Medicure Inc. (MPH) Earnings Call Transcript & Summary

Welcome to Medicure's Earnings Conference Call for the year ended December 31, 2019. My name is Joanna, and I will be your conference 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 and 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 call is being recorded, and today's date is April 16, 2020. I would now like to turn the conference call over to Dr. Albert Friesen, Chief Executive Officer of Medicure Inc. Please go ahead, Dr. Friesen.

Thanks, moderator, and good morning to all on the call. We appreciate your interest and participation in today's call. Joining me today is James Kinley, Chief Financial Officer; and Dr. Neil Owens, President and Chief Operating Officer. The sales and marketing of AGGRASTAT continues to be the main source of income and profit. AGGRASTAT still has the majority of the patient market in the U.S. The margins continued to decline from the -- through the fourth quarter of 2019, by and large because price competition from generic Integrilin and there was some reduction in the class -- use of the class of drugs, the IIb/IIIa inhibitors. Medicure is presently refocusing the sales and marketing effort to retain and regain some of the AGGRASTAT business. The revenue of the year 2019 was $20 million, which was down from the $29 million in 2018. AGGRASTAT was the majority of that, $19.4 million. $183,000 came from ZYPITAMAG and $619,000 from ReDS. We had a loss of $19.8 million, which is mainly made up of about $13 million, are combination of impairment on the ReDS' intangible assets, a write-down in inventory and foreign exchange. Plus, the remaining was an investment in the sales and marketing of ZYPITAMAG and ReDS. Sales of ZYPITAMAG and ReDS were much slower than anticipated. Sales of ZYPITAMAG are now starting to pick up, but the sales of ReDS devices continues to be a challenge, and it was decided to take a significant impairment of the asset. Medicure's plan, which was begun to be implemented in the first quarter of 2020, is to reduce operating expenses on ReDS sales and marketing with a goal of balancing the cost and retaining the value of the investment in Sensible Medical. The main focus at the present is on the sales and marketing of AGGRASTAT and ZYPITAMAG, which continue to have great margins and potential. Medicure had obtained a major nondilutive influx of cash with the purchase and subsequent sale of Apicore. So it was decided to share this with our shareholders in a substantial issuer bid, of which Medicure used about CAD 26 million to purchase up to 4 million of our common shares for cancellation at a set price of $6.50. We value our shareholders, and we believe that this is an appropriate way to share the profits from the sale of Apicore with the owners of Medicure who supported the growth of our company. Further, we believe our recent investments and programs initiated for our new products will provide the growth in revenue and profits for the coming years. It takes time and persistence to make this a reality. Our shareholders have been patient in the past, and we believe the SIB was a good way to provide a near-term value as we build an even stronger future. Medicure has a good cardiovascular product portfolio, a track record of growing sales and marketing and a great team with energy, talent and experience to build a strong, growing company. Medicure's focus is to continue with the strong AGGRASTAT franchise and growing the sales of ZYPITAMAG, while building out our cardiovascular product portfolio over the coming years with a strong commitment to sales and profitability. I'd now like to turn the call over to Chief Financial Officer, James Kinley, to review and provide some color on the financial results of 2019.

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 year ended December 31, 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 year ended December 31, 2019. Total revenues for the year ended December 31, 2019, were $20.2 million compared to $29.1 million for the year ended December 31, 2018. Net revenues from AGGRASTAT for 2019 totaled $19.4 million, a decrease from net revenues from AGGRASTAT for 2018 of $28.5 million. Net revenues from AGGRASTAT for the 3 months ended December 31, 2019, totaled $3 million, a decrease from net revenues of AGGRASTAT for the fourth quarter of 2018 of $8.2 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 and some volume decreases experienced during the year. During the year ended December 31, 2019, ReDS contributed revenue of $618,000 from the sale of the product in the United States. Revenue from ZYPITAMAG totaled $183,000 for 2019 compared to $652,000 for 2018. The decrease in ZYPITAMAG product sales for 2019 is a result of initial stocking at the wholesaler level during 2018. The company expects ZYPITAMAG revenues to grow through 2020 and beyond. Turning to cost of goods sold. AGGRASTAT cost of goods sold for the year ended December 31, 2019, totaled $3.5 million compared to $3.7 million for 2018. This resulted in gross margins for the year ended December 31, 2019, of approximately 82%, a decrease from approximately 87% margin for 2018. ReDS cost of goods sold for 2019 totaled $904,000 and consisted of $263,000 paid to Sensible Medical in relation to ReDS for the revenue sharing arrangement related to the products sold by the company during 2019, and $641,000 related to amortization of the ReDS license prior to the impairment recorded over the ReDS' intangible assets. ZYPITAMAG cost of goods sold totaled $1.9 million for the year ended December 31, 2019, but contained $797,000 of amortization of the ZYPITAMAG intangible assets and $1 million from a write-down of ZYPITAMAG inventories. Removal of the amortization and inventory write-down resulted in a gross margin from the product of approximately 80%. The company also recorded an impairment loss on the write-down of inventory of SNP of $940,000 recorded during the year ended December 31, 2019, as a result of reduced selling prices for the product currently being experienced in the market pertaining to SNP. Selling expenses totaled $13.4 million for the year ended December 31, 2019, down from $15.6 million for 2018. The reduction in selling expenses when compared to the prior year is the result of ZYPITAMAG launch costs incurred during 2018. General and administrative expenses totaled $3.4 million for the year ended December 31, 2019, down from $3.9 million for 2018. The decrease primarily relates to lower stock-based compensation expenses incurred during the year ended December 31, 2019, when compared to the prior year. Research and development expenses for 2019 totaled $4.3 million compared to $6.7 million for 2018. Research and development 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 research and development costs to increase relative to this. On December 5, 2019, the company reached a settlement agreement with the buyer in the Apicore sales transaction with respect to the amounts held back. A settlement agreement was reached under which the company received USD 5.1 million in relation to the holdback receivable. In connection with this settlement, the amounts owing to the former President of Apicore, which were recorded as an other long-term liability, were settled. Immediately prior to this settlement, the company reduced the carrying value on the statement of financial position of the holdback receivable by $3.6 million to the net recoverable value from the negotiated settlement. The company has considered indicators of impairment regarding its intangible assets and during the year ended December 31, 2019, the company recorded a write-down of intangible assets related to the ReDS license totaling $6.3 million as a result of uncertainties with ReDS being experienced in regards to the length of the sales cycle and uptake of the product with customers, resulting in the company's sales being below the committed amounts required by the exclusive marketing and distribution agreement regarding ReDS. The company did not record any write-down of intangible assets during the year ended December 31, 2018. The company recorded finance income of $1.1 million for 2019. This 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 royalty obligation and was consistent with the interest income for the year ended December 31, 2018. The company recorded a loss of $2.6 million for foreign exchange for the year ended December 31, 2019, compared to a gain of $6.5 million for 2018. The foreign exchange loss during 2019 resulted from decreases in the U.S. exchange rate during 2019, which applies to the U.S. dollar cash balances held by the company throughout the year. The income tax expense of $145,000 during the year ended December 31, 2019, is primarily related to changes to the company's tax loss carryforwards in Barbados during the period compared to income tax expense of $897,000 during the year ended December 31, 2018, which resulted from taxable income in the United States from the company's commercial business during the period. This results in a net loss for the year ended December 31, 2019, of $19.8 million or $1.32 per share compared to net income of $3.9 million or $0.25 per share for the year ended December 31, 2018. Adjusted EBITDA for the year ended December 31, 2019, was negative $3.8 million compared to adjusted EBITDA of $418,000 for the year ended December 31, 2018. The decrease is primarily due to lower revenues experienced during 2019. The company also recorded a $6.3 million charge to reduce the value of the company's investment in Sensible Medical. This charge flows through other comprehensive loss, resulting in a total comprehensive loss of $26.8 million compared to comprehensive income of $4.5 million for the year ended December 31, 2018. As at December 31, 2019, the company had cash totaling $13 million compared to $71.9 million as of December 31, 2018. As of December 31, 2019, the company had working capital of $19.7 million compared to $72.7 million for 2018. The decrease in cash and working capital related to the $10 million investment made by the company in Sensible Medical, the USD 10 million spent on acquiring the full ZYPITAMAG rights, $26 million used to repurchase the company's shares under its substantial issuer bid, $4.1 million used to repurchase shares under the company's normal course issuer bids and the net loss experienced during 2019. Additionally, the buildup of inventory of $2.1 million also contributed to the decrease in cash. As at December 31, 2019, the company did not have any debt recorded on its statement of financial position. I wanted to remind you 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'd like to turn the call over to our President and Chief Operating Officer, Dr. Neil Owens, for some additional commentary regarding our operations.

Thanks, James, and good morning, everyone. Medicure's commercial team remains steadfast in the execution of our strategic plan, focused on the sale of cardiovascular products for the U.S. market despite facing market challenges in 2019. AGGRASTAT maintains the majority of the patient market share in the United States despite a decrease in sales in 2019. Based on our strong relationships with physicians and key opinion leaders and the 1,200-plus U.S. hospitals where AGGRASTAT is used, we believe there are opportunities to increase sales through a renewed marketing focus. The major market challenge was pricing pressure from generic Integrilin products, which had the most impact on 2019 net revenue from AGGRASTAT due to decreased margins. We look forward to the reaction from the cardiology community to a Medicure-sponsored clinical study called SAVI-PCI, and we are working with the steering committee to present the results in 2020. Turning our attention to ZYPITAMAG. There was a significant expansion in pharmacy benefit coverage in 2019, and we continue to focus on improving coverage. This process was greatly facilitated by our control of pricing and rebates through the acquisition of the ZYPITAMAG New Drug Application, or NDA, in Q3 of 2019. We expect to continue to expand coverage as bid cycles come up for review and negotiation. In conjunction to coverage, Medicure is focused on making access to ZYPITAMAG as straightforward as possible for physicians and patients and is exploring innovative ways to provide pharmacy and prior authorization support as well as home delivery. We are also pursuing consumer marketing strategies to explain the benefits of ZYPITAMAG over other statins directly to consumers. At the end of 2019, Medicure implemented a new voucher program for eligible patients to receive their first 30-day supply of ZYPITAMAG for free when they redeem their savings card at their local pharmacy. This is a lower cost program overall compared to providing sample boxes at each clinic and provides more information on patient use as well as an incentive for patients to visit their local pharmacy to stock the product. Overall, whilst growth in sales has been slower than hoped for, there continues to be month-over-month growth and new and repeat prescriptions with prescriptions filled nationwide. Our sales team continues to build the number of prescribers and is pursuing creative ways to facilitate peer-to-peer discussions. It is expected that sales will accelerate through improved coverage, access and the execution of our marketing strategy. The marketing and sales partnership with Sensible Medical for the ReDS device has faced its own challenges in 2019. The device is used to measure lung fluid levels in patients with heart failure and those with lung fluid management problems. 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 was very positive. However, it effectively reset the sales cycle for accounts that were in the process of reviewing the ReDS Vest as they nearly unanimously wanted to evaluate the PRO. In Q4, the PRO ReDS System was sold by Medicure to 5 accounts in the U.S., a combination of both hospitals and private clinics. We look forward to continue servicing these accounts and building off of these early adopters with surrounding hospitals and clinics. Overall, sales were below expectation. This is in part because U.S. hospitals are facing budget shortfalls, and capital equipment purchases face a lengthy approval process where purchases are often delayed. Because of this, we expect the sales cycle to continue to be slower than hoped for. We continue to explore creative financing and ways to commercialize the product to facilitate access to the ReDS device. In addition to branded products, in Q3 2019 Medicure added sodium nitroprusside to our product offering. Sales have also been slower than expected due to hospital contract negotiation but sales began, and we expect sales to improve throughout 2020. Medicure continues to develop additional cardiovascular abbreviated new drug applications, or ANDAs, for in-hospital use. At this time, we are not going to release details about the identity of the other products, but they are congruent with the relationships and expertise we have established with AGGRASTAT and sodium nitroprusside. In summary, Medicure expects continued success from its lead commercial product, AGGRASTAT, through a renewed marketing focus and has redoubled efforts to grow the sales of ZYPITAMAG through a dedicated and driven commercial team. With that, I would like to turn the call back to Dr. Friesen for final comments.

Thank you, Neil. 2019 was a year in transition with the sales and marketing focus on 2 products, which were added in 2018 for diversification to our main cardiovascular product, AGGRASTAT. There was considerable learning which will be the basis for a market push for 2020. We are thankful for AGGRASTAT, additional cardio assets and a strong balance sheet. We continue to focus on growing the business with a pipeline of cardiovascular products that will further diversify our revenue and asset base, carefully investing to grow our future profitability. My goal as the head 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 the outstanding team of employees we've been blessed with. Thank you to our shareholders for your continued support and interest. And now moderator, I'll turn it over to you to manage the Q&A. Thank you.

[Operator Instructions] Your first question comes from Sam Rebotsky from SER Asset Management.

Tell me, as far as the ReDS program, we're carrying that at $3.7 million because we wrote off $6.3 million. Did -- was this a license for the U.S.? Did we own any other countries? Is it sold someplace else? It appears to be based in Israel. Could you give me some more information relative to the ReDS and Sensible Medical?

I'll start. Thank you for the questions. Yes, the -- we only -- Medicure only sells that in the U.S. It is sold in other countries which is part of the Sensible Medical. I'll turn it over to James to talk about the write-down.

So we did write down $6.3 million, which was the value of the license or the intangible asset as well as $6.3 million related to the U.S. -- sorry, the investment in Sensible Medical. So when we acquired the license rights, we actually made an investment into Sensible Medical at that time as well. And it is, as you stated, an Israeli based company.

Do we have any other interest other than our sales in the U.S.? And what is the approximate sales total worldwide for this product? You indicated you sold $618,000 during the current year.

We don't -- we only sell in the U.S. Our other interest is that we own shares in Sensible, but we don't have any marketing rights for the ReDS device outside of the U.S. And we don't know what the sales were, it's a private company, in the rest of the world. But I can say it's in the same -- it's in the ballpark of our sales. It might be higher, but we don't know the exact number.

Okay. Now as far as your other products, you indicated you expect sales to be greater for the current year than 2019. Could you sort of indicate -- we have completed the March quarter. Has the sales increased in the first quarter in the U.S.? And has there been an impact from the coronavirus in the U.S. on your sales?

The first one, we have, in the past, avoided projections in sales. We do expect sales to grow in 2020. The sales -- the transition from our marketing efforts in 2019 occurred in the first quarter. So we don't see significant changes in the first quarter, but we do see some trends to support our comment that we do expect to have increased revenue for 2020.

And when do we expect to report the first quarter sales and profits and have a conference call?

We'd be looking at the -- probably the second week of May, be doing that.

Second week of May. Okay. All right. Do we plan to be profitable for the current year?

Yes, we do. We've made significant cost savings in the first quarter.

Okay. You -- the buying back of the shares which was significantly higher than the current value and you've been very fortunate to do many transactions which seem to be beneficial. Good luck going forward.

Sure. Thank you for your questions. And I didn't answer the one question about -- I was going to get to about COVID. So far, there's certainly -- we only sell in the U.S. So obviously, we have hospitals that we sell to that have been significantly impacted by COVID. But AGGRASTAT is used by and large in emergency. It's called STEMI, emergency heart attacks. And although there's been some decline in the frequency reported, we haven't yet seen a significant reduction in our AGGRASTAT sales.

That seems good. Good luck.

Thank you.

[Operator Instructions] There are no further questions. You may proceed -- I'm sorry, we do have one more question. Question comes from Robert Davis, an investor.

There is -- there were 2 reports about AGGRASTAT that were going to be released, studies. I was wondering what the results are.

I don't know. Neil, do you want to share the 2 reports or you want me to -- basically, we're needing -- go ahead, Neil.

So those studies should be announced shortly. We haven't released any of those results yet. We're waiting for the steering committees to finish their analysis and reports. But we expect those to be released quite shortly.

Okay. And I guess I have one more question. About -- so the ReDS original is now going to be replaced with the ReDS Plus -- or the ReDS PRO. And I think that -- just it was a little confusing to understand that. So are you still going ahead with the ReDS PRO or is that on hold too?

No, we're continuing to market the ReDS PRO. So what we're doing is we're marketing -- what we're telling the Street is that we've transferred much of the cost and the efforts that were being put on ReDS to ZYPITAMAG and back to AGGRASTAT. So we try to provide that information to the market. We will continue to pursue the contacts that we have. But because it takes so long and sales cycle seems to be anywhere from 9 months and can even be a year, what we do is we don't need to -- we have a lot of contacts that we developed and so now we can pursue those contacts with less cost to kind of close as many as we can and then see how the year goes. So it's a major effort for us to save money and to get back to profitability.

Okay. But the hope is to maybe further out in the year or next year to see ReDS PRO in the bottom line somewhere?

Yes. Yes.

There are no further questions. You may proceed.

Okay. Thank you very much for being on the call, and look forward to having you on the Q1 report for 2020. Thank you, again. Have a great day.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.