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spk03: Good afternoon and welcome to the Numinous Wellness Inc's fiscal second quarter 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, Investor Relations. Please proceed.
spk02: Thank you, Emma. Good afternoon, everyone, and thank you for joining us for our fiscal second quarter 2022 results conference call. Discussing Numinous' performance today are Peyton Nyquist, founder and CEO, and John Fong, chief financial officer. Joining them for analyst questions at the end of our formal remarks will be Evan Wood, chief medical 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 recent 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 ended February 28, 2022, and in our other Canadian securities filings available on CDAR. NUMIDIS does not undertake to update or revise any forward-looking statements to reflect new events or circumstances except as required by law. Our second 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 CDAR. As a reminder, all figures discussed on today's call are in Canadian dollars. I'll now turn the call over to Peyton Nyquist, Chief Executive Officer.
spk00: Thanks, Jamie, and good afternoon, everybody. Before I provide my comments, As I acknowledged on the last earnings call, I'd like to extend the utmost gratitude that our work is conducted on the unceded homelands of the Musqueam, Squamish, and Tsleil-Waututh peoples and on other sovereign Indigenous lands and territories across Turtle Island. We are committed to a path towards reconciliation through continuous learning, reciprocity, and humility. Our fiscal second quarter demonstrated the positive impact of our growing service offering and the efficiency of our operating platform, with gross margin for the first quarter reaching 29.1%, which is significant improvement from the 6.5% gross margin achieved just last quarter. Most of this improvement was due to a greater number of client appointments being for ketamine-assisted therapy, as well as the successful integration of the Neurology Center of Toronto, which continues to be fully booked, often for high-margin neurology-focused services. Overall, we were pleased with the quarter's performance, with revenue in line with our previous quarter, despite the anticipated slower period over the December holidays and having fewer days in the quarter compared to Q1. But probably most importantly and impactful for our shareholders, subsequent to the second quarter and just earlier this week, we announced a transformational acquisition that will significantly enhance the growth trajectory of Numinus. With our proposed acquisition of Novamind, a well-respected integrative mental health company, operating eight wellness clinics across Utah and Arizona, and a highly regarded clinical research management division. This acquisition marks our largest acquisition to date and our first expansion into the United States. Following completion of the acquisition, our combined business will have 13 wellness clinics across North America, four clinical research sites, and our bioanalytical lab. We have never been more excited about the future of Numinous. Before I provide more details about this announced acquisition, let me first review some of the highlights that occurred during our second quarter. At Numinous Health, our client-facing wellness clinic division, we were pleased with the 5% revenue growth achieved compared to the first quarter, given the second quarter is seasonally impacted by slower clinic activity over the December holidays. Even with the two-week of expected slower therapy activity and fewer days in the quarter, our clinics saw client appointments declined only by 14% with the previous quarter. More importantly, the mix of services booked by clients shifted more towards higher margin offering, such as ketamine-assisted therapies and neurology services, which significantly improved our gross margin, or gross profit, sorry. Overall, Numinous Health achieved a 29.8% gross margin during the quarter and $203,000 in gross profit. I'll also add that the increase in ketamine-assisted therapies was due both to the increased client demand and also a greater availability of appointments as we continue to train more therapists on this specialized treatment through our proprietary CAP therapist training program. This training has been proven to be extremely well received by those who have participated and we believe it will be a key differentiator for our business as we have the ability to train additional therapists as our business continues to grow. We believe the future training programs for other psychedelic therapies could be modeled off this training program and will help to ensure consistent quality care will be available to clients with their chosen therapist at any of our wellness clinics. As a reminder, all of our wellness clinics provide a wide range of mental health care services alongside psychedelic-assisted treatments, and these include traditional therapies, group therapies, couples therapy, and now neurological care. Collectively, these services will continue to drive reliable revenue streams and cash flows across our clinic network as we grow our psychedelic therapy offering in line with regulatory reform. At Numinous Bioscience, many key developments occurred during the second quarter that will provide long-lasting benefits to the breadth of research and expertise we can draw on. First, we received approval from Health Canada to add ayahuasca and San Pedro to our Health Canada controlled drugs and substances license, allowing our lab to now possess, produce, assemble, sell, export, deliver, test, and research these unique psychedelic compounds alongside DMT, ketamine, LSD, mescaline, MDMA, psilocin, psilocybin, and other psilocybe-fruiting bodies. It is one of the most, if not the most, extensive license to work with in psychedelics. We're proud that our compliance processes have been recognized by Health Canada to allow the breadth of this important research. Second, recent upgrades to our lab allowed us to be granted a containment level 2 license by the Public Health Agency of Canada which will allow us to deeply understand not only the mechanisms behind psilocybe mushrooms and other naturally occurring psychedelic materials, but also their interaction with the human body. More specifically, this biosecurity expansion allows us to study pathogens and bacterial fungal and microbial contaminants to identify baseline markers and optimal growth environments for psilocybe mushrooms, performed bioassay studies using mammalian cell lines to analyze the bioactivity of different whole mushroom formulations that contain both psilocybin and other psychedelic compounds, and performed pharmacokinetic and preclinical studies using analysts of blood and other fluids to investigate reactions in the human body to whole mushrooms and other natural formulations. Obviously, this expanded research allows us to investigate many new theories and discoveries, and we're excited to see what we can find. During the second quarter, we also appointed three highly respected industry leaders to the Bioscience Advisory Board. including two associate professors specializing in research areas of interest to us, and a patent attorney who is extremely well versed in our space. We couldn't be more pleased to have access to the immense expertise all three of these individuals bring to our research and commercialization strategy. Operationally, shipping challenges impacted the timing of analytical testing services we were contracted to perform for third-party research clients, which pushed certain services from the second quarter into the third. As a result, revenue generated by numinous bioscience declined 26% from the prior quarter. But importantly, an ongoing focus on operating efficiencies allowed the gross margins of the division to improve significantly during the quarter. Overall, Luminous Bioscience achieved a 24.5% gross margin in the second quarter. Turning to the two clinical trials we've previously announced, the MAPS-USX Phase III study with MDMA for post-traumatic stress disorder is underway. As a reminder, we are hosting and managing the Canadian clinical research sites for MAPS during this important study. We were pleased to have those our very first clinical trial volunteer at our Montreal based research clinic just a few weeks ago. The treatment offered through the study follows MAPS protocols of three sessions of MDMA administration and therapy, each to be followed with three integration sessions. This study is expected to be complete during the summer, and we look forward to updating you and seeing the final results MAPS will ultimately publish. And as you may have read in our earnings release earlier today, we are pleased to provide a new development for our phase one proprietary psilocybe extract. In recent weeks, our research lab has discovered an additional drug candidate currently being referred to as NBIO3 that is nearing the final stages of development. Given this new discovery, we believe the most efficient way to review clinical trial results for NB-IO-03 is to do so alongside the clinical trial program for NB-IO-01. We believe this is the most fiscally responsible strategy to review both drug candidates, though we will need to resubmit our application to Health Canada in the next several months to reflect the redefined scope of this study. Assuming positive results from phase one, we anticipate this study will lead directly to a phase two clinical study for both simulations to evaluate the efficacy of these products. We're very excited to have two promising proprietary drug candidates in our development pipeline now. And we'll update you as the study progresses. And with that overview of our second quarter highlights, I'll turn the call over to John to discuss our second quarter financials in more detail, after which I'll return to discuss the details and many benefits of our announced acquisition of Novavax. John?
spk01: Thanks, Peyton, and good afternoon, everybody. Our second quarter results benefited from both the expansion of ketamine-assisted therapy across our clinics and the successful integration of the Neurology Center of Toronto, where neurology services are generally also higher margin services. In total, revenue for the second quarter was $0.8 million, representing a 240% increase from the second quarter last year and aligned with the previous quarter. As Peyton mentioned earlier, we're pleased with the revenue generated during the quarter, as we expect to see reduced client appointments around the December holidays and there are also fewer days in the quarter than the one previous. Our clinic operations produced 87% of our revenue this quarter compared to just 82% in the prior quarter, demonstrating the increasing importance of our clinic revenue stream. Second quarter revenue from Numenous Health was $680,000, a 5% increase from Q1 2022, and a 378% increase compared to the same quarter last year. Gross profit from our clinic division was $202,000 during the second quarter, representing a 29.8% gross margin. As Payton mentioned, shipping challenges delayed expected analytical testing contract services at Numinous Bioscience during the second quarter. As a result, Numinous Bioscience generated $105,000 of revenue in Q2, a 26% sequential decrease in the first quarter. but a 19% increase from second quarter last year. Importantly, we are very pleased to see significant margin improvement at Numinous Bioscience during the quarter, with the division achieving a 24.5% gross margin and $26,000 of gross profits. Collectively, increased higher margin revenue streams paired with ongoing operating efficiency initiatives, including scalable operating platforms, improved our quarterly company gross margin to 21.9% during the quarter and a total gross profit of $229,000 during the quarter, which is a 349% increase from the previous quarter and the highest gross profit we've achieved to date. Overall, corporate expenses grew alongside the expansion of our business and higher corporate development activity and totaled $7.4 million during the quarter. Net cash outflow during the quarter was $5.5 million, higher than our typical run rate as a result of increased research and development activities and increased people consulting legal costs related to companies' continued growth. The loss for the quarter was $7.8 million, or $0.04 per share. In terms of liquidity, we ended the quarter with a strong balance sheet and $48.3 million of cash on hand. With revenue streams offsetting some of our expenses, we continue to be well-positioned financially to sustain our business model and pursue our long-term strategy. And with that overview of our financial results, I'll turn the call back over to Payton to discuss the acquisition of Novomite. Payton?
spk00: Thanks, John. Just two days ago, we announced our largest acquisition to date. and one that will position Numinous to be the North American industry leader in psychedelic therapy and research. We see four main benefits to this transaction. First, it rapidly expands Numinous' operations and brand into the United States with a reputable platform of revenue-producing clinics with an established and growing client base. Second, it will significantly grow our client programming as complementary service offerings will be shared and expanded across the combined clinic network. Third, it will combine NovoMind's leading clinical research site management capabilities with Numinous Biosciences Research Laboratory and analytical testing expertise. positioning our business as a spoke in the psychedelic sector wheel as we drive psychedelic research forward for a variety of commercial and academic organizations. And fourth, and perhaps importantly to those on the investor call, it accelerates our path to profitability. The transaction expected to be immediately accreted to revenue and based on forecasts and efficiencies of scale alongside NovoMind's higher margins, will shorten the timeline Numinus projects to profitability. Overall, the acquisition is also anticipated to generate $3 million of annual cost savings through the elimination of duplicate corporate expenses. We couldn't be more excited about what this means for our entry into the important U.S. market. and the immediate impact on the scale of our business as we look to drive greater accessibility to our treatments and greater efficiency through our operations. As for the acquisition terms, we have made an offer to acquire all the issued and outstanding shares of Novamind by way of a court-approved plan of arrangement. Novamind shareholders will receive 0.84 of a numinous common share in exchange for each Novamind share held. which implies a transaction value of $0.44 Canadian per NovaMine share and a premium of 51% to NovaMine's 20-day VWAP on the CSE, as at April 8th, 2021, the last trading day prior to our announcement. We expect the acquisition will also bolster our financial performance, increasing Numinus' revenue by more than five times current levels, and generating $3 million of annual cost savings in corporate expenses. In fact, the acquisition positions Numinus to become the top revenue-producing psychedelics company with pro forma annual revenues nearing $10 million Canadian, significantly more revenue than any of our direct peers in that same period, and averaging 11.8% of pro forma compounded quarterly revenue growth. This acquisition also accelerates Numinous' U.S. expansion, eight wellness clinics across Utah and Arizona, in addition to the five clinics we have here in Canada. From a clinic perspective, this underscores our growth strategy. From our first clinic acquisition in Q1 2021 to the proposed total of 13 clinics and four clinical research sites. And it drives important growth from a trained practitioner perspective, growing the number of our therapists and medical practitioners to 111 following the completion of this acquisition. GlobalMind's U.S. market presence, complementary client programming, and respecting clinical research site organization capabilities will allow us to treat the mental health needs of a wider variety of our wellness clinic clients. As you can see from this diagram, we have many complimentary services through the wellness clinic offering that will provide meaningful opportunities to expand our service offering across both our existing and acquired clinic locations as we integrate NovoMind into Numinus' operating platform. Following the business integration, Numinus will have 13 client-facing wellness clinics with concentrations in Utah, Montreal, Vancouver, and Arizona. And we will continue to evaluate other opportunities across the US. In addition, we'll have four clinical research facilities and one bioanalytical research laboratory. Overall, our research capabilities will benefit from our combined leadership in psychedelic bioanalytical testing and clinical research management. with the collective research projects already being managed for MAPS, MindMed, USONA, and the University of Utah, amongst others. Together, we will be an industry leader in psychedelic therapy and research, with a shared mission of responsibly reintroducing psychedelic therapy to mental health care, improving access to these important treatments, and will become an industry-leading North American platform for psychedelic clinics and clinical research. As both Noblemind and Numinous are publicly traded companies, this acquisition will require shareholder approval. We expect the transaction will be complete this upcoming June with the integration and rebranding efforts underway this summer. Collectively, the deal represents a combined enterprise value of approximately $88.3 million Canadian based on our share price the last trading day prior to our announcement. But more than anything, we're excited about the strategic benefits of the combined businesses. This will be Numinous' largest acquisition to date and our first entry into the U.S. market. It positions Numinous as a leading provider of integrative mental health care offering both traditional and psychedelic therapies. It grows our client programming as complementary services and best practices will be shared across the expanded platform It combines NovoMind's leading clinical research management capabilities with our existing research labs and analytical testing expertise. And just as importantly, it accelerates our path to profitability through significant revenue growth, efficiencies of scale, and identified cost synergies. We've never been more excited about the future of our business, and I look forward to sharing the progress with you over the coming quarters and years.
spk03: and with that i would like to open the call to questions from analysts and institutional investors operator thank you if you would like to ask a question during this time simply press star followed by the number one on your telephone keypad if you would like to withdraw your question again press the star one we'll pause for just a moment to compile the q a roster Your first question comes from the line of Seth Manosheri with Eight Capital. Your line is now open.
spk00: Good afternoon and congrats on the growth in your business as well as the transformative acquisition. So just once they're given the broader demand drives for mental health and the reopening, there seems to be potential for considerable inflection here in your existing footprint and in your perspective footprint. I want to understand as you're getting close to benefiting from scale, what are the growth drivers that you think about and relevant metrics that you consider? Is it things like referral sources, appointment volumes, web traffic, call-in inquiries, or any other metrics? And maybe as a second to that, how do you plan to increase those metrics? Yeah, I think, you know, especially as we look to drive into the U.S., you're seeing, I think, an important one being more interest in third-party insurance provider support for mental health services and more and more support for ketamine-assisted psychotherapy I think just continuing to build brand awareness as well and will scale a strong reputation in mental health care overall, but maybe pass over to Evan and John as well for any comments.
spk01: Hi, John. Yeah, hi, Seth. This is John Fong. I think you hit the nail on the head on quite a few things there, and we touched on it earlier in the call as well. about having sufficient trained practitioners to deliver the services that we provide and also ramping up on marketing efforts to get to increase top of funnel leads into our clinics.
spk00: Understood. And yeah, that definitely doubling your number of practitioners certainly helps with that. Maybe as a follow up to that is the Higher margin services that, for example, the Neurology Centre of Ontario provides, is that something that the lever to adding that to other facilities is something like equipment or is it trained practitioners or is it particular designations? I know you don't have necessarily TMS there now, but if you're looking to add these additional services, what are the hurdles you have to overcome to be able to fold in additional lines of revenue? Yeah.
spk01: It is a combination of trained specialists, equipment, and finding the space at the clinic locations to deliver those services.
spk00: Okay, that's really good insight. I know that obviously with the payer relations that NovoLine has established a key differentiator has been their, I believe, less than 20% out-of-pocket pay, and I know they have the call center, Is that something that you think would be beneficial to your broader business? And would that, I guess, be relevant to the SAP program and maybe pre-approvals or helping select relevant patients for the SAP program in Canada? That's probably one for me. This is Edmund Wood, the Chief Medical Officer. I think that at this stage, the special access program is really individual patients seeking to access drugs that aren't yet approved, like psilocybin or MDMA, via individual patient access. applications with individual physicians applying on their behalf. So I don't think that that's sort of relevant to us for a call center model, but certainly, yeah, Novamind has been able to, you know, find the efficiencies and strategies to be able to link people with mental wellness challenges to treatment in a timely way. And so I think there's lessons there for our entire organization and ways of finding efficiencies that will ultimately result in better outcomes for patients. Interesting. And I did notice you are planning a new facility in Vancouver. Does Toronto and the population density here also lend itself to organic growth? Or are there potential acquisition opportunities in terms of other players that are in the Ontario area that would grow your base here? Or is the focus really right now growing that Western U.S. footprint and scaling there, leveraging those pairs and the synergies attainable? Peyton, do you want to speak to that in terms of growth versus acquisition? Yeah, I think over the last little bit, as mentioned, we are currently expanding our footprint in Vancouver. Obviously, quite a bit of work to do just to integrate the NovaMind acquisition, and we've done a number of acquisitions to date. continuing to look at different opportunities around primarily acquisition growth as we go into the future. But again, really making sure that they continue to stay in line with our acquisition criteria and thoughtful growth strategy. Awesome. And maybe just the last one for me is if you can characterize any progress and you're engaging with maps and if this transaction increases your potential role as a commercial partner, given them that you'll be a multinational player in the space. Yeah, myself and Evan can maybe touch on that as well, but definitely have continued to deepen and develop that relationship with MAPS, obviously highlighted by beginning the dosing for the phase three, but also we've continued to train a host of practitioners, and now with bringing on NovoBind, there's certainly potential and opportunity to expand that into that platform as well. But Evan, maybe some comments from yourself also. Yeah, NovaMind obviously has their own independent relationship with MAPS, so we're not starting from the ground up there. I think it's too early to say. Obviously, MAPS has completed one Phase 3 trial, and the second Phase 3 trial is well underway, and so it's natural that they're shifting gears, focusing to look at readying themselves for post-approval. But I think it's premature for us to be talking publicly about anything beyond our existing collaborations. Understood. Well, thanks so much for getting into the minutiae. I'm excited to see this transformative acquisition and the integration strategies that will be attainable.
spk03: Your next question comes from the line of Richard Spencer with West Westcliff Capital Management. Your line is now open. Mr. Spencer, your line is now open.
spk00: Sorry, I had it on mute. Would you describe the differences in profitability between the core therapeutic clinics, clinical treatments, and the higher margin stuff like ketamine-assisted psychotherapy and TMS? Both the magnitude and then a second part of the question would be kind of a mix of What is the, in terms of total therapeutic hours or something like that, between what's the higher margin versus what's the lower margin treatments?
spk01: Thanks, Richard. This is John Fong. I'll take that call. In terms of margin treatments, Margin mix based on service services. Traditional psychotherapy usually has lower margin because they are one-on-one therapy services. Those would usually are in a fee split situation where it does have lower margin between 20% to 30%. where we see the higher margin services are with our CAP offerings and also group therapy programs, that the margins around that would be between 30 to 50%.
spk00: And that's for both group therapy as well as CAP or TMS? Yes. Okay. Could you describe kind of what the protocol is briefly for CAP in terms of hours of treatment and so on and kind of what the reimbursement is for that treatment or revenue, some kind of measure of revenue? Sean, do you want to talk about revenue and I can talk about the process or how do you want to do that?
spk01: Sure. Evan, why don't you provide a little bit of insight into the protocol, generally the program itself, and then I can wrap that around any financial information.
spk00: Sure, yeah. So our ketamine-assisted psychotherapy protocol or our approach to ketamine-assisted psychotherapy is, I think, a little bit unique in the space in that we have dedicated protocols for different mental wellness challenges. So the PTSD protocol is different than the depression protocol is. is different than the anxiety protocol or substance use disorder protocol. But the general framework involves a process of arriving at a diagnosis and screening, a physician assessment, and then a number of psychotherapy sessions, usually 90 minutes in duration, to enable the individual to set their intentions and the therapist to develop their rapport with them to support them through the experience. And then the ketamine-assisted psychotherapy followed by integration sessions, so fairly typical psychedelic-assisted psychotherapy model with a second series of preparation, psychedelic experience and integration. So the model is fairly typical with a fair amount of the psychological support and dedicated sort of psychological support depending on the disorder that the individual has. So I hope that answers your question and then John can sort of describe the revenue model.
spk01: In terms of the revenue model, we're seeing that because of this program, it is multisessional. A lot of the integration session can be delivered virtually. And for the ketamine dosing session, that is in clinic. So because of the virtual model, we do see a higher margin in these services.
spk00: And are this – How long are the psychedelic sessions, the in-clinic sessions, like two hours? Yeah, it ranges. An individual can't leave the clinic until they're cleared by the medical staff, but anywhere between two to four hours, depending on the circumstances and the individual's response and everything else. Maybe the other thing that I'll quickly mention is there is some variability depending on the jurisdiction. In some places, TMS is reimbursed by insurance companies and other jurisdictions. It's not. So there is, for people that are developing services like this, there's geographic considerations with some of those things as well. Okay. One more question. You mentioned that you think this acquisition of Novamind is going to One, be accretive on a revenue basis and accelerate your path to profitability. Would you venture a guess as to when you think you might cross over to profitability once the integration is done? Any kind of date you could set on that? We're thinking between two to three years.
spk01: Okay. Okay.
spk00: Next question, or last question, I hope I won't keep coming up with more, is with respect to the eventual approval of psilocybin for TRD or other applications, which seems like it's about two to three years off, what are you doing, what's your plan to modify and prepare your clinic's for the different longer sessions and different protocols that exist there, both from a, you know, an operational, in terms of therapist's attention and so on, and how, I guess that's the question. I can take that one, unless you want to, Peyton. Go ahead, and I can jump in after Evan. Yeah, it's a great question. I'll share that a lot of our physical infrastructure has been developed, you know, with the sort of long view with, yeah, the physical infrastructure set to be able to do those longer-term psychotherapy sessions and obviously, you know, already set up with some of the infrastructure set And clinics, you know, where, for instance, the MAPS Space 3 trial ran and other space that we've purpose-renovated to be able to support that type of physical infrastructure in terms of soundproof rooms and other things that are required to be able to properly do psilocybin or MDMA-assisted psychotherapy. Yeah, just echoing off that intention around not only the purpose-built facilities, but also a part of our acquisition criteria has always been with keeping in mind MDMA and psilocybin-assisted therapy and a big part of the reason for obviously the MAPS collaboration. And I think also very interestingly now with the Noblemind acquisition where they're running a number of trials with psilocybin as well as LSD within clinical settings within their own footprint. So we've continued to grow with the with those therapies in mind, as well as training the practitioners and getting clinic systems and background operations very familiar with it so that when those approvals are in place, we can move quickly. And do you see those, the eventual treatment protocols being somewhat similar to the protocols described in Stan Gross' various books on LSD psychotherapy? You know, Stan's got a pretty extensive collection of therapeutic protocols, obviously with LFP in particular, but we'll continue to keep our treatments based off of what's been shown in the research and literature. And there's a lot of information out now, obviously, about the MAPS protocols as well and encourage people to review that protocol and those research results. All right, thanks for answering all those questions and very nice job on the acquisition. And I hope that goes smoothly for you. Thanks for your time. Appreciate that. Thanks so much. Thank you.
spk03: There are no further questions at this time. I now turn the call back over to Peyton.
spk00: Thanks, Operator. And thank you, everybody, for joining us for the conference call today. I look forward to speaking with you in Q3 July when we will report our fiscal third quarter results. Thanks, everybody.
spk03: This concludes today's conference call. Thank you for attending. You may now disconnect.
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