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Edited Transcript of MPH.V earnings conference call or presentation 9-Aug-19 12:30pm GMT

Q2 2019 Medicure Inc Earnings Call

Winnipeg Aug 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Medicure Inc earnings conference call or presentation Friday, August 9, 2019 at 12:30:00pm 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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Conference Call Participants

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* Robert Gibson

PI Financial Corp., Research Division - MD, Head of Research & Consumer Products Analyst

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Presentation

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Operator [1]

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Welcome to the Q2 2019 earnings conference call. My name is Cheryl, 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 related to future results, events and expectations, which are made pursuant to the safe harbor provisions of the U.S. [Secretary] (sic) [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 call is being recorded and today's date is August 9, 2019.

I would now like to turn the conference over to Dr. Albert Friesen, President and Chief Executive Officer of Medicure Inc. 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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Thank you, Cheryl. Good morning to all on the call. We appreciate your interest and participation on today's call. Joining me today is CFO, James Kinley; and our recently appointed President and Chief Operating Officer, Dr. Neil Owens.

The number of patients using AGGRASTAT, our lead drug, continued to increase, although modestly, even in the last quarter of 2019 to now 67%, and the pricing pressure is leveling off. The revenue in the quarter ended June 30, 2019, from AGGRASTAT was $6.2 million, which has increased from Q1 of $4.8 million but lower than Q1 2018, which was $7.2 million. We had a small negative earning of $300,000 due entirely to a stronger Canadian dollar; and we had a positive EBITDA of $100,000, a substantial improvement from Q1.

Sales of ZYPITAMAG and ReDS are still slow, but signs of growth for Q3 and Q4 are very positive. As expected, revenue from Medicure's second drug on the U.S. market, ZYPITAMAG, is still small due to getting coverage. Insurance coverage is improving and it is anticipated that this will begin providing growth in Q3 and Q4. The market introduction of sodium nitroprusside was delayed until August this month due to the CMO problems.

In January 2019, Medicure acquired the U.S. marketing rights for our ReDS system. Clinical studies have shown that 87% reduction in heart failure readmissions for patients using the ReDS system at home for 3 months post discharge versus those treated with usual care alone. This provides a fourth cardiovascular product for Medicure's marketing team in the U.S. market.

Medicure continues to trend -- retain a small -- or strong balance sheet with no debt, $45 million in cash plus the $10 million U.S. invested in Sensible. The final payment of the $10 million U.S. holdback funds for the -- from the sale of Apicore is still in dispute but insurance was obtained at the time of the sale to cover the potential dispute on this holdback. The timing of the release of the holdback or insurance proceeds is not known at the present time.

Medicure continues to defend the 660 patent against Gland who filed on abbreviated new drug application seeking approval from the U.S. FDA to market a generic version of AGGRASTAT. Medicure will pursue all legal options available to protect its product, and we anticipate this will take an extended period of time.

Medicure's focus is continuing to grow sales of AGGRASTAT, begin growing sales of ZYPITAMAG, the ReDS device and sodium nitroprusside while building out its cardiovascular product portfolio with the ultimate goal of growing sales and profitability -- steady profitability.

I'd like to now turn the call over to CFO, James Kinley, to provide a review and provide color on the financial statements for Q2.

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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 6 months ended June 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 June 30, 2019. Total revenues for the quarter ended June 30, 2019, were $6.3 million compared to $7.8 million for the quarter ended June 30, 2018. Net revenues from AGGRASTAT for the quarter ended June 30, 2019, totaled $6.2 million, a decrease from net revenue from AGGRASTAT for the quarter ended June 30, 2018, of $7.2 million but up from revenue of $4.8 million for the first quarter of 2018.

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. ReDS, which our license was acquired in January 2019, contributed approximately $51,000 of net revenue for the 3 months ended June 30, 2019. The comparative quarter in 2018 contained $606,000 of ZYPITAMAG revenue as the product was launched in the second quarter of 2018 and the initial wholesale orders were placed during this quarter. Our goal is to maintain and grow the AGGRASTAT brand while providing product diversification in the form of ZYPITAMAG launched in May 2018, ReDS acquired in early 2019 and the upcoming launch of our generic sodium nitroprusside in the third quarter of 2019.

Turning to cost of goods sold. AGGRASTAT cost of goods sold for the quarter ended June 30, 2019, totaled $1.1 million compared to $1 million for the quarter ended June 30, 2018. This resulted in gross margins for the quarter ended June 30, 2019, of approximately 82%. This is down from the margin for the quarter ended June 30, 2018, of 86% with the decrease in the gross margin being due to lower net selling prices, as noted earlier. Cost of goods sold for the quarter ended June 30, 2019, contained $67,000 and $135,000, respectively, pertaining to the amortization of the licenses for ZYPITAMAG and ReDS.

Selling expenses totaled $3.3 million for the quarter ended June 30, 2019, down from $3.9 million for the quarter ended June 30, 2018, and from $4.1 million for the quarter ended March 31, 2019. The reduction in selling expenses when compared to the same quarter in the prior year is a result of the ZYPITAMAG prelaunch and launch costs incurred in the quarter ended June 30, 2018.

General and administrative expenses totaled $769,000 for the quarter ended June 30, 2019, down from $1.1 million for the quarter ended June 30, 2018. The decrease was primarily the result of lower stock-based compensation incurred in the quarter when compared to the same quarter in 2018. Research and development expenses remained consistent between the quarter ended June 30, 2019 and 2018 at $1.2 million and $1.1 million, respectively. Research and development expenses for the current period relate primarily to additional development projects, which are under way. 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 research and development costs to increase relative to this.

The company recorded net finance income of $182,000 for the quarter ended June 30, 2019, compared to net finance income of $94,000 for the quarter ended June 30, 2018. The finance income and expense relates to interest on the company's cash balances and short-term investments offset by the change in the 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 a cash balance of approximately $45.7 million at June 30, 2019. And we expect to have finance income for the foreseeable future.

The company recorded a loss of $813,000 from foreign exchange for the quarter ended June 30, 2019, compared to a foreign exchange gain of $1 million for the quarter ended June 30, 2018. The significant foreign exchange loss during 2019 resulted from decreases in the U.S. exchange rate during 2019, which applies to the significant U.S. dollar cash and short-term investment balance held by the company as of the end of each quarter. This results in a net loss for the quarter ended June 30, 2019, of $957,000 or $0.06 per share compared to net income of $1.6 million or $0.10 per share for the quarter ended June 30, 2018.

Adjusted EBITDA for the quarter ended June 30, 2019, was $103,000 compared to adjusted EBITDA of $882,000 for the quarter ended June 30, 2018, but up significantly from the negative $1.7 million EBITDA in the first quarter of 2019. The decrease in EBITDA compared to the same quarter in the prior year is primarily due to lower revenues between the 2 quarters, and the increase in EBITDA between the second quarter and first quarter of 2019 is primarily due to increased revenues and cost reductions experienced in the second quarter.

As of June 30, 2019, the company had cash totaling approximately $45.7 million compared to $71.9 million of cash and short-term investments as of December 31, 2018. As of June 30, 2019, the company had working capital of $51.2 million compared to $72.7 million at December. The decrease in cash primarily related to the USD 10 million or approximately CAD 13.4 million investment in Sensible Medical, of which 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 as well as the $3.6 million used to purchase 492,000 of our own common shares under the company's normal course issuer bid.

I want to remind you that there will 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 Chief Operating Officer, 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.

As mentioned previously, in the United States, AGGRASTAT remains the #1 glycoprotein IIb/IIIa receptor antagonist with approximately 67% market share. This tremendous accomplishment has been achieved through an incredible amount of work done by the Medicure team. We continually focus on maintaining that market share held by AGGRASTAT and look for subsequent growth by exploring new opportunities within the hospital environment. We are mindful of the pricing pressure from generic Integrilin products. As such, we remain vigilant to any market changes that require an appropriate response so that we may remain competitive and are exploring ways to reduce costs.

Turning our attention to ZYPITAMAG. We continue to see improvements in the number of commercial lives with access to ZYPITAMAG. Currently, an estimated 30 million people have pharmacy benefits that cover ZYPITAMAG. We continue to focus on ways to increase access to ZYPITAMAG, including through federal markets and specialized formularies. 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.

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. Since our launch at the end of Q1 2019, we are excited at the response and interest from both purchasers and practitioners. Our ability to communicate how ReDS can improve patient care and decrease health care utilization costs has been extremely well received.

We've been able to leverage existing relationships developed through the sale of AGGRASTAT with cardiologists, the integrated delivery networks and group purchasing organizations to drive awareness of the device and gain access to those influencers and decision-makers. At [the] outset, we have been actively focused on hospitals located in regions of the United States that have high heart failure rates and high hospital readmission rates. However, as we gain traction and raise awareness of ReDS, we will expand our footprint to include more territories and increase the number of hospitals.

Our focus for 2019 continues to be diversifying our revenue base. The access our U.S. sales organization has to acute cardiology specialists as well as hospital pharmacy and hospital system administration is an asset that can be applied to other products, such as the ReDS device. We are active in our search for approved, revenue-generating products that fit our organization. We continue to pursue products via acquisition, in-licensing and co-promotion opportunities. Moreover, we are exploring low-risk, low-cost and quick-to-market drug development projects. We are also developing additional abbreviated new drug applications, or ANDAs, for high-valued cardiovascular intravenous specialty generics. At this time, we are not going to release details about the identity of these products, but they are congruent with the relationships and expertise we have established with AGGRASTAT.

In summary, Medicure expects continued success from its lead commercial product, AGGRASTAT, that has become the #1 glycoprotein IIb/IIIa inhibitor in the market. We successfully launched ZYPITAMAG for the management of hypercholesterolemia, and growth is expected as formulary coverage is expanded. The partnership on the ReDS device now provides the opportunity for us to sell a new product into that hospital market. We have a significant commercial organization in place with a proven track record in U.S. hospitals care sales. Lastly, we have an increased focus on expanding our product offering and diversifying 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 growth we've seen in the sales and the organization over the past years. We have a strong balance sheet. We continue to focus on growing the business with a pipeline of cardiovascular drugs that diversify end products, that diversify our revenue and asset, carefully investing to grow our profitability. My goal and that of our Board, management and 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 sincere appreciation to our outstanding team of employees we're blessed with. Thank you for the shareholders and your support and interest.

And so now, Cheryl, I'll turn it back to you to lead us through the questions-and-answer portion.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we have a question from Bob Gibson from PI Financial.

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Robert Gibson, PI Financial Corp., Research Division - MD, Head of Research & Consumer Products Analyst [2]

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Okay. So let's start with the 2 ANDAs that are in the pipeline and I'm wondering if 2020 guidance might be a little optimistic.

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Albert David Friesen, Medicure Inc. - Founder, CEO & Chairman of the board [3]

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It is. We've just changed it in our presentation, which is on our PowerPoint. There's been -- in one case, we're pretty much on schedule, maybe delayed a little bit. That was actually -- and the second one, we were corresponding with our filings with the FDA and working through some of that. So the -- as always, there's some challenges, but I think we're going to achieve -- address the challenges the FDA have. So the one is pretty close, the second one is delayed a bit. And we've just updated the PowerPoint on it, which has just been put up on the website.

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Robert Gibson, PI Financial Corp., Research Division - MD, Head of Research & Consumer Products Analyst [4]

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Okay. Great. The ReDS, you've got a minimum sales limit or target with the company. Is that an issue at all?

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

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Right now we don't see it as an issue. No.

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Robert Gibson, PI Financial Corp., Research Division - MD, Head of Research & Consumer Products Analyst [6]

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Okay. Beauty. And continuing with that, you reduced the valuation of that company slightly. Any particular reason for that?

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

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It's -- the valuation of the company is actually -- it's formula-based. There's some different inputs that go into it similar publicly traded companies, the U.S. dollar exchange rate factors in. So no, nothing on this, like the company is still as valued as we did when we invested it.

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Robert Gibson, PI Financial Corp., Research Division - MD, Head of Research & Consumer Products Analyst [8]

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Okay. So nothing material. Great.

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Albert David Friesen, Medicure Inc. - Founder, CEO & Chairman of the board [9]

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Right.

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Robert Gibson, PI Financial Corp., Research Division - MD, Head of Research & Consumer Products Analyst [10]

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Okay. And so you're actually selling the sodium nitroprussides right now, like this month?

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Albert David Friesen, Medicure Inc. - Founder, CEO & Chairman of the board [11]

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We're delivering it to the wholesalers right now. They might have gotten it -- this any day. So we've got the product. It's in the wholesale, and there are contracts being negotiated at the present time.

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Robert Gibson, PI Financial Corp., Research Division - MD, Head of Research & Consumer Products Analyst [12]

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Okay. Great. And then lastly, ZYPITAMAG, can you give us an idea of the sort of the percentage of the insurers that you got approval for? Like what are we looking at?

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James F. Kinley, Medicure Inc. - CFO & Secretary [13]

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Yes. It's hard to give a percentage at this time. I think that the -- we have about 30 million lives covered. But that's at various tiers of reimbursement. So again, the strategy is trying to improve that reimbursement tier.

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Robert Gibson, PI Financial Corp., Research Division - MD, Head of Research & Consumer Products Analyst [14]

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Okay. And any time line or thoughts on when -- how that's going to work out?

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James F. Kinley, Medicure Inc. - CFO & Secretary [15]

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So I think right now, our strategy is to focus on certain areas. And I think we can make good progress, and then we're continuing to expand, I think, into 2020 with our coverage.

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Robert Gibson, PI Financial Corp., Research Division - MD, Head of Research & Consumer Products Analyst [16]

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Okay. And then lastly, Bert, with all this cash, I'm sure lots of people are coming, knocking to your door with stuff for sale. Can you give us an idea on valuation for stuff you're seeing? Is it too expensive? Or how are things looking?

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Albert David Friesen, Medicure Inc. - Founder, CEO & Chairman of the board [17]

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Interesting. I don't know what's your review of the marketplace is, but our experience is that there are still fairly high values on products that are on the marketplace than -- with certain sales. The multiple on sales is still, in our opinion, too high. But there are buyers, and you know some of the examples that have happened the last year where I couldn't believe the prices on the multiples.

So our focus has been more recently launched, although we do have -- we are negotiating, still negotiating some products. But we've also told -- sort of announced or provided guidance on that. Our focus at the present time is to be successful and drive the sales of ReDS and ZYPITAMAG. And so we're less aggressive than we were for a while, I would say, or responsive, to new acquisitions, although we see -- and we're involved in looking at probably half a dozen or so at the present time. But we really want our focus on driving the ZYPITAMAG and ReDS sales in the coming months and quarters. And -- but we have incoming calls all the time, but prices are still pretty high.

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Operator [18]

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(Operator Instructions) Our next question is from [Dave Balkam], private investor.

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Unidentified Participant, [19]

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I had one single question. On May 28, there was a news that Sensible Medical -- they licensed their ReDS device to Bayer primarily -- is in Europe. Have you guys reached out or planning to reach out to Bayer at any time in the near future and maybe work with each other synergistically on the marketing of ReDS?

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Albert David Friesen, Medicure Inc. - Founder, CEO & Chairman of the board [20]

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The Bayer agreement is -- it's not a marketing agreement like ours is. The Bayer has an interest. They have a study, and they've agreed to use the ReDS system in some of their studies. And so they are part of the promotion. So actually, that's helping us in awareness. And the cardiovascular community worldwide is fairly integrated. So the American cardiologists, they attend fairly aggressively the European and vice versa. So it's actually -- so we're aware of the program. And we're aware of the other ReDS agreements that Sensible has in other parts of the world. So we are in communication with the other parts, and that is helping build awareness.

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Operator [21]

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At this time, I'm showing no further questions.

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Albert David Friesen, Medicure Inc. - Founder, CEO & Chairman of the board [22]

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Okay. Thank you very much for your attendance in the call. We look forward to further calls and appreciate your interest. And thank you again for participating on the call.

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Operator [23]

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