Mednow: disrupting the pharmacy lineup
Mednow, based on its proprietary app, is rapidly establishing itself as a national Canadian pharmacy operation with strategically placed pharmacy fulfilment centres and high-value services. This integrated operation offers patients a faster and more efficient alternative to the old-fashioned pharmacy lineup. Mednow's proprietary digital platform with telemedicine functionality links doctor home consultations, pharmacy online consultation, and enables fast and direct delivery of prescriptions. The Canadian pharmacy market is estimated by Mednow at around C$48bln.
Mednow has seen rapid growth since its March 2021 initial public offering (IPO), primarily driven by its acquisition of strategic pharmacy and healthcare operations. The acquisitions added high-value biologic treatments and medications, liver care and doctor home visits to the existing app technology platform, and core pharmacy fulfilment centres in West and East Canada and Nova Scotia.
The first quarter (Q1) full-year (FY) 2022 results to 31 October 2021 (Mednow has a 31 July year-end) showed revenues at C$570,343 at a gross margin of 46%, primarily driven by the early August acquisition of the Medvisit doctor home visit business; this accounted for 75.9% of Q1 revenue. Most other revenues were from app fees. In late October, Mednow acquired Infusicare Canada Inc, which should boost revenue by about C$550k a quarter from Q2FY22 onwards. Mednow also acquired the rest of the Mednow West Pharmacy business so now consolidate its pharmacy revenues.
In the last week of February 2022 (Q3FY22) Mednow acquired Liver Care Canada and London Pharmacare Inc. These had combined sales of CA5.5mln /qtr and will expand the suite of Medow's services in liver disease treatment, and add further revenues from prescription medication sales and diagnostic services of over 20,000 patient contacts a year. These acquisitions in total bring about C$34mln of additional annualised revenue and give a solid basis for future organic growth.
These acquisitions were made possible after an IPO in March 2021 which raised C$37mln closing at $6.75 per unit. Mednow is currently trading at 87¢ per share. With a firm foundation of speciality pharmacy services, digital infrastructure, and brick and mortar pharmacies, Mednow is in an encouraging position to move into organic growth from 2023 onwards. Management aims to double its customer base year-on-year to reach 100,000 in calendar year (CY) 2023.
Rapidly growing player in pharmacy and telemedicine
In late February 2022, management presented its growth expectations. In calendar 2022, revenues are expected to be between C$42.5mln and C$47.5mln at a 20% gross margin. In calendar 2023, sales could grow organically to between C$105mln and C$110mln with a gross margin of 25% which would take Mednow into underlying earnings (EBITDA) profit. By comparison, Pocketpills, a private app-based pharmacy founded in 2018 claims to have 300,000 users, which indicates the scope for massive organic growth. The Canadian market is only now beginning to use app technologies widely.
High organic growth expectations
Exhibit 1 - Mednow App services
Source: Source: https://investors.mednow.ca/
Mednow is developing a base of consistent and growing sales while realising synergy benefits from in-person services around the digital platform. The digital operations ought to increase the logistical efficiency of the other parts of the business as Mednow scales and integrates the acquisitions while also enabling patient acquisition.
Mednow’s acquisitions complement these goals and have the capacity to generate significant orders for pharmacies with the integration of the Mednow app and Mednow Virtual Care telemedicine services. This potential to connect individuals to the network of pharmacies can be seen in the services already offered by Mednow through `Mednow for Business’. Agreements to date include:
- marketing agreement with Sterling Capital Brokers to market Mednow’s suite of digital and online services to 100,000 healthcare plan members
- marketing services agreement with ACE Consulting Benefits and Pensions Ltd. and PACE Consulting MGA Services Inc.
- preferred pharmacy order agreement with Police Pensioners Association of Ontario and its 12,00 members.
Exhibit 2 - Planned and completed fulfillment centres
Source: https://investors.mednow.ca/
To achieve its growth ambitions, Mednow plans to open more fulfilment centres. These are licensed pharmacies based in major cities that will allow Mednow to provide on-demand and same-day delivery in cities across Canada. Management is planning to officially open centres in Winnipeg, Manitoba, and Montreal by the end of March 2022. The company is further planning to open a fulfilment centre in Calgary at some point in late 2022 This will enable Mednow to offer pan-Canadian prescription fulfilment in most major centres.
Acquisition Summary
Table 1 - Mednow acquisitions
Source: Mednow reports
- Medvisit — Medvisit is a doctor house call service that has been operating in Canada for over 30 years. Medvisit conducts roughly 30,000 home visits a year. These visits are conducted by a network of over 100 doctors able to treat acute and episodic illness and injury.
- Infusicare — Infusicare is a speciality pharmacy offering biologic drugs. These drugs contain genetically engineered proteins that target specific parts of the immune system that fuel inflammation. Presently, biologic drugs are one of the fastest-growing pharmaceutical product segments in Canada. Infusicare services the Arva Clinic in London, Ontario.
- Liver Care Canada — provides virtual and in-person visits to patients with over 10 hepatologists and gastroenterology specialists, and a team of 12 speciality nurses, three of which are nurse practitioners. It provides care for over 20,000 patients a year with liver disease management, starting with early detection and diagnostic services to direct access to treatments and supportive therapies such as weight loss and nutrition counselling.
This nexus of acquisitions shows the deft synergy between Mednow's patient services, its streamlined technology, and its core business of fulfilment pharmacies. The wider offering of speciality patient care, doctor services and pharmacy services can not only help attract a greater customer base but can also help establish crucial industry relationships. Such relationships will be important for expanding and maintaining Mednow's network of fulfilment pharmacies according to an increased volume and variety of demand. Mednow's technology offering underpins this and will facilitate the integration of all parts of their operation for maximum ease and accessibility for patients and clients.
In 2019, the total Canadian retail pharmacy market was estimated at C$29.9bln. This is spread over just under 10,000 traditional pharmacy stores with big retailers also offering in-store pharmacies. This is a market that although highly regulated, appears ready for digital innovation.
Mednow’s long-term profitability and goals reach far beyond the operations that have been acquired over the last financial year. Its combination of digital infrastructure and a developing pan-Canadian network of bricks-and-mortar fulfilment centres will enable Mednow to display rapid organic growth.
In the calendar year 2022, Mednow could generate up to C$45mln of revenues in management's view. Of this, C$42mln could come from pharmacy services and C$3mln from doctor home visits. The average gross margin is expected by Mednow to be around 20%. This growth is predicted on the basis of an expected 50% increase in patient numbers (similar to the 50% increase seen in the first quarter of 2022) to between 40,000 and 45,000. Revenue in the last financial year (to 31 July 2021) was C$414,000.
For the following calendar year, 2023, management forecast annual revenues of between C$105mln and C$110mln at an average gross margin of 25%. This is on the basis of predicted organic growth in patient numbers to about 110,000-120,000. By the 2023 calendar year, Mednow expects to report an adjusted EBITDA of between C$5mln and C$10mln. This level of EBITDA could make Mednow cash-flow positive. Although we do not make a formal financial forecast, it seems possible that Mednow will make a statutory loss in FY23 (to 31 July 2023) but a possible EBITDA profit in FY24.
Mednow does face digital competition; for example, Pocketpills, using an app developed in India, has grown fast, and claims 300,000 users. Pocketpills has just raised C$30mln in a Series B fundraising round. Amazon Pharmacy could offer a significant challenge if it decides to make a major investment in the Canadian market.