Numinus Wellness Inc. (OTCQX:NUMIF) Q4 2022 Results Conference Call November 29, 2022 5:30 PM ET
Jamie Kokoska - Vice President, Investor Relations
Payton Nyquvest - Founder and Chief Executive Officer
John Fong - Chief Financial Officer
Reid Robison - Chief Clinical Officer
Paul Thielking - Chief Science Officer
Conference Call Participants
Michael Okunewitch - Maxim Group
Sepehr Manochehry - Eight Capital
Robert Sassoon - Water Tower Research
Good afternoon, and welcome to Numinus Wellness Inc.'s Fiscal Fourth Quarter and Annual 2022 Results Conference Call. A question-and-answer session for analysts and institutional investors will follow the formal remarks. As a reminder, this call is being recorded.
I would now like to turn the conference call over to your host, Jamie Kokoska, Vice President of Investor Relations. Please proceed.
Thank you, Brent. Good afternoon, everyone, and thank you for joining us for our fiscal fourth quarter and annual 2022 results conference call. Discussing Numinus' performance today are Payton Nyquvest, Founder and CEO; and John Fong, Chief Financial Officer. Joining them for analyst questions at the end of our formal remarks are Reid Robison, Chief Clinical Officer; and Paul Thielking, Chief Science Officer.
The following discussion may include forward-looking statements that are based on current expectations and are subject to a number of risks and uncertainties. The risks and uncertainties that could cause our actual financial and operating results to differ significantly from our forward-looking statements are detailed in our MD&A for the quarter and the year ended August 31, 2022, and in our other Canadian securities filings available on SEDAR. Numinus does not undertake to update or revise any forward-looking statements to reflect new events or circumstances, except as required by law. Our fourth quarter results were made available earlier this afternoon. We encourage you to review our earnings release, MD&A and financial statements, which are available on our website as well as on SEDAR.
As a reminder, all figures discussed on today's call are in Canadian dollars.
I'll now turn the call over to Payton Nyquvest, Chief Executive Officer.
Thanks, Jamie, and good afternoon, everyone. I'd like to extend the utmost gratitude that our work is connected on the unseated homelands of the Musqueam, Squamish and Tsleil-Waututh peoples and on other sovereign indigenous lands and territories across Turtle Islands. We are committed to a path towards reconciliation through continuous learning, reciprocity and humility.
Overall, we're very pleased with how our larger cross-border business is performing, and this is evident in the significant growth of our revenues, margins and gross profit during our fourth quarter due to our acquisition of Novamind, which joined Numinus in early June. While our business has grown considerably in the past year, I think it's important to take a step back and discuss how our business strategy is unique in the sector and why we believe we're on the right trajectory to meet the growing need of mental health care and for future regulatory reform.
Founded in 2019 as psychedelic therapy was increasingly becoming recognized and accepted as a breakthrough treatment for mental health disorders, Numinus has set out to establish the much-needed infrastructure to enable greater patient access to these treatments. To achieve this, we founded a leading integrated mental health care platform composed of wellness clinics and research, placing us at both ends of the mental health care ecosystem.
Today, Numinus has 12 wellness clinics throughout North America, has strong advocates of a not one-size-fits-all for the treatment of mental health disorders, Numinus clinics offer a wide variety of treatments, including traditional therapy and counseling, virtual psychotherapy, mindfulness programs, neurological services, Transcranial Magnetic Stimulation, Ketamine-assisted therapies, psychedelic-assisted therapies, KAP programs among many others.
The differentiating element in our clinics is that we work to create a one-stop shop for patients to go on their healing journey. Whether a patient prefers traditional methods or is open to discovering psychedelic-assisted therapy, they can have access at Numinus. Numinus also has a research business composed of a network of four clinical research sites, which offer clinical research management services with the support of our Health Canada licensed lab, which develops IP and focuses on advancing psychedelic discoveries.
As the choice research platform for an expansive and growing list of biotech and psychedelic organizations, Numinus has established the know-how and resources to help many of the sector's leading companies. Looking back at our fiscal 2022, the mental health platform we have today was largely built by the initiatives we undertook in the past year, which were instrumental in positioning Numinus well for the future.
First, we acquired NCT in Toronto, which expanded our services to include neurological care and grow our footprint in Canada's largest city. Second, we expanded our Ketamine-assisted therapy services throughout our clinic network, allowing us to provide another important mental health offering to our growing client base. Third, we uplisted to the Toronto Stock Exchange from the venture and established our OTCQX qualification in the United States.
And more recently, in the fourth quarter, we completed the transformational acquisition of Novamind in June, which provided us with a strong U.S. network of clinics and expanded our research service offering with the addition of well-recognized U.S. CRO services. And we launched our exciting new brand, which should be reflected across all our clinics and digital assets over the next several months, which should drive stronger brand awareness and enable more effective marketing and growth strategies.
We're proud to have achieved so much in just one year. But we're also very excited about what these initiatives will enable us to achieve in the near future and beyond. Today, Numinus is one of the best-positioned health care companies to provide the clinical infrastructure needed for the future of psychedelic-assisted therapies.
With the recent regulatory changes leading the way in Colorado, Oregon and Alberta for therapies using natural psychedelics and MAPS expectation to receive FDA approval for MDMA-assisted therapy within the next 1.5 years, the future of our sector is crystallizing. And whether it is healing centers or wellness clinics that provide psilocybin-assisted therapy, or clinics that offer FDA-approved MDMA-assisted PTSD treatments, the clinical infrastructure will be paramount in delivering and accessibility of these important treatments.
And today, Numinus is well positioned to be at the forefront of that mental health care revolution. The fiscal fourth quarter is our first reporting quarter following the completed acquisition of Novamind, and the first quarter for Numinus to demonstrate the real power of the larger cross-border platform that we've built. We're pleased to report that the combined businesses with a total of 12 mental health clinics in Canada and the United States, has made a significant impact in our performance.
Compared to the previous quarter, fourth quarter revenues grew 464% to $4.2 million, our gross margins improved 31.5% and gross profit grew to $1.3 million. Much of our fiscal fourth quarter was spent completing and integrating the acquisition of Novamind, which included implementing scalable systems and processes across our growing platform to ensure more efficient reporting, tracking and client service.
In our most recent quarter, our clinics comprise of roughly 88% of the revenue generated average gross margins of 27%. We're excited by the immediate uptick in operations with this large cross-border network and long-term opportunities ahead for a robust and growing wellness clinic network. Nearly all our clinics experienced meaningful growth in client appointments, with significant improvements seen at our Vancouver clinic, which also has the most room capacity for growth.
Our team completed more than 17,000 client appointments during the fourth quarter, including everything from Ketamine-assisted therapy, traditional therapy, neurological service, and other mental health and mental wellness offerings. We are particularly pleased with the number of new clients we're reaching, with 12.5% of all appointments in the fourth quarter coming from new Numinus clients.
As well, demand for Transcranial Magnetic Stimulation, which is currently only offered at clinics in Utah and Arizona, continues to show strong demand. In total, 1,568 TMS appointments were conducted during the quarter. We're currently looking into feasibility of expanding these services into other clinics across our network to provide greater access.
We also understand that key to meeting the incredible demand for mental health services is finding enough qualified and dedicated practitioners to conduct this important work. I'm pleased to say that our total number of practitioners has grown 18% from the time we completed the acquisition of Novamind, with more than 130 practitioners working for Numinus, either in a full-time or contract capacity.
Our proprietary training programs continue to generate both increased awareness of the Numinus brand and a strong pipeline of prospective new practitioners to recruit. We continue to see our training programs as both an important tool to further educate the medical community about the benefits and practices of psychedelic therapy and an opportunity to diversify our growing revenue streams. It's an offering to the practitioner community we're hoping to expand in the next several months.
In Canada, while we are pleased to see the first steps towards regulatory oversight, and therefore, potential legalization of psychedelic-assisted therapies in Alberta, we're currently still operating within the confines of the Special Access Program, known as SAP, to receive federal approval for our client access to important psilocybin or MDMA-assisted therapies.
We are continuing to take a thoughtful approach to the SAP process, ensuring that clients we submit applications for are likely to receive approvals. This approach ensures our clients benefit from appropriate expectations and ensures Numinus remains in high standing with Canadian health regulators as we continue to drive further access.
We continue to work with clients seeking psilocybin or MDMA-assisted therapies, and referring physicians to navigate the special access application process. We're pleased to say that we have another psilocybin-assisted therapy application now approved by Health Canada, with the client treatment expected to take place in the next several weeks. We're honored to assist these patients in getting access to these important treatments.
With that update on our strategy and operations, I'll now turn the call over to John to review our fourth quarter financial results in more detail.
Thanks, Payton, and good afternoon, everybody. Our fourth quarter results are the first to reflect the impact of our acquisition of Novamind, which we completed on June 10, a few days into the quarter.
Total revenues for the quarter were $4.2 million, 756% increase from revenue generated in the same quarter last year and a 464% increase from the prior quarter. The significant increase in revenue is mostly attributable to contributions from our new U.S.-based operations.
Revenues from our wellness clinic network comprised 88% of total revenue during the fourth quarter, down from 99% last year -- last quarter, sorry, indicating the greater impact from our newly expanded research division.
Our new U.S.-based CRO business, Cedar Clinical Research, generated $492,000 in revenue during the quarter and continued to show great opportunities for growth. U.S.-based revenue streams, including clinics and CCR, comprise 85% of our total revenues in the fourth quarter, demonstrating the value we're already generating from the acquisition of Novamind.
Our gross margins continue to benefit from economies of scale. The addition of higher volume clinics in the U.S. and ongoing efforts to enhance the operating efficiency of our business. Fourth quarter gross margins were 31.5%, a significant increase compared to 24.4% in the prior quarter. Gross profit for the fourth quarter grew to $1.3 million, an increase of 628% compared to $181,000 just last quarter.
Corporate expenses grew alongside the expansion of our business, but also due to transaction-related activities from the acquisition of Novamind and a $13.3 million non-cash impairment charge taken during the quarter. Impairment as measured by accounting and auditing standards is based on auditable information, including the inquiries historical financial performance to achieve growth within regulated services.
These standards do not take into account the potential future value derived from the yet-to-be-announced changes and government regulations such as expected regulatory reform and better access to psychedelic therapies. We continue to be confident about the opportunities ahead for our U.S. operations, including how they are positioned for psychedelic-assisted therapies when legal frameworks allow.
Excluding the non-cash impairment, total fourth quarter expenses were $13.4 million, including $10.2 million of regular cash operating expenses, $1.2 million of non-cash expenses and $2 million of transaction-related costs during the quarter.
Overall, net cash outflow during the quarter was $8.7 million, including the $2 million of acquisition-related expenses. On an operating basis, our business used $6.7 million of cash during the quarter, representative of our new larger operating platform given the acquisition of Novamind.
I think it's important to note our core performance, absent the non-cash impairment charge in Novamind transaction-related expenses to provide a clearer picture of our operating performance. On an adjusted basis, excluding transaction impairment items, net loss for the fourth quarter was $9.3 million or $0.04 per share.
As this is the first reported quarter since the acquisition of Novamind, it may also be beneficial to highlight that annualized, this quarter's performance would represent $16.7 million of revenue and $5.2 million of gross profit certainly positions Numinus ahead of most others in our sector.
In terms of liquidity, we ended the quarter with $33 million of cash on hand. With growing revenue streams and margins, we continue to believe we are well positioned financially to sustain our business model to pursue our long-term strategy and achieve operating profitability.
And with that overview of our financial results, I'll turn the call back over to Payton for some closing remarks. Payton?
Thanks, John. We continue to see many developments, both on the regulatory front, but also in the clinical trials of other companies in our sector that continue to give us confidence that radical and needed change is just around the corner to support increased accessibility to psychedelic-assisted therapies.
As many of you have maybe seen, MAPS, the Multidisciplinary Association for Psychedelic Studies, just released, completed their second Phase 3 trial for MDMA-assisted therapy for the treatment of post-traumatic stress disorder, with their first readout expected to be in Q1 of 2023.
And there continues to be developments in regulatory reform, whether that be proposed psychedelic-assisted therapy, regulatory framework by the province of Alberta and Canada or the recent vote to allow access to psychedelic healing centers in Colorado, or increased support for research into therapeutic use of psychedelics from U.S. senators.
The activities we undertook during fiscal 2022 were instrumental in building the strong platform we have today and have positioned us exceptionally well for this changing regulatory landscape. Aside from the external momentum building within our sector and the regulatory landscape, there are many company-specific catalysts we see ahead for Numinus.
We continue to work with advisers on our approach to listing on a major U.S. exchange in the most effective and cost-efficient path possible. We hope to be in a position to update you on those developments in the next couple of months, and are excited about the opportunities that lie ahead.
We are well underway in executing our rebranding strategy, and expect to have all of our operations under our new cohesive Numinus brand within the next several weeks. This initiative will help grow the Numinus brand and streamline the client experience. We are exploring service expansion opportunities to further drive revenue diversification, including growing our TMS offering, expanding our wellness class offerings and digital programming.
And we are excited about the opportunities ahead for Cedar Clinical Research and the ways we can enhance our sector relationships to both drive clinical research forward and test new products through our clinical infrastructure.
Our strategy to accelerate our path to profitability also includes expanding our higher-margin services, increasing our business development activities and proactively managing our operating costs. We truly believe we are on the cusp of a significant shift across regulatory reform, and all of our activities are aimed at positioning Numinus at the forefront of that change with the clinical infrastructure required to meet new healing center requirements of many state regulatory changes.
The sector affiliation through Cedar Clinical Research, which provides our clinical team with experience using third-party psychedelic drug protocols in advance of potential FDA approvals and proprietary psychedelic-assisted therapy training programs for practitioners to facilitate the advancement of the sector build, a pipeline of Numinus trained practitioners.
I'm incredibly proud of the work we're doing. Our leadership team is both innovative and financially disciplined. And while we are actively investing in initiatives to further propel Numinus forward as a leader in the sector, we're also actively reviewing all operations and identifying efficiencies wherever possible to ensure we are using shareholder capital as effectively as possible.
And with that, I'd like to open the call to questions from analysts and institutional investors. Operator?
[Operator Instructions] Your first question comes from the line of Michael Okunewitch with the Maxim Group. Your line is open.
So I guess just to start off, I'd like to see if you could help me understand some of the differences between the U.S. and the Canada clinics, which might contribute to the differential in the volume and revenues from the clinic. Does this have to do with service mix, the difference in the U.S. and Canada model? And are there any [indiscernible] can be applied between the different models to kind of help accelerate growth across your portfolio?
A few things. Obviously, with Ketamine and the experience that Novamind has had with Ketamine, quite a diverse and differentiated service offering, whether that's the Ketamine-assisted psychotherapy model that they have, some of the group Ketamine models that they have and with a lot of that being covered under insurance, there's a lot that we, up in Canada, can learn from the work that they've been doing down in the United States for quite some time as Ketamine has only recently really kind of opened up as a service up in Canada.
And I would say the other opportunity kind of going the other way is, in Canada, we were, at one point in time through COVID, about 90% virtual. And during that period of time, we actually saw revenue and services increase. And in the United States, there wasn't the same amount of necessity for virtual services.
But what we have seen is that there's a lot of interest in being able to debt access to virtual care through virtual therapy, which we've already kind of created that platform up in Canada. So being able to bring that into the United States and keeping the higher-margin services in physical infrastructure and some of the lower margin services being able to bring those virtual, we see as a big opportunity for us.
And then probably the only other big differentiator is TMS as well. TMS gets a lot of insurance reimbursement down in the United States, but is not covered by the Canadian health care system.
And I'd also like to touch on -- because obviously, everyone in this space is eagerly awaiting that MAPS data. So I'd like to see if you could highlight how a potential approval for MDMA could impact the growth trajectory of clinic providers such as Numinus compared to your current offerings focused on traditional and existing interventional approaches like Ketamine? And then also touch on your involvement with that MAPS program through your clinical research.
Sure. Yes, obviously, most people have probably seen the initial MAPS Phase 3 data, which was extremely compelling. We believe that this next data that is going to come out early next year should be in line with that and potentially better, which would put them on track. Again, this is me quoting MAPS, but put them on track for drug submission in Q3 of next year. So really around the corner.
We're grateful to be working with MAPS for a couple of years now on everything from the training of practitioners to actually administering the MAPPUSX study. So we've been actually carrying out some of the MAPS work within our clinics, which one of the big hurdles that MAPS is going to have to jump quite quickly is how do you move MDMA into a service offering.
And we've always built Numinus with the intention of being able to offer MDMA and psilocybin, which is fairly unique, everything from the kind of clinical infrastructure you're going to need, to making sure that you've got all of the back-end set up to be able to administer the therapy, all the way to MAPS-trained practitioners, which that's going to be a very large bottleneck that in order to administer the MAPS MDMA treatment and use the MAPS MDMA product, you're going to have to have the MAPS training protocol.
And if you look at the data, it really points to the necessity of really well-trained practitioners in order to ensure the kind of results that MAPS is seeing in the clinical trial. And so for us, to have that familiarity and long-term working relationship with MAPS, positions us as kind of a service provider of choice for when that drug is approved.
All right. And then just one last one I'd like to talk a bit on the financials. Are there any additional cost synergies you expect to be realized from the combination of your business with Novamind in the coming quarters?
John, do you want to...
Yes, I can answer that. This is John Fong. We continue to revisit our operations every day, every month, after week to define these efficiencies going forward. I think over the past three or four months post-acquisition, we've done a pretty good job in trying to find some low-hanging fruits. But over the course of the next quarter or two, we're going to continue to find a bit more there.
Your next question is from Sepehr Manochehry with Eight Capital. Your line is open.
Congrats on the growth and obviously the good integration progress. My first question was on sort of scalable systems you mentioned. I thought it'd be great to get some more color on what kind of back end you guys are seeing is helping with more efficient reporting and tracking, I guess, how you see that moving forward? Is that going to be something that you try and implement in all the clinics that you haven't yet? And what goes into that?
I can take the -- sorry, go ahead, Payton. You go first.
Go ahead, John.
I would say one of the big things towards operational efficiency is ensuring that we have robust and interconnected IT systems, whether it's EMR or accounting or call center and billing services. I think integrating those into a seamless integrated network will certainly help with that.
Got it. And I guess, you guys have already gotten some metrics out of -- that you reported, I think, in September. Are you seeing things like an enhancement in the book-to-bill ratio? Or are you seeing any improvements? Or are there kind of levers in place to improve that sort of metric?
Yes. We continue to revisit those and look at the data that we do have. And we're going to see where we can do to improve, getting more timely information.
Got it. And I guess, was there like a rough understanding of how far your appointment tracking systems give you visibility like right now, is a typical patient booking a couple of months in advance? Or is there kind of some color you can put there on [indiscernible] you expect more color on the future quarters?
Yes, we do see appointments a couple of months of advance. But like going forward, over the next couple of quarters as we improve our systems, we'll certainly have better visibility into that.
Interesting. And then I think there was a question on the MAPS. I want to touch on that briefly. Is there a time line you think of, like when players, whether it's MAPS or Compass? As they get far down the line, is there engagement outgoing from you?
Or is there some sort of kind of engagement, whether it's an MoU to try and figure out commercialization partnerships or certain, let's say, you guys have designation that you could do reformulation work for them? Is there any sort of engagement with those sorts of partners?
Yes. Without getting into too much detail, I think MAPS in particular is close there now from a timing perspective with that drug submission in Q3 of next year. That should put them on track. And again, speaking for MAPS, that should put them on track before the end of the year or the very early part of 2024 to get that approval. I think there's a couple of opportunities there.
One is just around service offering and what those collaborations or potential partnerships look like. But also training, that continues to be a huge bottleneck for MAPS, and I think something that our infrastructure could help us significantly. And then finally, as they start to get their feet underneath them with the post-traumatic stress disorder treatment, starting to look at potentially other indications as well. But Compass, I think, it's probably still a little bit early.
They've got their Phase 3 to get to. And obviously, with the two Phase 3s that they're doing, still a little bit of work ahead. And I think probably prior to that also, we'll see what happens with the Oregon change in January of next year and then Colorado as well, but there's a number of opportunities with psilocybin that could potentially put us in the market with a service offering before psilocybin is approved by Compass or whomever it is on the drug development front.
Got it. Okay. Then maybe just the last one on SAP. Is there a by-indication approach right now or still by patients like if you've got multiple patients approved for different indications? Do you kind of go back and look at the patient profiles? And what does that look like in terms of growth from SAP in Canada?
Yes. I think now that we've seen that open available for a couple of quarters, and I think Health Canada has gotten more comfortable with it. Really, obviously, sticking indication-dependent based off of the research. And I think you could probably see that continue to pick up for psilocybin and then MDMA, which really kind of lands with MAPS and the work that they've done.
So I think over the next couple of quarters, you'll probably see some pickup on the SAP front, which is just obviously a great opportunity to help people who are in significant need and also to get those practices happening within clinic and the learning that we've been able to do from our SAP approvals and hopefully future ones is really invaluable as we're kind of getting geared up for some more approvals on MDMA that's kind of right around the corner now.
Your next question is from the line of Robert Sassoon with Water Tower Research. Your line is open.
I've got a couple of questions. Can you give us an update on how Ketamine-assisted therapy is actually growing across your clinic network? And maybe give us an indication of how many Ketamine-related appointments made up the mix of that, there's a total of 17,000 appointments you had in the fourth quarter?
I can speak to that. This is Reid Robison. So our Ketamine, or KAT figures, include all the Ketamine-assisted therapy prep sessions, they'll see an integration as well as any Spravato or Ketamine medicine or dosing appointments. So in total, we completed more than 2,300 Ketamine-related appointments during Q4.
That's useful. And just to add another question. You obviously enjoyed some good demand for TMS services. Is there any plan to actually expand those service offerings?
Yes, I can speak to that as well. We are looking to expand the service into other clinics and also looking at the market dynamics. Again, Canada, for example, TMS is not covered by universal health care. So we need to be covered by extended medical insurance to become more broadly accessible.
But in the U.S., we currently have four TMS machines, three located in Utah and one in Arizona. And as the volume increases and utilization of those, we plan to expand them into our other clinic locations.
There are no further questions at this time. I will now turn the call back to Mr. Payton Nyquvest for closing remarks.
Thank you, operator. And thanks, everybody, for joining the conference call with us today. We look forward to speaking with you in January when we'll report our fiscal first quarter 2023 results.
Ladies and gentlemen, thank you for participating. This concludes today's conference call. You may now disconnect.