Medexus Pharmaceuticals Inc. (MDP) Earnings Call Transcript & Summary

None.

Hearing none, we will conduct a vote by way of an online ballot. I will announce the results of the vote at the conclusion of the meeting. We will now address all items of formal business, and voting will close -- we've now addressed all items of formal business, and voting will close in 30 seconds. For those of you who have not voted on all matters of business, please do so now. [Voting]

We will take a short break and -- while the polls close, and the results are tabulated by the scrutineer. [Break]

I confirm the polls are now closed, and the scrutineer has tabulated the results. I'm pleased to confirm that the scrutineer has reported to me all matters put to the ballot have been passed with the requisite shareholder approval. Accordingly, I hereby declare the number of directors fixed at 6, the nominated individuals elected as directors and PwC reappointed as auditor. A report disclosing the voting results will be filed on SEDAR and disclosed in the press release formally following the meeting. That concludes the formal business propped before the meeting. I wish to thank you all for attending, and I will now declare the formal part of the meeting terminated. I would now like to turn the meeting over to Ken d'Entremont, our CEO, to make a few remarks about the business and our strategy going forward. Ken?

Thank you, Peter, and welcome to all the shareholders who are on the line today. I'm going to just kind of review where we are, our strategy, plan and how we see this business evolving over the coming months and years. So let's start with the forward-looking statement. Next slide, please. And let's move on to the next slide and one more. There we go. So just as a reminder as to who we are. Clearly, the vision for Medexus is to build a much larger specialty pharma company. We initiated that vision with the amalgamation of 3 companies in October 2018. Putting those 3 companies together gave us a strong commercial platform, both U.S. and Canada. And the plan is to continue to leverage that platform in order to create a strong revenue-generating company, grow organically and produce a strong EBITDA and cash flow. We made a significant step towards this vision in February of this year, February 28, with the addition of IXINITY to our U.S. business, dramatically changed the ratio of SG&A to net revenue, which clearly showed that it was very accretive, and we benefit from that acquisition. And the plan now is, obviously, to continue to execute on that vision and plan and continue to find accretive, either licensing or acquisitions, to continue to grow our business aggressively. Next slide, please. This is the progression of our net revenues from Pediapharm, which was the original publicly traded company in fiscal year '18, around $10 million net revenue. We grew to $34 million. Last year, we announced $74 million. And with the quarter that we just announced recently, you can see that, obviously, our trend is to be well over $100 million net revenue this year. And as this progression proceeds, clearly, our EBITDA and cash flow numbers continue to grow strongly. Next slide, please. So our plan moving forward is, obviously, to grow through 3 channels. We want to leverage our existing infrastructure in U.S. and Canada and grow the current product portfolio organically. We've had very strong revenue growth even in spite of COVID-19 and the various restrictions that the pandemic has put on the health care system. We still continue to grow strongly because many of our drugs are for chronic disease and are delivered through retail pharmacy, which continues to thrive strongly. So very much organic growth is a major driver of our business going forward. But we certainly don't want to stay where we are today. We want to continue to leverage the infrastructure that we have in place, and we'll do that through business development. We've got many ongoing discussions. The next deals that we hope to announce should be licensing deals. And I think they will both -- you'll see that they're both accretive to our business. There's 2 late-stage negotiations that are going on now. Certainly hope we get them both, but I'm confident we'll get at least one of them. And then we do, do some small product development. But obviously, as you all know, we're not an R&D company, but we do spend some money on finding ways to improve the potential of existing drugs. And as of now, we're spending some R&D dollars on the expansion of the label for IXINITY, which will bring us the pediatric population, which is an increase of -- potentially, in the U.S., of about 30%. So it's a good spend. That will start to deliver return in 18 to 24 months. Next slide, please. So our core competencies as we go forward, clearly, are our commercial expertise and the infrastructure we have in place. We will continue to focus on leveraging that infrastructure to make this a strong cash- and EBITDA-generating company. But we've also got a very strong business development focus. I think we've demonstrated that we are able to do transactions. We've done 2 M&A transactions and licensing -- other licensing deals that have been very accretive, so we think that we will continue to support that effort. And in fact, we're looking to increase our presence in the BD area with a new hire. We do have a good balance sheet to support that growth and support from our shareholders. Next slide, please. This is the infrastructure in the field that we are looking to leverage, and this is really what we sell to our potential partners. We've got 26 people in the U.S. who are doing an excellent job now on continuing to grow Rasuvo and growing IXINITY. So that 26 is more than enough to reach all the targets that we have in place. So layering new products into this sales force becomes very accretive, and that is our objective. In Canada, we actually have a larger sales force per capita. And as you probably know, that's because we have a broader portfolio today in Canada than we do the U.S. So we have about 23 people in the field in Canada who are calling on a group of rheumatologists, some specialty oncology, allergy and focused primary care. Next slide, please. So the portfolio, this is what I really just described, and Canada, obviously, is quite broad. The 2 companies that we put together were -- 2 of the 3 companies we've put together were Canadian-focused companies doing licensing. medac Gm -- Medac Pharma U.S.A. had more of a product development strategy. So there was only Rasuvo in that portfolio. We have been working aggressively to build out that portfolio, and IXINITY is the first step in that direction. Obviously, having IXINITY more than double the revenue in the U.S., and it was very accretive for our organization. Next slide, please. This slide really describes why we feel confident that we've got a strong organic growth within our business. Much of what we've got is growing strongly and, as I said, even in spite of COVID-19. Rasuvo, Metoject, same product in U.S. and Canada, are growing very strongly. IXINITY in the U.S. is growing at a 40% rate. Rupall antihistamine in Canada is growing at a 68% rate. So those products are all growing strongly, and those are our 4 biggest products. But we've got several other products that were either in the midst of getting launched or reimbursed, for example, triamcinolone hexacetonide; corticosteroid, longest-acting corticosteroid in Canada has just received reimbursement by all formularies, provincial formularies, except for B.C. and Manitoba. So clearly, we expect to see that grow significantly in the coming months and years. Gliolan, as you probably saw, we just received approval through Health Canada. So we're now in the process of getting that launched in Canada and continuing to sell it via the SAP process. And then we have other products that are also in the very early stage of development. So clearly, we think our organic growth story is a good one going forward. And even if we were to do no further business development, we would still have a very strong growth story with existing portfolio. Next slide, please. This slide, you've seen before. This is a slide we use explain to potential licensors that we've got a strong U.S. presence. I think the sales progression of Rasuvo was a very good one, launched after a competitive product, caught it, passed it and now holds a dominant market share in that market segment. And the reason that happened is that our team in the U.S. just did a very good job on reimbursement in order to set up a good sales performance. And so we've got the various assets in place that we need to successfully launch products in the U.S. So that's a very good story for us to communicate to potential licensors who want to see similar performance on their drug. Next slide, please. The same can be said in Canada where Metoject, obviously, is growing very strongly many years after launch. So this drug again has excellent reimbursement. So we've done a good job on reimbursement, and that allows our sales team to do an excellent job in conversion to our drug. Next slide, please. The same can be said for Rupall where we're seeing, again, dramatic growth year-after-year during the allergy season. Those spikes are related to the allergy season. We've just come through another one. And again, in spite of COVID-19, we saw another sharp spike in Rupall during this past allergy season. So excellent performance with this drug as well in Canada. Next slide, please. IXINITY clearly was transformational for our U.S. business, bringing a second asset into that portfolio. I think we did a good job in terms of pricing this asset. We paid less than 1x revenue. It was approximately a USD 32 million net revenue product, growing at a 40% rate. We paid $30 million for it, cash. We used our own cash and then debt from mid-cap. I would point out that $9.5 million of that purchase price was working capital, primarily salable inventory. So clearly, we paid even less than $30 million, so I think a really well-priced asset, highly accretive and has a lot of growth in it. It's in a marketplace that's approximately $734 million in the U.S. So we still have lots of room to grow, plus we have other territories. Clearly, we'll do it ourselves in Canada, and then we're looking for partners outside of North America. And that process has begun. So we see a lot of growth in this product for several years to come. Next slide, please. I'll just remind you that IXINITY is a rare -- a drug for a rare disease, hemophilia B, that affects 4,000 to 5,000 people in the U.S., about 710 in Canada. So obviously, a very rare disease. But this is a life-saving medicine that they need this to replace the factor that's missing from their own blood to promote clotting. So clearly, a very, very important drug. And we have certain characteristics that make it better than the existing products, BeneFIX, which is the market leader from Pfizer. We have a better half-life. We have a better recovery, which makes it a very attractive alternative to that market leader. And that's basically where we're stealing our share from. We have good growth opportunities. There's a new size that was launched within the past year. That size is now becoming the dominant size in our portfolio. So there's good growth opportunity there. As I mentioned, new patient starts with a pediatric indication will add about 30% to our market potential, and we have additional markets, so clearly, Canada and then other ex North American markets where we'll license the product out, so lots of growth potential for IXINITY into the future. Next slide, please. This is the sales progression for IXINITY. You can see that it's been on a very strong growth trajectory, 40% growth last year. We expect strong growth to continue well in our hands. We have actually put more salespeople on to IXINITY than Aptevo had previously, so we think that this sales progression should continue. Next slide, please. We don't expect to stop there. Triamcinolone hexacetonide is a product that, I mentioned, we've just gotten reimbursed to Canada. It's the longest-acting corticosteroid indicated for many forms of arthritis. It means there's fewer injections. So fewer intra-articular injections means it's very appropriate for juvenile idiopathic arthritis, basically, arthritis affects children, where it's a drug of choice in that indication but will be widely used in other forms of arthritis as well. So just having gotten reimbursement, we do expect to see dramatic growth in this drug over the coming months and years. I should point out that we also are working on this for the U.S. So clearly, we think there's a good opportunity for the same drug in the U.S. Next slide, please. You probably are aware that we do have a ROFR with Medac. When we purchased the U.S. business of Rasuvo from medac GmbH, we did negotiate a 12-year right of first refusal on everything else in their portfolio. One very attractive product is a Treosulfan. Treosulfan is a conditioning agent to -- for the conditioning of bone marrow prior to stem cell transplantation, basically a common treatment for leukemia patients. The chart on the left shows a comparison of Treosulfan to busulfan, which is the drug that's most commonly used currently. And the difference in those 2 lines is a 26% improvement in overall survival at 24 months, so obviously, a very significant improvement in survival of these leukemia patients, which makes it a very attractive drug. We have this now being sold via the SAP process in Canada, and we are in discussions with Medac on the licensing of this drug for the U.S. Next slide, please. Gliolan, which you saw, probably saw, was just approved by Health Canada last week. Gliolan is a revolutionary way to treat glioblastoma, which is the most common form of brain tumors. Traditionally, they would treat these and resect them under white light, which is very difficult, because it's difficult to see the margins of cancerous tissue versus healthy brain tissue. With Gliolan, you can flash blue light onto the tumor and cancerous tissue will fluoresce pink or red, which means that tissue needs to be removed. So this assists the neurosurgeon in doing a more complete resection, which, in turn, then means better survival for the patients. So better resections mean better survival. So this is a major step forward for these patients. And hopefully, at some point in the future, there will be medications that will actually treat the residual disease. Next slide, please. So clearly, our strategy is very much centered around business development. We want to grow our existing portfolio, but we also want to grow the drugs that we have within our portfolio. So we have a very strong business development effort. We're in many discussions for other products for both the U.S. and for Canada, and we expect to be successful in adding new products in the future. Next slide, please. This is the quarter that we just recently announced, and this is why I think we feel confident that we'll be nicely over $100 million net revenue this year: $27.5 million in the first quarter of this fiscal year, which produced $5 million worth of EBITDA and $4.1 million of positive cash flow. So we feel that we will continue to have strong performance with the existing portfolio and the addition of IXINITY into our business. Next slide, please. Cap structure, which I'm not really going to spend any time on. I think most shareholders are keenly aware of our current cap structure. Next slide, please. I do want to point out management. We've got a good operational team in both U.S. and Canada. And we feel confident that we've got the people in place who are going to be able to grow our business organically and execute when we add new products to our portfolio. Next slide, please. I'd also like to point out that we have a very active board. Peter van der Velden, our Chair, who you heard from this morning; and other members, Mike Mueller, Benoit Gravel, Adele Gulfo, Stephen Nelson, are all experts in their field and very active Board members. And for me as CEO, I'm fortunate to have Board members such as these who will challenge and question, so we have lively debates, which is great for our organization. Next slide, please. So that is really our story. I think if you think of Medexus, we've made good progression towards our vision of building a much larger specialty pharma company, a profitable, EBITDA positive, specialty pharma company. And I think going forward, we will continue to execute towards that vision. Next slide, please. And that is our presentation. I believe we're going to start to take some questions.

Yes, Ken. Thanks very much for that. And now that the formal part of the meeting and management's presentation have concluded, we would be pleased to answer questions. I think, [ Rob ], we've already got a few questions, but we would ask all attendees who would like to ask a question to use the instant messaging feature on the virtual interface to do so. We'll answer questions and as many questions as time permits. [Operator Instructions] And we'd like to remind you the questions which are already answered, either through the presentation that Ken just gave or are redundant to other questions, we will try and kind of lump together as best we can so we can answer those questions as expeditiously as possible. We're now going to give you a moment to ask those questions, and then I'm going to ask [ Rob ] if he can read some of those questions out to the management team and have Ken, myself and Roland, if appropriate, answer those questions.

So yes, we've received several questions from shareholders, all of which have been neatly summarized in a series of 5 questions asked by [ Simon-Pierre Thiery ], a shareholder of the corporation. So I'll ask them one by one. Ken, you're probably best suited to respond to these. So the first one is, assuming that you do not close on any new business development efforts that you may be working on, where do you see the revenue potential for this current portfolio of drugs in 2022 and 2023? Are there any drugs in your portfolio currently that you can bring from Canada to the U.S. or vice versa?

Thanks, [ Simon-Pierre ], excellent question. Obviously, we expect very strong organic growth from existing portfolio. We're well over $100 million now. We could see $150 million to $200 million from existing portfolio. So everything in our portfolio is growing nicely. So we do expect that to continue on. There are, obviously, products in our Canadian portfolio that we think we can bring to the U.S. I think triamcinolone hexacetonide is the most obvious example. We've solved the drug shortage problem in Canada. We've got it reimbursed now. The same problem exists in the U.S. So we are in discussions with the FDA to bring that drug to the U.S... So we hope to have something to announce in the not-too-distant future. Obviously, Treosulfan, which we're currently selling in Canada via the SAP, we think that is an excellent opportunity for both U.S. and Canada. So we are in discussions with Medac on that opportunity.

And the next question is, how challenging has the marketing of your drugs been due to COVID-19? Do you see the pandemic as a potential issue affecting your growth potential in the short term?

Yes. Obviously, I think COVID-19 caught everyone by surprise. And the durability of pandemic, I think, is another new twist that this is probably going to be with us for some time into the future. So I think we reacted well initially. We have continued to be strongly operational. There are very few issues within our ability to supply. We found new ways to promote, which is primarily virtual, as everyone has been forced to do. And those efforts have been successful. I mean we've got excellent reach. So we see that we continue to get new patient starts, particularly on IXINITY where we can reach out to the affected people. I think our portfolio, in particular, is robust with respect to the pandemic because it's chronic disease. The pandemic won't change anybody's need for hemophilia B treatment or rheumatoid arthritis treatment or allergy treatment. So much of our portfolio has been unaffected and, in fact, continues to grow. We have one product in our portfolio, which you probably would guess, has been affected by the pandemic, but fortunately, it's a very small proportion of our revenue, and that's NYDA. Clearly, head lice is a communicable disease, and transference has been low as a result of social distancing. So we can see that certain portfolios would clearly be affected by COVID-19. Ours is not one of those portfolios because it's chronic disease, and we continue to see growth.

And Mr. [ Thiery's ] next question is -- and perhaps this is for Roland as well. Will your SG&A remain relatively flat over the next few quarters? Or do you see an increase in spending to sustain your growth?

Yes. So SG&A went up in a minor fashion with the acquisition of IXINITY. I think we've been saying that we're looking for accretive acquisition. That clearly was one. We added USD 32 million net revenue but only added about 5 headcount, so very accretive. So SG&A remained relatively flat even with the addition of a pretty significant net revenue-generating product. So we think our current SG&A level will remain relatively flat. As we come out of COVID-19, there may be an increase in travel, obviously, as more people are in the field. But that yet remains to be seen as to when that will occur and likely never go back to the way things were prior to the pandemic in that I think we've now found effective means to promote virtually. The whole market was going in that direction. This clearly has stimulated that movement. And we will continue to use those channels to promote our drugs in the future, even post-pandemic.

And the next question is, have any U.S.-based investment banks shown interest in working with Medexus and possibly initiating coverage?

Yes. Good question. So obviously, we're starting to get recognized south of the border. We now have 75% of our net revenue in the U.S. So the U.S. story is growing. I think the acquisition of the Aptevo business brought some attention to us. Those that followed Aptevo saw that we have purchased a pretty good asset at a good price. We are in discussions with various U.S. investment banks, many of whom have analysts, and we hope to get coverage initiated with some of them.

And Mr. [ Thiery's ] final question, which has been echoed by another shareholder, [ Jean-François Perras ], is, the company's shares continue to trade by appointment, does the Board of Directors understand that public companies like Medexus need to have a substantial budget to promote the company to prospective retail shareholders? What efforts have you made to address this long-standing issue? I've been a shareholder for over 3 years now. And even if the company is posting good financial results and showing growth, there's almost no retail buying occurring in the market. And besides the CEO, who has been buying actively in the market, I'm very disappointed by the lack of insider buying in the market for the last 2 years. What is your plan to solve this issue regarding market awareness since we are a publicly listed company? And as part of that, a shareholder has also asked, are there any plans to consider uplisting to the TSX or NASDAQ?

I'll take the first cut at that, and then, Peter, if you want to add any other points to my comments. Clearly, we're well aware of the issue. I am a significant shareholder of the company so, like the rest of our shareholder group, want to see appreciation in the share value. Clearly, the venture exchange is not working for us. So we are looking at other potential exchanges that have perhaps stronger interest in health care companies. So clearly, we're working on that. And we're working to get our story out there more broadly, particularly to U.S. investors. The uplisting or, I guess, upgrading to the OTCQX has brought us additional volume. So we certainly can see that, that has been a step in the right direction, but we're far from where we want to be. So clearly, we are beginning to spend more money in Investor Relations in order to get our story out there to a broader investor base. I think we've been spending the last 18 months on building the fundamentals of the business. That is now strong. With the addition of IXINITY, we've got a strong U.S. portfolio. There's no obvious hole there. Now we've got a story that, I think, will resonate very well with investors. So clearly, part of our plan for this year is to get out there and more aggressively market the business.

Yes. And I would just really echo Ken's comments. I mean the Board are, in fact, significant shareholders. We are very focused on shareholder value and increases in that shareholder value. The management team and the Board have been working closely, in fact, to look at our IR and communication strategy, and you'll see some changes coming out of that over the next couple of months. And we are looking at other listings and working very proactively to manage that process. We've just made a big acquisition. That limits our ability to do some of those things in the short term but certainly, over the longer term, absolutely on our horizon, to look at all those opportunities to maximize shareholder value. [ Rob ], back to you.

Yes, we have a question from [ Andrea Stencky ], I apologize if I pronounced that wrong. In what period of time will the company become profitable?

Roland, I'll let you answer that question.

Sure, happy to do that. Very good question. And yes, I mean, obviously, with amortization of licenses that, on an annual basis, could be around $8 million as well as financing costs, a combination of cash and noncash, so if you take those items, certainly, it produces -- it helps us to produce positive EBITDA but not earnings in the short term. And while those will remain fairly flat, as revenue increases and gross profit increases, we will become profitable. So all I can say is that part of the reason why we want to keep growing the company in terms of revenue, and Ken has spent a lot of the time discussing the portfolio that we have right now, which is very much of a growth portfolio, and our BD efforts, all of those efforts together will bring us into profitability in the future.

So I believe we've responded to all the questions we've received so far. Seeing no other questions, Peter, I'll turn it back to you.

Thanks very much, [ Rob ]. That's all for today. I would like to thank everyone for participating, for being shareholders in the company and for your interest in the company. Thanks, everyone, and have a fantastic day.