Medicure Inc. (MPH) Earnings Call Transcript & Summary

Welcome to Medicure's earnings conference call for the quarter ended March 31, 2020. My name is Joanna, 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 events, results 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, 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 May 13, 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.

Thank you, operator, and good morning to all on our call. We appreciate your interest and participation in today's call. Joining me on the call is Medicure's CFO, James Kinley; 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. The margins declined through the last few quarters of 2019, appeared to have leveled off, but the reduction in the class of the drug, the 2B3 inhibitors continued due primarily to the impact on PCI procedures due to the COVID pandemic. Medicare continued refocusing their sales and marketing effort to retain and regain some AGGRASTAT business and to grow the ZYPITAMAG business. The revenue for the quarter was $3 million, which was down from $4.9 million for the same quarter in 2019. AGGRASTAT was the vast majority of that at $2.7 million, $163,000 from ZYPITAMAG and about $89,000 from ReDS and $31,000 from sodium nitroprusside, SNP. We had a net loss for the quarter of $1.5 million, mainly resulting from the decrease in revenues experienced during the quarter. Sales of ZYPITAMAG are now starting to pick up. But the sales of ReDS devices continue to be a challenge. Medicure's plan is to reduce operating expenses on the ReDS sales and marketing, with the goal of balancing the cost and retaining the value of the investment in Sensible. The main focus at the present is on the sales and marketing of AGGRASTAT and ZYPITAMAG, which continue to have good margins and great potential. We believe our recent investments and programs initiated with -- 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 -- so the SIB, which was a good way to provide near-term value as we build an even stronger future. Medicure has a good cardiovascular product portfolio, a track record of growing sales and market and a great team with energy, talent and experience to build a strong growing company. Medicure's focus, as I said, is continued strong AGGRASTAT franchise, growing ZYPITAMAG, while building out its cardiovascular product portfolio over the coming years with a strong commitment to grow sales and profitability. I'll now turn it over to our CFO, James Kinley, for the -- to review the quarter.

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 months ended March 31, 2020, 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'll now take you through the key highlights of financial performance for the first quarter ended March 31, 2020. Total revenues for Q1 2020 were $3 million compared to $4.9 million for Q1 2019. Net revenue from AGGRASTAT for Q1 2020 totaled $2.7 million, a decrease from net revenues from AGGRASTAT for the same quarter of 2019 of $4.8 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 volume decreases experienced in Q1 of 2020 when compared to Q1 2019. The company earned net revenues from ZYPITAMAG for Q1 2020 of $163,000. There were no ZYPITAMAG sales in the same quarter of 2019. The company expects ZYPITAMAG revenues to grow throughout 2020 and beyond. During Q1 2020, ReDS contributed revenue of $89,000 from the sale of product in the U.S. compared to $103,000 in the same quarter of 2019. The company also earned its first revenues from sodium nitroprusside or SNP during Q1 2020 with revenues totaling $31,000. Turning to cost of goods sold. AGGRASTAT cost of goods sold for Q1 2020 totaled $666,000 compared to $855,000 for Q1 2019. This resulted in gross margins for the quarter of approximately 76%, a decrease from approximately 82% for the same quarter in the prior year. The ZYPITAMAG cost of goods sold for Q1 2020 totaled $638,000 and includes $25,000 relating to products sold to the company's wholesale customers, $608,000 from amortization of the ZYPITAMAG intangible assets and $5,000 relating to royalties on the sale of ZYPITAMAG resulting from the acquisition of the product in September of 2019. Removal of the amortization resulted in a strong gross margin from the product of approximately 82%. There were no ReDS cost of goods sold for Q1 2020 as the revenue recorded in the quarter was for Medicure's share of Sensible medical sales in the U.S. during the quarter. Cost of goods sold for Q1 2019 totaled $117,000 and pertained to amortization of the ReDS license prior to the impairment recorded over these intangible assets in Q4 of 2019. The company also recorded a write-down of inventory of SNP of $207,000 recorded during Q1 2020 as a result of the reduced selling prices for the product currently being experienced in the market pertaining to the product. Additionally, cost of goods sold during the quarter totaled $31,000 for SNP. Selling expenses totaled $2.1 million for Q1 2020, down from $4.1 million for Q1 2019. The reduction in selling expenses when compared to the same quarter in the prior year is due to commercial launch costs relating to ReDS being incurred during the 3 months ended March 31, 2019, as well as cost reductions implemented by the company during the second half of 2019 and into 2020. General and administrative expenses totaled $800,000 for Q1 2020, down from $935,000 from the same quarter of 2019. The decrease primarily relates to cost reductions implemented by the company during 2019 and into 2020 and lower share-based compensation expenses during Q1 2020 when compared to Q1 2019. Research and development expenses for Q1 2020 totaled $858,000 compared to $921,000 for Q1 2019. Research and development expenses for the current period relate primarily to additional development projects, which were underway. Medicure is in the process of developing additional cardiovascular products with the development cost being approximately $2 million each, 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 cost to increase relative to this. The company recorded finance expense of $73,000 for Q1 2020. This relates to accretion on the company's AGGRASTAT royalty obligation and acquisition payable related to the ZYPITAMAG acquisition and finance expense related to the company's lease obligations, partially offset by interest on cash held by the company. This compares to finance income for Q1 2019 of $190,000, which relates to interest on cash held by the company, which was significantly higher during 2019, partially offset by accretion on the company's royalty obligation and finance expense related to the company's lease obligations. The company recorded a foreign exchange gain of $868,000 for Q1 2020 compared to a loss of $881,000 for Q1 2019. The change relates to changes in the U.S. dollar exchange rate during the respective periods, which led to the foreign exchange gains and losses as it applies to the significant U.S. dollar cash balances held by the company as of the end of both periods. This results in a net loss for the quarter of $1.5 million or $0.14 per share compared to $2.8 million or $0.18 per share for Q1 2019. The decrease in the net loss is due to the reductions in operating expenses and foreign exchange gains in Q1 2020, which were partially offset by decreased revenues. Adjusted EBITDA for Q1 2020 was negative $1.3 million compared to adjusted EBITDA of negative $1.7 million for Q1 2019. The change is primarily due to the lower operating expenses, partially offset by lower revenues experienced in 2020. The company also recorded a gain of $1.5 million as a result of foreign exchange differences on its foreign subsidiaries. This flows through other comprehensive income, resulting in total comprehensive income of $27,000 for Q1 2020 compared to a comprehensive loss of $3.5 million for Q1 2019. As at March 31, 2020, the company had cash totaling $12.7 million compared to $13 million as at December 31, 2019. As at March 31, 2020, the company had net working capital of $19.8 million, consistent with net working capital at December 31, 2019, of $19.7 million. And as at March 31, 2020, the company did not have any debt recorded on its statements and financial position. I want to remind you that there'll be an opportunity at the end of today's call for you to ask questions regarding the financial results of -- and 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. In Q1 2020, Medicure's commercial team continued to strive to increase sales of our cardiovascular products for the U.S. market. It's a focus on increasing the frequency that AGGRASTAT is used in the cath lab, expanding the patient market share for ZYPITAMAG and building off of our early adopters for the ReDS device. AGGRASTAT maintains the majority of the patient market share in the United States despite a decrease in sales in Q1. Based on our strong relationships with physicians and key opinion leaders in the 1,200-plus U.S. hospitals where AGGRASTAT is used, we believe there are opportunities to increase sales through a renewed marketing focus. In Q1, the major market challenge was decreased overall use of glycoprotein IIb/III inhibitors as a class due to reliance on other pharmacotherapy to prevent thrombosis. Lower margins due to pricing pressure from generic Integrilin products also had an impact on net revenue. We look forward to the reaction from the cardiology community to 2 recently completed clinical studies involving AGGRASTAT, the first being an investigator-sponsored study led by Dr. Marco Valgimigli called FABOLUS-FASTER, which was a 3-way pharmacodynamic study comparing AGGRASTAT to cangrelor and to Integrilin and crushed prasugrel. The second study is the Medicure-sponsored study, a clinical study called SAVI-PCI, which evaluated the composite of clinical and safety outcomes for both long- and short-infusion AGGRASTAT to Integrilin, involving 13 study sites in the United States. We expect the release of these studies' results in Q2 and Q3 2020, respectively. We recommend reviewing Medicure's press releases on these studies for further details. Turning our attention to ZYPITAMAG. There was a significant expansion in pharmacy benefit coverage in Q1 2020 with more than 100 million Americans now receiving commercial and Medicare Part D coverage for ZYPITAMAG, and we continue to focus on improving coverage. This progress 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, Medicare 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 pharmacy to stock the product. Overall, while growth in sales has been slower than hoped for, there continues to be a month-over-month growth in 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 still 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 continued to face slow adoption. 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 measurements. The PRO is now the primary system being offered to hospitals and clinics. In Q1, hospital systems in the final stages of reviewing contracts decided to delay their purchasing decisions because of budget constraints and therefore, no ReDS units were sold. We continue to work with these accounts and the physician champions to discuss financing options and ways to facilitate their purchase. We continue to service existing customers and look forward to building off of these early adopters with surrounding hospitals and clinics. Overall, from 2019 into Q1 2020, sales continued to be 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 be slower than hoped for. In addition to brand-new 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 in Q1 2020, 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 leveraging new clinical data and is steadfast in its 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 and James. Last year was a year of transition with a focus on sales and marketing of the 2 products added in late 2018. There was considerable learning, and that learning is now being implemented in our new focus on the sales and marketing of AGGRASTAT, ZYPITAMAG, SNP and the new products. So the first quarter is a transition from the heavy investment of last year to now starting to reap some of the growth from that investment. We are thankful for AGGRASTAT, the additional cardiovascular assets and a strong balance sheet. We continue to focus on the growing of 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 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 appreciation to the outstanding team of employees that we've been so blessed with. Thank you for you, the shareholders, for the continued support and interest. And now I'll turn it over to the operator to manage the question-and-answer, and we welcome your questions.

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

As far as the sales personnel, how many sales personnel do we have? Do they sell the same products? Are they employees? And do we use outside representatives?

Yes. Our sales staff are employees and Neil, maybe you can share the number of sales. The sales include what we call sales as well as medical scientific liaisons. Neil, do you want to provide an update on the numbers?

Sure. So we have made some reductions through 2019. But right now, we have 20 sales staff, and that does include some medical science liaisons. And they are dedicated to either ZYPITAMAG or in-hospital products.

So they don't sell the same -- they sell an individual product, they don't sell the same products?

Right now...

Go ahead, Neil.

Yes, we're dividing between in-hospital products and more so clinic-based products.

ZYPITAMAG is marketed, by and large, to primary care physicians, which is different than the hospitals. So there is the focus on the hospital and then there's a focus on the primary care physicians.

Okay. So now the AGGRASTAT, it's being sold against the Integra. Who manufactures the Integra? Which -- for -- is that Merck?

Yes. Integra was a brand name. It was acquired by Merck when they acquired Schering-Plough. And the brand has been genericized. And so there's several generic Integrilins in the marketplace, including the brand.

And we're waiting to get the R&D in the second quarter, how AGGRASTAT competes or produces results against Integra. And you have put out a press release. Would -- could you talk more about the R&D that you're doing with that?

Yes. Neil, do you want to address the 2 studies? This -- the goals of the 2 studies?

Yes, absolutely. So the AGGRASTAT versus Integrilin study is called SAVI-PCI, and that will be released, we believe, in Q3 of this year, and that was comparing basically a short infusion of AGGRASTAT versus a long infusion versus Integrilin. And basically, that was a U.S.-based study. And then the other study is in Q2. It's called FABOLUS-FASTER, and that's AGGRASTAT versus cangrelor versus prasugrel study. And that was led by Dr. Marco Valgimigli, who's basically a very well-respected and renowned clinical researcher.

How many patients are in these studies?

Yes. And SAVI-PCI is about 550 patients. And FABOLUS-FASTER was a pharmacodynamic study, so that was fewer. Those were about 120 patients.

And Sam, thanks for the question. So I'm going to just expand a bit on that SAVI-PCI. Today's practice of medicine is different than it was when these 2 -- when the 2B3 inhibitors were introduced. The procedure for angioplasty took some time. Now it's very quick. So the original products were, by and large, infused over hours, 20 -- even up to 24 hours or longer. The procedure only takes an hour or so. So what we've done is done a study showing that AGGRASTAT is very effective in a very short infusion so the physician doesn't have to prolong treatment or the infusion of AGGRASTAT after the treatment. So we have a bolus, we have a short infusion, and this study is -- tried to show that, the effectiveness of AGGRASTAT using that short infusion, which is the present preferred mode of treatment.

Okay. I have more questions. Should I continue or should I step out and come back into the queue?

You can continue.

Okay. As far -- we're spending $2 million in R&D and in the pipeline. How many products are we working on in the R&D and new products? And what's our expectation of getting a product that we could sell?

Okay. The -- by and large, the majority of that $2 million is spent on the development of generic cardiovascular drugs. The -- so they're not novel drugs. We have -- where AGGRASTAT is sold in, like I said, we have 1,200 hospitals. We -- a number -- a couple of years ago, we went to our physicians and asked them, "What are the other drugs that you use in your practice with AGGRASTAT that we could help you with?" And so we went out and developed the generic form of those drugs. Sodium nitroprusside is the first, and we have a series of other drugs that will come in the market. So when we say it's relatively low cost to develop a generic and it's a high probability of success, it's not a new product that we're working on that would cost a lot of money and take a lot of time to develop. So our first phase of expanding is twofold: one is developing these generics to add to our portfolio, and two is still continue to look at acquisitions like we did with ZYPITAMAG. And in those cases, we may also spend a little bit of R&D money just to do clinical studies for -- with them to help learn more and physicians learn more about the products. So there aren't new novel products that we're developing in the R&D.

Okay. And then as far as I presume, we're looking -- hopefully, we could find another Apicore. Are there anything in the wind that we're looking at now? I mean, it's difficult to find something comparable. But what's going on in our looking at new products like Apicore?

Good question. We continue to look for those opportunities. We're presently, and pretty much at any time over the past, number of months and continued months, look at 2, 3 or 4 opportunities, which may not be the nature of Apicore, but similar, looking for opportunities where we can capitalize on what we think will provide something unique for Medicure. So yes, we are presently looking and in discussions with some of these opportunities.

Okay. And in the last conference call, you indicated you'll be profitable for the year. Do we expect -- when do we expect -- which quarter do we expect the profit to occur? And do we still expect to be profitable for the whole year or just for the quarters when we get to be profitable?

We're going through it, as I said, a transition. Our operational expectations is that we will be growing the profitability over the next few quarters, by and large, to be the -- for end of the third -- end of fourth quarter being most profitable. And if things go as we had hoped, we should be profitable for the year.

Okay. And on the -- on your current presentation, you win the -- when the share price was CAD 1.22, the market cap was $13.2 million and we had equity of $27 million. Do we have any thoughts about buying the stock in the open market with this disparity?

I'm not sure how to answer it. We -- I can't say no, we're not looking at it. We always review it. We don't have a plan to implement something immediately, but it's something that we review on a continual basis.

Hopefully, we get profitable sooner than later and you sell more product. Good luck.

Thank you, again.

Thank you.

[Operator Instructions] There are no further questions at this time. You may proceed.

Thank you, again, for your attention, for being on the call, and we welcome your questions and interest and look forward to the next call. Thank you.

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