Medicure Inc. (MPH) Earnings Call Transcript & Summary

Welcome to Medicure's earnings conference call for the quarter ended June 30, 2020. My name is Colin, and I'll be your operator for today's call. [Operator Instructions] Before we proceed, I would like to remind everyone that this presentation contains forward-looking statements relating to future results, events 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. [Operator Instructions] Please note that this conference call is being recorded, and today's date is August 12, 2020. I would now like to turn the conference over to Dr. Albert Friesen, Chief Executive Officer of Medicure Inc. Please go ahead, Dr. Friesen.

Thank you, Colin, and good morning, and welcome to all on the call. We appreciate your interest and participation in today's call. Joining me today is the Chief Financial Officer, James Kinley; and Dr. Neil Owens, President and Chief Operating Officer. The good news for this quarter is that both the income and EBITDA were positive, a positive change from the losses that have been reported in the previous 5 quarters, and this positive news despite the decline in business this quarter due to COVID-19. Medicure has a strong balance sheet with over $11 million in cash and no debt. Medicure has again successfully adjusted to the realities of the business and sales and have been able to accommodate the challenges. The sales of AGGRASTAT were down substantially because of reduced procedures due to the COVID, but we're starting to see some slow recovery from the significant dip. The focus of the business has shifted more strongly to the AGGRASTAT franchise and growing ZYPITAMAG business more directed marketing to patient as well as the health care providers. The revenue for the quarter was $2.7 million, which is down from $6.3 million for the same quarter in 2019. AGGRASTAT was the vast majority of that at $2.6 million, just over $100,000 for ZYPITAMAG, and none for ReDS, $17,000 for sodium nitroprusside. We had a net income of -- for the quarter of $19,000. Although small, it is positive. Medicure has reduced operating expenses on the ReDS, with the goal of transitioning the sales and marketing to a new team and retain the value investment in Sensible Medical. As mentioned, the main focus at the present is on the sales and marketing of AGGRASTAT and ZYPITAMAG, which continue to have great margins and potential. We believe the past few quarters' investments and programs for our new products will provide the growth in revenue and profits for the coming quarters and years. It takes time and persistence to make this a reality. Our shareholders have been patient in the past, and we believe this substantial issuer bid of returning $26 million to our loyal shareholders 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. I'll now turn it over to CFO, James Kinley, to review and provide some color on the financials for 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 and 6 months ended June 30, 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 will now take you through the key highlights of financial performance for the second quarter ended June 30, 2020. Total revenues for Q2 2020 were $2.7 million compared to $6.3 million for Q2 2019. Net revenues from AGGRASTAT for the quarter ended June 30, 2020, totaled $2.6 million, a decrease from net revenues from AGGRASTAT for the same quarter of 2019 of $6.2 million. The decrease in revenues from AGGRASTAT is due to a decrease in procedures performed in the quarter due to COVID-19 and higher discounted selling prices of the product due to increased pricing pressures from generic versions of Integrilin when compared to Q2 of 2019. The company earned revenues from ZYPITAMAG for Q2 2020 of $103,000 compared to $9,000 from Q1 2019. The company will continue to focus on ZYPITAMAG and expects revenues to grow through the second half of 2020 and beyond. There were no revenues recorded from ReDS during Q2 2020 compared to $51,000 in the same quarter of 2019, and the company earned $17,000 of revenue from SNP during Q2 2020. Turning to cost of goods sold. AGGRASTAT cost of goods sold for Q2 2020 totaled $715,000 compared to $1.1 million for Q2 2019. This resulted in gross margins for the quarter of approximately 72%, a decrease from the approximately 82% for the same quarter in the prior year. ZYPITAMAG cost of goods sold for Q2 2020 totaled $744,000 and includes $10,000 relating to products sold to customers; $627,000 from amortization of the ZYPITAMAG intangible assets; $104,000 relating to the write-down of expiring inventory; and $3,000 relating to royalties on the sale of ZYPITAMAG, resulting from the acquisition of the product in September of 2019. Removal of the amortization and write-down would result in a strong gross margin from the product of approximately 87%. ReDS cost of goods sold for Q2 of the prior year totaled $176,000 and pertained to amortization of the ReDS license prior to the impairment recorded over those intangible assets in Q4 of 2019. And additionally, SNP cost of goods sold during the quarter totaled $17,000. Selling expenses totaled $971,000 for Q2 2020, down significantly from $3.3 million for Q2 of 2019. The reduction in selling expenses when compared to the same quarter in the prior year is due to significant reductions in spending pertaining to travel and conference attendance as a result of COVID-19, as well as cost reductions primarily pertaining to ReDS selling costs, including previous headcount reductions implemented by the company during 2019 and into 2020. Additionally, during Q2 of 2020, the company recorded a recovery of salary expenditures of $248,000 through government assistance resulting from the Canadian emergency wage subsidy within selling expenses. General and administrative expenses totaled $770,000 for Q2 2020, consistent with Q2 2019 G&A cost of $769,000. During Q2 2020, the company recorded a recovery of salary expenditures of $43,000 through government assistance resulting from the Canadian emergency wage subsidy within general and administrative expenses. These, as well as other cost savings, were offset by higher legal expenses resulting from the company's defense of a challenge against its patent for AGGRASTAT. Research and development expenses for Q2 2020 totaled $98,000 compared to $1.2 million for Q2 2019. The significant decrease is the result of a recovery of $677,000 of FDA fees previously paid, which will be refunded as a waiver for these fees was successfully received in the quarter. Additionally, timing of various development projects, which were underway, contributed to the decrease as well. During Q2 of 2020, the company recorded a recovery of salary expenditures of $34,000 through government assistance resulting from the Canadian emergency wage subsidy within research and development expenses. Medicure is in the process of developing additional cardiovascular products within the -- with the development costs 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 income of $380,000 for Q2 of 2020. This relates to a recovery of accretion on the company's AGGRASTAT royalty obligation as well as interest on cash held by the company. This compares to finance income for Q2 of 2019 of $182,000, which relates to interest on cash held by the company, partially offset by accretion of the company's royalty obligation. The company recorded a foreign exchange gain of $278,000 for Q2 2020 compared to a loss of $813,000 for Q2 of 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. cash balance held by the company at the end of both periods. This results in net income for the quarter of $19,000 or 0 per share compared to a net loss of $957,000 or $0.06 per share for Q2 of 2019. The change in net income or loss is due to reductions in operating expenses, as previously noted, and foreign exchange gains in Q2 2020, which were partially offset by decreased revenues. Adjusted EBITDA for Q2 2020 was $263,000 compared to adjusted EBITDA of $103,000 for Q2 2019. The change is primarily due to lower operating expenses, partially offset by lower revenues experienced during the quarter. As at June 30, 2020, the company had cash totaling approximately $11.2 million compared to $13 million as of December 31, 2019. As at June 30, 2020, the company had net working capital of $19.1 million, consistent with net working capital at December 31, 2019, of $19.7 million. As at June 30, 2020, the company did not have any debt recorded on its statement of financial position. 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 and 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.

Thank you, James, and good morning, everyone. First, to provide some perspective on the effect of the COVID-19 pandemic in Q2, there was an impact on the sales and marketing of Medicure's products as we are focused on U.S. market, which has and continues to report high infection and hospitalization rates. There was no impact on manufacturing, inventory, distribution or product development. More specifically, starting in April, hospitals started to reduce the number of elective procedures, which reduced the demand for AGGRASTAT. However, this returned to typical levels by mid-May. All meetings with health care professionals have been virtual since mid-March. However, there was an immediate accommodation of this approach by U.S. clinics, which meant that marketing of ZYPITAMAG was impacted to a lesser extent. This change has resulted in reduced selling costs, and because of the cost effectiveness of virtual meetings, the sales team will likely benefit from this approach even when U.S. travel resumes. The sales of the ReDS device was by far impacted the most by COVID-19, where hospitals are facing tremendous financial pressure and have put most capital equipment purchases on hold. Because of the reduced revenue seen early in Q2, there was a concerted effort to be as efficient as possible with spending. And as a result, we significantly reduced selling costs while still striving to make every effort to increase sales. Despite the decrease in sales in Q2, AGGRASTAT maintains the majority of the patient market share in the United States. We have renewed our focus on working with key opinion leaders to effectively market, and AGGRASTAT remains the preferred glycoprotein IIb/IIIa inhibitor in more than 1,200 U.S. hospitals. We also continue to work with hospital pharmacists to make AGGRASTAT the preferred IV antiplatelet agent, as there remains cost savings opportunities by doing so. In order to reduce some of the costs of distribution of AGGRASTAT, in Q2, we launched the MedicureDirect portal, which allows hospitals to make bulk purchases directly from Medicure, which is a more cost-effective approach for both parties. We've also made adjustments to our contract pricing, which includes price increases of certain product formats. We continue to make selective investments in AGGRASTAT, including clinical research that we believe will help expand the market, and new indications, which can extend the life cycle of the product. In Q2, the first clinical study to compare AGGRASTAT to cangrelor was published in the journal, Circulation, which was an investigator-sponsored study, led by Dr. Marco Valgimigli, called FABOLUS-FASTER, supported by an unrestricted educational grant from Medicure. The study showed significant superiority of AGGRASTAT over cangrelor in terms of platelet inhibition in patients undergoing PCI. While only published recently, the study has generated a lot of discussion within the cardiology community and has been downloaded more than 1,500 times as an open-access article. We recommend reviewing Medicure's press release on the study for further details. Turning our attention to ZYPITAMAG. Through bids and negotiation, there was further expansion in pharmacy benefit coverage in Q2, with more than 150 million Americans now receiving commercial and Medicare Part D coverage for ZYPITAMAG. Including a small percentage of preferred, unrestricted access to the products, we 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. In Q2, Medicure announced the launch of a direct-to-patient online pharmacy program for the distribution of ZYPITAMAG. The program offers many advantages to increase patient access, including home delivery at no added cost, no added pharmacy fees and refill reminders directly to their mobile device. The program also offers advantages to prescribers as there is support for prior authorizations, and the product is shipped nationwide. There is still a savings card program in place for patients who prefer to fill their prescription at their local pharmacy. We continue to focus on adding new prescribers, new patients and having a high refill rate. We are increasing our focus on digital and social media advertising to consumers to explain the benefits of ZYPITAMAG over other statins and its accessibility in terms of price and home delivery. Our team remains motivated and driven to increase sales and fulfill ZYPITAMAG's market potential. As mentioned, the sales of the ReDS device was highly affected by COVID-19, and as a result, there were no sales in Q2. Because of the slow sales cycle and lower margins, the focus has shifted to transitioning sales and marketing to a new team and retaining the value of investment in Sensible Medical. As mentioned, in terms of branded products, the main focus at present is on the sales and marketing of AGGRASTAT and ZYPITAMAG, which continue to have high margins and great potential. In terms of our generic products, the sales of sodium nitroprusside or SNP, were impacted to some extent in Q2 due to COVID-19. However, we believe that as caseloads have increased, SNP can provide a modest revenue to the company. Medicure continues to develop additional cardiovascular abbreviated new drug applications, or ANDAs, for in-hospital use and are targeting the next ANDA to launch in Q1 2021. We believe this ANDA will have higher margins and less generic competition compared to SNP. We continue to evaluate branded products and products with high market share potential to add to Medicure's product portfolio and those that would align well with our focus and contacts in the U.S. cardiovascular market. In summary, although there have been challenges presented by COVID-19, there remains significant opportunity from AGGRASTAT, ZYPITAMAG and our future cardiovascular products. Despite reduced revenue because of controlled spending, we're pleased we can still report positive income and EBITDA in Q2. Our team wants our investors to know that we are driven and dedicated to growing revenue and making Medicure a long-term success. With that, I'd like to turn the call back to Dr. Friesen for final comments.

Thank you, Neil. The past 5 quarters were a period of transition. There was considerable learning and adjustments, which will be the basis of the market push for the coming quarters. We're thankful for AGGRASTAT, ZYPITAMAG, the additional cardiovascular 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, 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 great appreciation to the outstanding team of employees that we have been blessed with. Thank you to our shareholders and for the continued support and interest. And Colin, I'll turn it back to you to lead us through the Q&A.

[Operator Instructions] So your first question comes from Sam Rebotsky of SER Asset Management.

It's nice that you were profitable as you had sort of indicated. I assume the sales in the July and August are improving, and the profitability and -- will continue going forward.

Thank you, Sam. Thanks for being on the call and the question. Right now, we see the continued growth in sales, and we haven't made -- we've had a practice of not making -- providing guidance or projections, but things are encouraging -- continue to encourage the revenue and profitability in the coming quarters.

Well, that's good. I guess the AGGRASTAT should be easier to sell with the COVID-19 less of a problem. And has that sort of significantly improved the AGGRASTAT?

I would say the growth has been modest but steady. There's still -- there -- access to hospitals is still very restricted in the U.S. And so -- but there is growth. But I wouldn't say -- I don't know if you're asking whether there's a very significant jump. There isn't a huge jump because of the reduction or the control and COVID. And COVID is -- we would see, is modestly under control. There's still a second wave and still concerns about ongoing issues.

The fact that you had the significant foreign exchange gain, I assume based on the cash, this will continue right now that's based on the way the currency is now?

We're seeing a bit more strengthening of the Canadian dollar in -- near the end of Q2 and into Q3. We also converted from U.S. to Canadian a fairly significant number during the quarter when the rates were fairly high. So I don't think we see swinging the other way to what we were at in Q2 of 2019, but the gain may not be sustainable throughout the year or we may not see significant gains going forward.

Okay. And you purchased your stock in the -- with the official normal, of course, issuer bid, $131,000. And how much did you buy in July and August? And how much do you have left to buy?

So the purchase that was made in Q2 was actually the completion of the previous normal course issuer bid, which expired at the end of May. We have renewed the normal course issuer bid for another year. But as of today, we haven't made purchases under that NCIB. So there's approximately -- I think it's about 500,000 shares that we have the ability to buy.

Okay. And as far as the -- your use of cash, do you have any plans to use the cash going forward? Any -- in other words, do we expect to use a significant amount of cash or modest so that by the end of the September quarter, we will have reduced some of the cash?

We have no programs in -- committed right now to use the cash but...

And actually, we -- at the -- during Q2, we received a waiver on FDA fees, which was actually refunded in July. So we will actually see a bit of a pickup in cash into July. And we don't really have any significant cash outlays for Q3 other than kind of the normal operating expenses.

Well, all right. It sounds good. Good luck. Hope you continue the profitability and the improvement. And you could get some -- did you see any significant offering of stock that you weren't able to buy going forward? Or how does that work?

We haven't -- I don't -- I guess we're not aware of any. There hasn't been a lot of trading, and there doesn't seem to be a lot of selling or buying.

Okay. Good luck, and we'll just have to keep on the -- hopefully the product sell more. Good luck.

Thank you. Thank you.

Your next question comes from Brett Reiss of Janney.

Could you just give me a description? The sales force dedicated to AGGRASTAT and ZYPITAMAG, how many people do you have dedicated to each? Can they cross-sell? Just give me a sense on what boots on the ground you have in marketing those 2 drugs?

Neil, do you want to address the question or...

Sure. Yes, yes. So basically, we did make some reductions in headcount, but those are mostly at the management level. And so we've tried to maintain our sales force as much as possible. The sales and marketing team is about 20, and there is crossover in terms of some of the sales. We've tried to keep some people dedicated to AGGRASTAT or ZYPITAMAG really based on performance. But there is crossover of some products. Obviously, the game has changed slightly with COVID-19. So with virtual meetings, we're not limited in terms of who we can reach out to. And in many cases, we're actually being more successful in terms of booking meetings. So to answer your question, there is some crossover, but we also have some staff dedicated to products if they're really performing in the way that we want them to right now.

Great. The sales on AGGRASTAT that went from $6.2 million to $2.6 million because of COVID, are those sales lost? Or do you think if things get better in the United States, you'll recover those sales opportunities?

Again, some of that reduction or the vast majority of that's due to the COVID and procedures. But -- and whether we will recover all of it, I think it's hard to predict. I don't know if, Neil, you want to add any more color.

Yes. So I think that there will be some recovery. As a class, we've seen some trending down overall, which is why we're kind of -- still maintain that market share majority. What we're finding though is that it's still a mainstay. Physicians are still very happy with AGGRASTAT. They still know that they need to use it. Obviously, they trust the product. I think one of the challenges is just kind of getting access to those physicians, especially interventional cardiologists. It's a little bit more challenging to reach them virtually. So that's just one of the challenges. But I think with some of the new data that we have coming out, it's really spurred more conversation and it's kind of put AGGRASTAT back in the limelight.

Right. Now you mentioned in your prepared remarks, there is a generic with AGGRASTAT. Can you give me a sense of the interplay between the generic competition and your branded AGGRASTAT? Is it simply a question of -- put me in the room, your salesperson trying to market your value-added AGGRASTAT versus the generic competition. What's the sales pitch on that?

Neil, did you want to address that or...

Sure. Yes. So there's actually no generic of AGGRASTAT in the U.S. We're the only branded AGGRASTAT. What we face is competition from a different drug called Integrilin or eptifibatide. There are some nice advantages of AGGRASTAT over -- I mean, I'm going to use the brand name Integrilin. So we're a single bolus instead of a double bolus. We're room temperature storage instead of refrigerated. On average, we actually have higher platelet inhibition. So there are some administrative conveniences, and I would say that the single bolus instead of double bolus is a big factor. Also, we've seen a trend towards short infusion, IIb/IIIa administration. And we're the only IIb/IIIa with short infusion on label. So it's more -- I think that our pitch is more. So it's -- you can use it in a contemporary way and that -- yes, I would say that that's kind of the main selling features.

One last one. You mentioned a patent challenge that's ongoing with AGGRASTAT. How much of a competitive threat to your protective mode is that?

I think that we are negotiating a settlement, which might provide a short period of time for the competitor to keep them out of the market and give them a few months' entry. So rather than spend a lot of legal fees and battling, we're looking at potential settlement. If not, we will defend the position. We believe our patent is strong and can take a very aggressive defense against patent infringement.

You have a very interesting story with a strong balance sheet. Are there any thoughts of reverse splitting the stock so that it trades at a higher level, so that a whole different constituency of potential investors might be interested in your company's stock?

I understand the question. It wasn't so long ago, then stock traded at $4 or $5 and $6. There's a number of factors that seem to put selling pressure on the stock. And as we reported, we've gone through a number of quarters where we've transitioned from originally fairly substantial profits through trying to rebuild a couple of products or investing in products and back now to profitability. So we think we have potential to grow the business very substantially and see growth in share price. We were not considering a stock split.

Okay, okay. And one last one. The prior caller kind of asked it, but what do you think your cash burn will be for the balance of this calendar year?

Right now, we're not projecting a reduction in cash.

[Operator Instructions] So it appears there are no further questions. Please proceed.

Thank you again for being on the call, and we look forward to further reports after Q3. Wishing you all the best for the day.

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