."

Financial Summary

	Three months ended
	March 31, 2023 $'000s		December 31, 2022 $'000s	September 30, 2022 $'000s	June 30,  2022 $'000s	March 31, 2022 $'000s
Revenue	5,843		5,616	7,262	4,362	4,877
Gross profit	387		211	(1,190)	(532)	(403)
Opex^(a)	(2,923)		(5,122)	(5,444)	(6,607)	(6,679)
Adjusted EBITDA^(b)	(3,090		(3,634)	(4,974)	(6,345)	(5,684)

(a) Opex includes general administrative expense, marketing and selling expenses and R&D expenses.

(b) Adjusted EBITDA is a non-IFRS measure. See "Non-IFRS Measures".

Q1 2023 Financial Results Conference Call

MediPharm's executive management team will also host a conference call and audio webcast on Monday, May 15, 2023 at 8:30 a.m. eastern time to discuss the Company's financial results.

Conference Call:

Toll-free number: [phone] / International number: [phone]

Conference ID: 4921762

Participants are asked to dial in approximately 15 minutes before the start of the call.

Audio Webcast:

An audio webcast will be available by visiting the following link here.

For those who are unable to participate on the live conference call or webcast, a replay will be available at https://www.medipharmlabs.com/investors approximately one day after completion of the call.

About MediPharm Labs 

Founded in 2015, MediPharm Labs specializes in the development and manufacture of purified, pharmaceutical-quality cannabis concentrates, active pharmaceutical ingredients (API) and advanced derivative products utilizing a Good Manufacturing Practices certified facility with ISO standard-built clean rooms. MediPharm Labs has invested in an expert, research driven team, state-of-the-art technology, downstream purification methodologies and purpose built facilities with five primary extraction lines for delivery of pure, trusted and precision-dosed cannabis products for its customers. Through its wholesale and white label platforms, MediPharm Labs formulates, develops (including through sensory testing), processes, packages and distributes cannabis extracts and advanced cannabinoid-based products to domestic and international markets.

In 2021, MediPharm Labs received a Pharmaceutical Drug Establishment Licence from Health Canada, becoming the only company in North America to hold a domestic Good Manufacturing Licence for the extraction of natural cannabinoids. The Company carries out its operations in compliance with all applicable laws in the countries in which it operates.

Notes:

1. This is a non-IFRS reporting measure. See "Non-IFRS Measures" below.
   
   
2. This is forward-looking information and based on a number of assumptions. See "Cautionary Note Regarding Forward-Looking Information" and "Assumptions".
   
   
3. Based on both costs and revenue opportunities identified by MediPharm and VIVO management. Revenue opportunity assumed that both existing products may be sold into the existing sales channels of both VIVO and MediPharm. Costs savings estimated depends on the eliminating duplicated public company expenses and redundant corporate infrastructure.
   
   
4. This target, and the related assumptions, involve known and unknown risks and uncertainties that may cause actual results to differ materially. While MediPharm and VIVO believe there is a reasonable basis for this target, such target may not be met. Actual results may vary and differ materially from the targets. See "Assumptions".
   
   
5. Certain financial information included in this press release is neither audited nor reviewed. Where possible, the information has been constructed by management from available audited or audit reviewed financial statements. Where no audited or audit reviewed information has been available, additional management accounting information has been utilized to construct financial information. Readers are cautioned not to place undue reliance on such information.

Assumptions

In developing the financial guidance set forth above, MediPharm and VIVO made the following assumptions and relied on the following factors and considerations:

• The targets are based on MediPharm and VIVO's historical results including annualized revenue from its interim financial results for the period ended September 30, 2022, as adjusted for subsequent events including completion of the Transaction with VIVO.
  
  
• Revenue sustainability and growth depend on a variety of factors, including among other things, location, competition, legal and regulatory requirements. Prices are projected forward at recently realized wholesale and direct to patient prices.
  
  
• Cost of goods sold, before taking into account the impact of value changes in biological assets (which are non-cash in nature), and, accordingly, are excluded from calculations of EBITDA, have been projected based on estimated costs of production and capacity available from a similar supply chain.
  
  
• The immediate reduction of public company professional and service fees, such as but not limited to, errors and omissions insurance, audit services, listing expenses and external legal fees.
  
  
• Implied redundancy of employee roles in the Company, mainly in corporate functions. Impacted employee severance fees are calculated on current employment agreements and Employment Standards Act (Ontario).
  
  
• No changes to existing medical cannabis legislation and regulations in Canada, Germany, Australia and Brazil.
  
  
• All VIVO and MediPharm regulatory licenses remain in good standing with domestic and international regulators, particular Good Manufacturing Practices (GMP).

Non-IFRS Measures

This press release contains references to "EBITDA", "Adjusted EBITDA" and "Adjusted Gross Profit", which are non-IFRS financial measures. Management believes that these supplementary non-IFRS financial measures provide useful additional information related to the operating results of the Company. These non-IFRS financial measures are not recognized under IFRS and, accordingly, users are cautioned that these measures should not be construed as alternatives to net income (loss) and gross profit determined in accordance with IFRS as measures of profitability or as alternatives to the Company's IFRS-based Financial Statements. The non-IFRS measures presented may not be comparable to similar measures presented by other issuers. EBITDA refers to earnings before interest, taxes, depreciation, and amortization and is used as an indicator of the Company's overall profitability. Adjusted EBITDA is a measure of the Company's overall financial performance and is used as an alternative to earnings or income in some circumstances. Adjusted EBITDA is essentially net income (loss) with interest, taxes, depreciation and amortization, non-cash adjustments and other unusual or non-recurring items added back. Adjusted EBITDA has limitations as an analytical tool as it does not include depreciation and amortization expense, interest income and expense, finance fees, gain in revaluation of derivative liabilities, taxes, government grants including rent and wage subsidies, one-off transactions, impairment losses on inventory and on fixed assets and intangibles, write down of deposits and share-based compensation. Because of these limitations, Adjusted EBITDA should not be considered as the sole measure of the Company's performance and should not be considered in isolation from, or as a substitute for, analysis of the Company's results as reported under IFRS. Adjusted EBITDA, as used within the Company's disclosure, may not be directly comparable to Adjusted EBITDA used by other reporting issuers. Adjusted Gross Profit refers to gross profit excluding the adjustments for accelerated depreciation, write down of non-current deposits and write down of inventory. Adjusted Gross Profit is a useful measure as it represents gross profit for management purposes based on costs to manufacture, package and ship inventory sold, exclusive of any impairments due to changes in internal or external influences. Adjusted EBITDA and Adjusted Gross Profit do not have any standardized meanings and the Company's method of calculating such non-IFRS measures may not be comparable to calculations used by other companies bearing the same description. See "Use of Non-IFRS Measures" in the Company's management's discussion and analysis for the period ended March 31, 2023 for additional information.

Cautionary Note Regarding Forward-Looking Information

This news release contains "forward-looking information" and "forward-looking statements" (collectively, "forward-looking statements") within the meaning of the applicable Canadian securities legislation. All statements, other than statements of historical fact, are forward-looking statements and are based on expectations, estimates and projections as at the date of this news release. Any statement that involves discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as "expects", or "does not expect", "is expected", "anticipates" or "does not anticipate", "plans", "budget", "scheduled", "forecasts", "estimates", "believes" or "intends" or variations of such words and phrases or stating that certain actions, events or results "may" or "could", "would", "might" or "will" be taken to occur or be achieved) are not statements of historical fact and may be forward-looking statements. In this news release, forward-looking statements relate to, among other things, statements regarding: the Company's progress toward profitability; potential annualized savings to be realized as a result of the Transaction and the Company's restructuring efforts; the anticipated timing and results of integration efforts of the Company following completion of the Transaction; potential cost synergies to be realized as a result of the Transaction; results of Investigational New Drug applications submitted to the FDA by US-based research partners; and revenue growth. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable, are subject to known and unknown risks, uncertainties, and other factors which may cause the actual results and future events to differ materially from those expressed or implied by such forward-looking statements. Such factors include, but are not limited to: general business, economic, competitive, political and social uncertainties; the inability of MediPharm to obtain adequate financing; the delay or failure to receive regulatory approvals; and other factors discussed in MediPharm's filings, available on the SEDAR website at www.sedar.com. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on the forward-looking statements and information contained in this news release. Except as required by law, MediPharm assumes no obligation to update the forward-looking statements of beliefs, opinions, projections, or other factors, should they change.

SOURCE MediPharm Labs Corp.

Please contact: MediPharm Labs Investor Relations, Telephone: [phone] ext. 1525, Email: [email protected], Website: www.medipharmlabs.com