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Edited Transcript of MPH.V earnings conference call or presentation 27-Nov-19 1:30pm GMT

Q3 2019 Medicure Inc Earnings Call

Winnipeg Dec 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Medicure Inc earnings conference call or presentation Wednesday, November 27, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Albert David Friesen

Medicure Inc. - Founder, CEO & Chairman of the board

* James F. Kinley

Medicure Inc. - CFO & Secretary

* Neil Owens

Medicure Inc. - President & COO

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Presentation

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Operator [1]

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Welcome to the Third Quarter 2019 Earnings Conference Call. My name is Sylvia, and I will be your operator for today's call. (Operator Instructions)

Before we proceed, I would like to remind everyone that this presentation contains forward-looking statements relating to future results, events, expectations, which are made pursuant to the safe harbor provisions of the U.S. Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which could cause the company's actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, among others, those described in the company's most recent annual information form and Form 20-F. Later, we will conduct a question-and-answer session.

Please note that this conference is being recorded, and today's date is November 27, 2019.

I would now like to turn the conference over to Dr. Friesen. Please go ahead, Dr. Friesen.

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Albert David Friesen, Medicure Inc. - Founder, CEO & Chairman of the board [2]

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Thanks, moderator, and good morning to everyone on the call. We appreciate your interest and participation in today's call. Joining me today is our CFO, James Kinley; and Dr. Neil Owens, President and COO.

The sales and marketing of AGGRASTAT continues to be the company's main source of income and profit. AGGRASTAT has about 67% of the patient market, and we still see some modest conversions to AGGRASTAT. The margins have been declining, but are now stabilized, and Medicure is introducing programs to reverse the decline.

The revenue for the quarter ending September 30, 2019, from AGGRASTAT was $5.3 million compared to $6.2 million in Q2 2019. ReDS contributed about $117,000 of net revenue for the 3 months and ZYPITAMAG at $78,000.

We had a net loss for the quarter ending September 30 of $599,000 compared to a net loss of $545,000 for the quarter ending September 30, 2018.

Sales in ZYPITAMAG and ReDS are still slow, but insurance coverage has increased substantially, which should have a positive impact in 2020.

Medicure obtained a major nondilutive influx of cash with the purchase and subsequent sale of Apicore. USD 10 million of this cash was invested to purchase shares of Sensible Medical in Q1 of 2019. And just a few weeks ago, we announced the substantial issuer bid, SIB, to use about CAD 26 million to purchase 4 million shares of -- for cancellation at a set price of $6.50 per share.

We value our shareholders and believe that this is an appropriate way to share the profits from the sale of Apicore with the owners of Medicure, who have supported the growth of our company over the years. Further, we believe our recent investments and the programs initiated for our new products will provide growth in revenue and profits in the coming years.

As in the case of AGGRASTAT, which we grew from 2% to 67% of the market, it takes time and persistence to make this a reality. Our shareholders have been patient in the past, and we believe the substantial issuer bid is a good way to provide a near-term value as we build an even stronger future in the coming years.

Medicure has a good cardiovascular product portfolio, a track record of growing sales and market share and a great team with energy, talent and experience to build a strong, growing company. Medicure's focus is growing the sales of AGGRASTAT, ZYPITAMAG and ReDS and sodium nitroprusside, while we build out its -- our cardiovascular product portfolio with a strong commitment to profitability.

I'll now turn over the call to our CFO, James Kinley, to review the financials and provide some color on the third quarter.

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James F. Kinley, Medicure Inc. - CFO & Secretary [3]

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Thank you, Bert, and good morning, everyone. A couple of quick items to note before I start. All dollar figures are in Canadian dollars, unless otherwise noted by each presenter. And as a reminder, you can obtain a complete copy of our financial statements for the 3 and 9 months ended September 30, 2019, along with previous financial statements on the Investors page of our website. And a copy of the financial statements and management's discussion and analysis can be obtained from sedar.com.

I will take you through the key highlights of financial performance for the quarter ended September 30, 2019. Total revenues for the quarter ended September 30, 2019, were $5.5 million compared to $7.4 million for the quarter ended September 30, 2018.

Net revenues from AGGRASTAT for the quarter ended September 30, 2019, totaled $5.3 million, a decrease from net revenues from AGGRASTAT for the quarter ended September 30, 2018, of $7 million. The decrease in revenues from AGGRASTAT is due to higher discounted selling prices of the product due to increased pricing pressures from generic versions of Integrilin.

The ReDS system, for which a license was acquired in January 2019, contributed approximately $117,000 of net revenue for the 3 months ended September 30, 2019, and ZYPITAMAG contributed approximately $78,000 compared to $326,000 in the comparative quarter in 2018, which contained initial wholesaler ordering.

Our goal is to continue to maintain and grow the AGGRASTAT brand, while providing product diversification in the form of ZYPITAMAG, launched in May of 2018, ReDS acquired in early 2019 and our generic sodium nitroprusside, which is now available commercially in the U.S. market.

Turning to cost of goods sold. AGGRASTAT cost of goods sold for the quarter ended September 30, 2019, totaled $662,000 compared to $909,000 for the quarter ended September 30, 2018, with the decrease coming as a result of the mixture of product being sold, with more of the larger product size being sold in Q3 of 2019. This resulted in gross margins from AGGRASTAT for the quarter ended September 30, 2019, of approximately 87%, consistent with the same quarter in the prior year.

Cost of goods sold for the quarter ended September 30, 2019, contained $65,000 and $174,000, respectively, pertaining to amortization of the licenses for ZYPITAMAG and ReDS and $578,000 relating to a write-down of expiring ZYPITAMAG product.

Selling expenses totaled $3.3 million for the quarter ended September 30, 2019, down from $4 million for the quarter ended September 30, 2018. The reduction in selling expenses when compared to the same quarter in the prior year is a result of ZYPITAMAG launch costs incurred in the quarter ended September 30, 2018.

General and administrative expenses totaled $1 million for the quarter ended September 30, 2019, up from $709,000 for the quarter ended September 30, 2018, and the increase is primarily related to legal costs incurred in the third quarter of 2019, which resulted in the settlement of the patent dispute the company was engaged in with Gland, which was settled on August 21, 2019.

Research and development expenses were $976,000 for the quarter ended September 30, 2019, compared to $1.4 million for the 3 months ended September 30, 2018. R&D expenses for the current period relate primarily to additional development projects, which are underway. Medicure is in the process of developing additional generic cardiovascular products with the cost of each ANDA development project being approximately $2 million, consistent with our research and development strategy to focus on low-cost projects with higher probabilities for success, and we don't expect our R&D cost to increase relative to this.

The company recorded net finance income of $116,000 for the quarter ended September 30, 2019, compared to $88,000 for the quarter ended September 30, 2018. The finance income relates to interest on the company's cash balances and short-term investments, offset by the change in fair value of the company's AGGRASTAT royalty obligation during the quarter.

The company does not have any long-term debt on its statement of financial position and had cash balances of approximately $35.7 million as of September 30, 2019.

The company recorded a gain of $601,000 from foreign exchange for the quarter ended September 30, 2019, compared to a foreign exchange loss of $916,000 for the quarter ended September 30, 2018. The foreign exchange gain during the third quarter of 2019 resulted from increases in the U.S. exchange rate during the third quarter of 2019, which applies to the significant U.S. dollar cash balance held by the company at the end of the quarter. This results in a net loss for the quarter ended September 30, 2019, of $599,000 or $0.04 per share compared to $545,000 or $0.03 per share for the quarter ended September 30, 2018.

Adjusted EBITDA for the quarter ended September 30, 2019, was negative $319,000 compared to adjusted EBITDA of $599,000 for the quarter ended September 30, 2018. The decrease in EBITDA compared to the same quarter in the prior year is primarily due to lower revenues between the 2 quarters.

As of September 30, 2019, the company had cash totaling approximately $35.7 million compared to $71.9 million of cash and short-term investments as at December 31, 2018.

As of September 30, 2019, the company had working capital of $43 million compared to December 31, 2018 of $72.7 million. The decrease in cash primarily relates to the USD 10 million investment or approximately CAD 13.4 million investment in Sensible Medical, which was acquired -- where we acquired approximately 8% equity on a fully diluted basis in Sensible Medical as well as the U.S. rights to the ReDS medical device.

$6.6 million of cash was invested in the acquisition of ZYPITAMAG as well as $4.1 million was used to purchase 751,000 of our common shares under the company's normal course issuer bid. As previously noted, the company announced a substantial issuer bid intending to use up to $26 million in cash to purchase up to an additional 4 million common shares of Medicure from shareholders.

I want to remind you, there'll be an opportunity at the end of today's call for you to ask questions regarding the financial results of the company as a whole.

And with that, I would like to turn the call over to our President and COO, Dr. Neil Owens, for some additional commentary regarding our operations.

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Neil Owens, Medicure Inc. - President & COO [4]

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Thanks, James, and good morning, everyone. Medicure's commercial team continues to execute on our strategic plan focused on the commercialization of cardiovascular products for the U.S. market. Our product portfolio now covers acute and preventative care as well as prognostic technologies within the cardiovascular space.

Sales of AGGRASTAT remains strong, and it continues to be the #1 glycoprotein IIb/IIIa inhibitor used in the United States, with approximately 67% market share. It is now used in more than 1,200 U.S. hospitals.

Pricing pressure from generic Integrilin products has impacted net revenue from AGGRASTAT, which we are attempting to offset through efficiencies in distribution, contract negotiation and segmented pricing. We continue to make strategic investments in the brand through marketing and generation of new clinical data.

Turning our attention to ZYPITAMAG. We continue to see improvements in the number of commercial lives with access to ZYPITAMAG, and expanding coverage remains the primary objective. This has been facilitated through buyer control of pricing through the acquisition of the New Drug Application, or NDA. In Q3, coverage was extended to an additional 10 million Americans, leading to more than 40 million Americans having pharmacy benefits that covers ZYPITAMAG. We expect to continue expanding coverage as bid cycles come up for review and negotiation, including to federal markets and specialized formularies.

Medicure announced that it has reached a preferred pricing agreement with the ADAP Crisis Task Force. The agreement opens access to ZYPITAMAG to low-income, underinsured and uninsured Americans living with HIV who qualify for ADAP coverage in the states where ZYPITAMAG has been adopted onto the ADAP formulary. Overall, we've been able to grow new and repeat prescriptions and expect that as access continues to improve, that sales will accelerate through execution of our marketing strategy directed to both physicians and patients.

The marketing and sales partnership with Sensible Medical for the ReDS device has provided us with a great opportunity to expand our product offering and diversify our revenue base. The device measures lung fluid levels in patients with heart failure. Heart failure remains a significant and growing financial burden for the U.S. health care system.

In Q3 2019, we announced the launch of the ReDS PRO system, which provides several improvements over the ReDS vest, including ease of use and more rapid lung fluid measurement. The response from purchasers and practitioners we've engaged with has been very positive. This, however, has affected the sales cycle for accounts that we are in the process of reviewing the ReDS vest, as they nearly unanimously wanted to evaluate the ReDS PRO system. Our sales team has been able to leverage existing relationships developed through the sale of AGGRASTAT to drive awareness of the device and gain access to both influencers and decision-makers.

The message of how ReDS is going to improve patient care and decrease health care utilization costs continues to be well received. We continue to leverage existing and new clinical data. For example, in Q3, the SMILE-HF trial study results were presented at the 2019 Heart Failure Society of America Conference. This trial involved 268 patients at 43 centers in the United States. When used as intended, ReDS-guided management reduced hospital readmission by 58%.

At the outset, we've been actively focused on hospitals located in regions of the United States that have high hospital readmission rates due to heart failure. We're also focused on contracting with GPOs, an accountable care organization to facilitate access and adoption of the device.

In addition to branded products we've launched, are also developing additional cardiovascular abbreviated new drug applications, or ANDAs, for in-hospital use. The launch of sodium nitroprusside in Q3 2019 is the first example, and we're in the process of contract negotiation. While the number of units sold in the market per quarter has remained constant, there has been significant price erosion due to entry of multiple generics.

At this time, we're not going to release the details about the identity of the other products, but they are congruent with the relationships and expertise we've established through AGGRASTAT and SNP.

In summary, Medicure expects continued success from its lead commercial product, AGGRASTAT, that has become the #1 glycoprotein IIb/IIIa inhibitor used in the market. Our focus now is on growing sales of ZYPITAMAG and ReDS and expect that through the execution of our marketing plan and talented sales team, they will significantly contribute to and diversify our revenue base.

With that, I'd like to turn the call back to Dr. Friesen for final comments.

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Albert David Friesen, Medicure Inc. - Founder, CEO & Chairman of the board [5]

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Thank you, Neil. We're very thankful for the committed and dedicated sales and marketing team and very optimistic about their efforts to realize growth in sales and profitability in the coming years. We have a good balance sheet, and we continue to focus on the cardiovascular products we have, plus carefully reviewing opportunities as they arise. My goal, and that of our Board, management staff is to continue to build this business with a stable, long-term outlook to generating value for our shareholders.

And as always, I want to express my appreciation to our outstanding team of employees, which we've been blessed with. Thank you, our shareholders, for your continued support and interest.

So moderator, I'll turn it back to you to lead us in the Q&A. Thank you.

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Operator [6]

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(Operator Instructions) And we have no questions at this time.

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Albert David Friesen, Medicure Inc. - Founder, CEO & Chairman of the board [7]

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Okay. Thank you very much for your interest and your listening. We look forward to our next call and having you on the call. Thank you.

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Operator [8]

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Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.