BARRIE, Ontario, February 21, 2023 (CISION NEWSWIRE) -- MediPharm Labs Corp. (TSX: LABS) (OTCQX: MEDIF) (FSE: MLZ) (“MediPharm”, or “MediPharm Labs”) is pleased to announce the mailing of a joint management information circular of MediPharm and VIVO Cannabis Inc. (“VIVO”) dated February 6, 2023 (the “Circular”) and related documents for the special meeting of MediPharm shareholders to be held virtually at 1:00 p.m. (Toronto time) on March 21, 2023 (the “Meeting”). The Meeting is being held in connection with the previously announced plan of arrangement under section 192 of the Canada Business Corporations Act, whereby MediPharm will acquire all of the issued and outstanding common shares of VIVO (each, a “VIVO Share”) in an all-equity business combination transaction (the “Arrangement”).
Under the terms of the arrangement agreement dated December 21, 2022 between VIVO and MediPharm, if the Arrangement becomes effective, the VIVO shareholders (other than dissenting VIVO shareholders) will receive between 0.2110 (the “Minimum Exchange Ratio”) of a common share of MediPharm (each, a “MediPharm Share”) and 0.4267 (the “Maximum Exchange Ratio”) of a MediPharm Share for each VIVO Share held. Prior to closing of the Arrangement (“Closing”), MediPharm has agreed to advance up to $3.75 million to VIVO, on the request of VIVO from time to time, to fund ongoing operations in the ordinary course, to be evidenced by one or more secured promissory notes. The exchange ratio at Closing (the “Closing Exchange Ratio”) will be adjusted based on VIVO’s Working Capital Amount (as defined in the Circular) at Closing, which will include an adjustment for any amounts advanced under the promissory notes.
If the Working Capital Amount at Closing is less than $6 million, there will be an upward adjustment from the baseline Minimum Exchange Ratio up to a maximum of the Maximum Exchange Ratio, which will result in the former VIVO shareholders holding up to 35% of the issued and outstanding common shares of the combined company resulting from the Arrangement (the “Combined Company”) and the shareholders of MediPharm holding not less than 65% of the issued and outstanding common shares of the Combined Company.(1)(2)
If the Working Capital Amount at Closing is greater than or equal to $6 million, there will be no upward adjustment to the share consideration payable to VIVO shareholders and the Closing Exchange Ratio will be the Minimum Exchange Ratio, which will result in the former VIVO shareholders holding not less than 21% of the issued and outstanding common shares of the Combined Company and the MediPharm shareholders holding up to 79% of the issued and outstanding common shares of the Combined Company.(1)(3)
Further details with respect to the Arrangement are included in the Circular, which can be found under MediPharm’s profile on SEDAR at www.sedar.com.
Key Transaction Highlights(1)
• Leading Pharmaceutical Cannabis Company: The acquisition of VIVO will add established Australian and German medical cannabis brand Beacon Medical®, an industry-leading medical cannabis clinic business Harvest Medicine™, and a longstanding Canadian medical sales platform Canna Farms™ Medical.
• Direct to Patient Sales:(1)(5) VIVO’s medical sales channel, Canna Farms Medical, was the first Licenced Producer in British Columbia and has supported over 60,000 patients since 2014.(8) Following the Arrangement, it is anticipated that this platform will provide patients with a more diverse product portfolio that includes existing MediPharm products. Direct to patient sales generally result in a better gross margin with the ability to bypass provincial distributors. VIVO’s clinic business Harvest Medicine will allow real-time product feedback and clinical insights on MediPharm products.
• Diversified Revenue Profile with Strong Canadian Base: (1)(5) The pro-forma Combined Company is expected 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.
• Expanding International Medical Cannabis Opportunity:(1)(4)(5)(6) The pro-forma Combined Company’s international distribution will cover European and Asia-Pacific markets through established, revenue-generating agreements. The VIVO Napanee Ontario facility is EU-GMP certified for cultivating and packaging flower and the MediPharm Barrie Ontario facility is GMP certified for flower alternative format medical products. With two distinct international platforms, the pro-forma Combined Company is expected to open many new product offerings for existing distribution channels and geographies. The pro-forma Combined Company would have annualized international revenue of over $20M, based on Q3 2022.
• Revenue and Cost Synergies Realizable in the Near-Term:(1)(4)(5)(6) Using forecasts derived collaboratively by both management teams, along with revenue and cost synergy estimates, the pro-forma Combined Company aims to find positive EBITDA(7) synergies to the magnitude of between $7M to $9M on an annualized basis, and could reach positive EBITDA and cash flow in the first half of 2024.
• Balance Sheet Strength: (1)(4)(5)(6) Anticipated combined cash position of approximately $30 million (as reported September 30, 2022 and including the subsequent sale of MediPharm Labs Australia Pty Ltd.), less than $2.5M in debt on closing, and unencumbered ownership of all major assets. This strength is expected to provide confidence in the Combined Company’s balance sheet to execute on its strategic growth roadmap, despite the macro backdrop of capital markets that continue to soften.
More business information regarding the transaction can be found on the MediPharm Investor website.
Approvals and Conditions to Closing
Completion of the Arrangement is subject to shareholder and court approvals, and the satisfaction or waiver of other customary closing conditions. The Toronto Stock Exchange has conditionally approved the listing of the MediPharm Shares to be issued in connection with the Arrangement. It is currently expected that the effective date of the Arrangement will occur on or about the completion of the first quarter of 2023.(1)
The Meeting will be held virtually via live audio webcast, at https://virtual-meetings.tsxtrust.com/1438 (password: medipharm2023) on March 21, 2023 at 1:00 p.m. (Toronto time), for the purposes set forth in the MediPharm notice of meeting accompanying the Circular. MediPharm shareholders are encouraged to vote in advance of the Meeting, in accordance with the instructions set out in the form of proxy or voting instruction form, as applicable, mailed to shareholders together with the Circular. The deadline for MediPharm shareholders to return their completed proxies or voting instruction forms is Friday, March 17, 2023 at 1:00 p.m. (Toronto time). Further details can be found in the Circular in the section entitled “Information Concerning the MediPharm Meeting”.
The board of directors of MediPharm has fixed the close of business on January 23, 2023 as the record date for the determination of MediPharm shareholders who are entitled to receive notice of and vote at the Meeting.
Receipt of Interim Order
MediPharm is also pleased to announce that on February 6, 2023, VIVO was granted an interim order (the “Interim Order”) by the Ontario Superior Court of Justice (Commercial List) (the “Court”) regarding the Arrangement. The Interim Order authorizes VIVO to proceed with various matters relating to the Arrangement, including the holding of a special meeting of VIVO shareholders (the “VIVO Meeting”) to consider and vote on the proposed Arrangement. The VIVO Meeting will be held on March 21, 2023 at 11:00 a.m. (Toronto time). Further details can be found in the Circular in the section entitled “Information Concerning the VIVO Meeting”.
Completion of the Arrangement is conditional upon receipt of a final order by the Court. The Court hearing in respect of the final order is expected to take place at 12:00 p.m. (Toronto time) on March 23, 2023 (or as soon thereafter as legal counsel can be heard).
(1) This is forward-looking information and based on a number of assumptions. See “Cautionary Note Regarding Forward-Looking Information“ and “Assumptions” below.
(2) Assuming the Closing Exchange Ratio will be equal to the Maximum Exchange Ratio, that no VIVO shareholder will exercise dissent rights and that there is no issuance of additional VIVO Shares or MediPharm Shares prior to Closing.
(3) Assuming the Closing Exchange Ratio will be equal to the Minimum Exchange Ratio, that no VIVO shareholder will exercise dissent rights and that there is no issuance of additional VIVO Shares or MediPharm Shares prior to Closing.
(4) 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.
(5) 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”.
(6) 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.
(7) This is a non-IFRS reporting measure. For a reconciliation of this to the nearest IFRS measure, see “Non- IFRS Measures” below.
(8) Based on patient count details collected and provided by licence holder CannaFarms, a wholly owned subsidiary of VIVO.
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. MediPharm carries out its operations in compliance with all applicable laws in the countries in which it operates.
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 Arrangement.
• 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 Combined 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).
This news release contains references to certain non-IFRS financial measures, including “EBITDA”, which means earnings before interest, taxes, depreciation, and amortization and is used as an indicator of the Company’s overall profitability. These measures do not have any standardized meaning according to International Financial Reporting Standards (“IFRS”) and therefore may not be comparable to similar measures presented by other companies. There are no comparable IFRS financial measures presented in MediPharm or VIVO’s unaudited condensed interim consolidated financial statements. The most directly comparable measure to EBITDA calculated in accordance with IFRS is operating income (loss). MediPharm and VIVO believe that the non-IFRS measure presented herein provides information useful to shareholders and investors in understanding our performance and may assist in the evaluation of the Combined Company’s business relative to that of its peers. For more information, please see the most recent MD&A of each of MediPharm and VIVO available on www.sedar.com.
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 Arrangement; the terms and conditions pursuant to which the Arrangement will be completed, if at all; the Combined Company; the future financial and operational performance of the Combined Company; the Combined Company establishing itself as an international leading pharmaceutical cannabis company; the Combined Company’s key business segments, product offerings, pro-forma and overall financial performance; future development of products of the Combined Company; potential future revenue and cost synergies resulting from the Arrangement; statements about the Combined Company’s profitability and ability to grow the business going forward following the Arrangement; the anticipated timing for receipt of necessary court and regulatory approvals for the Arrangement; the anticipated timing for completion of the Arrangement; and the outcome of the Meeting. 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: the ability of MediPharm and VIVO to receive all necessary court, shareholder and regulatory approvals for the Arrangement; general business, economic, competitive, political and social uncertainties; and other factors discussed in each of MediPharm’s and VIVO’s public filings, including the Circular, which are available on SEDAR 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.
For further information:
MediPharm Labs Investor Relations
Telephone: 1 416.913.7425 ext. 1525