Medicure Inc. (MPH) Earnings Call Transcript & Summary

Welcome to Medicure's earnings conference call for the year ended December 31, 2020, and quarter ended March 31, 2021. My name is Colin, and I'll 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 related 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 May 11, 2021. 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 to all of you on the call. We appreciate your interest and participation in today's call. Joining me today in the call is our Chief Financial Officer, James Kinley; and President and Chief Operating Officer, Dr. Neil Owens. This morning, we'll be discussing the year ending December 31, 2020, and the first quarter of 2021. The release of the financial statements for the year-ending 2020 and the first quarter 2021 were so close that we decided to present them at the same call. COVID has provided challenges to a lot of businesses including Medicure. Despite the challenges, we are delighted with the positive trend of revenue and net income over the past few quarters. We experienced a modest but positive EBITDA for the first quarter of 2021, a positive change from the losses that had been reported in 2019 and the first half of 2020. The sales of AGGRASTAT have stabilized and we are pleased with the early stage performance of our December 2020 acquisition, Marley Drug. One of the reasons we acquired Marley Drug, a mail-order pharmacy, was to expand our sales reach for ZYPITAMAG. The focus of our business is the sales and marketing of AGGRASTAT, franchise and growing ZYPITAMAG business, with more direct marketing to patients with the help of Marley Drug, as well as continuing the marketing to healthcare provider. The revenue for the first quarter of 2021 was $4.9 million, which is up substantially from the previous quarters, due mainly to the added revenue from Marley Drug. AGGRASTAT revenue of $2.63 million, similar to previous quarters, Marley was $2.1 million and ZYPITAMAG, a $161,000. Medicure has transitioned away from the sales and marketing of the ReDS device, which reduced significantly our operating cost expenses and associated losses, while retaining value in a sensible medical investment. As mentioned, the main focus at present is on the sales and marketing of AGGRASTAT, ZYPITAMAG and further leveraging Marley Drug Pharmacy, which combined, provide great margins and potential. We believe the past several quarters' investments in our program and on-boarding of products will provide the growth, revenue and profits for the coming quarters and years. It takes time and persistence to make this a reality. Medicure has good cardiovascular product portfolio, a track record of growing sales and a great team with energy, talent and experience to build a strong, growing company. Now before turning the call over to our Chief Financial Officer, James Kinley, as we've reported, he is taking new opportunity. I would like to express a special thank you for the hard work and many contributions to Medicure. James?

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, 2020 and the quarter ended March 31, 2021, along with previous financial statements on the Investors page of our website and a copy of all financial statements and management's discussion and analysis can be obtained from sedar.com. Starting with the 2020 annual results. Revenues for 2020 totaled $11.6 million compared to $20.2 million from 2019. The decrease in revenues between the 2 years was primarily result of decreased AGGRASTAT revenues from $19.4 million in 2019 to $10.6 million in 2020. As a result of further genericizing of the Integra on market, which has created pricing pressures on AGGRASTAT combined with lower hospital demand for the product to concluding the reduction and procedures being performed as a result of COVID-19. ZYPITAMAG revenues increased to $453,000 for 2020 compared to $183,000 in 2019. The increase in revenues from ZYPITAMAG resulted from increased demand and usage of the product experienced during 2020 as a result of the company's sales and marketing initiatives implemented since acquiring control of the product. As a result of the acquisition of Marley Drug, which was completed on December 17, 2020, the company recorded revenue of $340,000 during the year ended December 31, 2020, pertaining to the Marley Drug in-store and mail-order pharmaceutical business. Cost of goods sold decreased from $7.3 million in 2019 to $6.5 million in 2020. Selling expenses for 2020 totaled $5.4 million compared to $13.4 million for 2019 as a result of cost reductions implemented during late 2019 and throughout 2020 particularly as it relates to the sales and marketing costs associated with ReDS as well as decreases in costs as a result of limitations to conference and travel related costs due to COVID-19. Beginning with the acquisition of Marley Drug, which again was completed in December 2020, costs associated with the Marley Drug business are included in selling cost for the year ended December 31, 2020. General and administrative expenses for 2020 increased to $4.6 million from $3.4 million in 2019. The increase in G&A expenses during 2020 when compared to 2019, primarily related to higher legal costs associated with the company's patent challenge, which was settled in the fourth quarter of 2020, partially offset by cost reductions implemented by the company during late 2019 and throughout 2020. Research and development expenses totaled $3.3 million for 2020 compared to $4.3 million for 2019. The decrease experienced during 2020 is primarily a result of the FDA refunds obtained by the company during 2020, resulting in a recovery of expenses of $677,000 pertaining to previously paid FDA fees, as well as reducing the quarterly expense going forward and in addition to the timing of research and development expenditures resulting in the timing of each development project. During 2019, the company recorded a loss of $3.6 million as a result of the revaluation of the holdback receivable from the Apicore transaction as well as an impairment loss on the intangible assets pertaining to ReDS of $6.3 million. There were no similar losses recorded during 2020. The company recorded finance income of $765,000 in 2020 compared to $1.1 million in 2019 and a foreign exchange gain of $497,000 in 2020 compared to a loss of $2.6 million in 2019. This resulted in a net loss for 2020 of $6.8 million or $0.64 per share, compared to $19.8 million or $1.32 per share for 2019 due to the factors previously described. Adjusted EBITDA for 2020 was negative $3.9 million compared to adjusted EBITDA of negative $3.8 million for 2019. The change is primarily due to the decrease in revenues and increased G&A expenses, partially offset by decreases in selling expenses when compared to 2019. As of December 31, 2020, the company had cash totaling $2.7 million compared to $13 million as of December 31, 2019. The decline primarily related to cash spent to acquire the Marley Drug business in December 2020. As of December 31, 2020, the company had net working capital of $3.2 million compared to net working capital at December 31, 2019 of $19.7 million. Turning to the quarter ended March 31, 2021, total revenue for Q1 2021 was $4.9 million compared to $3.3 million for Q1 2020. Net revenues from AGGRASTAT for the quarter ended March 31 totaled $2.6 million, consistent with net revenues for AGGRASTAT for the same quarter of 2020 of $2.7 million. The company earned net revenues from ZYPITAMAG for Q1 2021 of $161,000 again consistent with revenues from Q1 2020 of $163,000. The company continues to focus on ZYPITAMAG and expects revenue to grow through the remainder of 2021 and beyond. The company recorded revenue of $2.1 million during the 3 months ended March 31, 2021, pertaining to the Marley Drug in-store and mail-order pharmaceutical business. There were no revenues recorded from ReDS during Q1 2021 compared to $89,000 in the same quarter of 2020 and the company earned $49,000 of revenue from sodium nitroprusside or SNP during Q1 2021, compared to $31,000 for the same quarter in 2020. Turning to cost of goods sold. AGGRASTAT cost of goods sold for Q1 2021 totaled $670,000 compared to $666,000 for Q1 2020 and this resulted in gross margins for the quarter of approximately 74%, a slight decrease from the approximately 76% margin for the same quarter in the prior year. ZYPITAMAG cost of goods sold for Q1 2021 totaled $605,000 and included $28,000 related to product sold to customers, $573,000 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 2019. Removal of the amortization would result in a strong gross margin for the product of approximately 80%. As a result of the acquisition of Marley Drug, the company recorded cost of goods sold of $602,000 during Q1 2021 pertaining to the cost of products sold by Marley Drug and additionally SNP cost of goods sold during the quarter totaled $50,000. Selling expenses totaled $2.7 million for Q1 2021, up from $2.1 million for Q1 of 2020 and the increase in selling expenses when compared to the same quarter in the prior year were primarily due to the acquisition of Marley Drug. General and administrative expenses totaled $585,000 for Q1 2021, down from $800,000 from the same quarter in the prior year. The decrease in G&A expenses is primarily related to lower legal costs associated with the company's patent challenge, which was settled in the fourth quarter of 2020 as well as cost reductions implemented by the company during 2020. Research and development expenses for Q1 2021 totaled $581,000 compared to $858,000 for Q1 of 2020. The decrease is primarily result of the FDA fees expense during Q1 2020, which was subsequently refunded after the company obtained a waiver of these fees as well as timing of research and development expenditures resulting in the time -- from the timing of each development project. Medicare is in the process of developing additional cardiovascular products 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 $121,000 for Q1 2021. This relates to accretion on the company's AGGRASTAT royalty obligation, ZYPITAMAG acquisition payable and on the company's contingent consideration associated with the Marley Drug acquisition as well as finance expense related to the company's lease obligations and bank charges. This compares to finance expense for Q1 2020 of $73,000, which primarily related to accretion on the company's royalty obligation and acquisition payable, the lease obligations and bank charges, partially offset by interest on cash held by the company. The company recorded a nominal foreign exchange loss during Q1 2021 compared to a gain of $868,000 for Q1 2020. The change relates to changes in the U.S. dollar exchange rate during the respective periods, which led to foreign exchange gains and losses as well as significant -- a significant decrease in U.S. dollar cash balances held by the company. This results in a net loss for the quarter of $1 million or $0.10 per share compared to $1.5 million or $0.14 per share for Q1 2020. The change in net loss is due to increased revenue and reduced general and administrative and the research and development expenses partially offset by increased selling expenses and a reduction in foreign exchange gains experienced during the 3 months ended March 31-2021. Adjusted EBITDA for Q1 2021 was $31,000 compared to adjusted EBITDA of negative $1.3 million for Q1 2020. The change is primarily due to the increase in revenues and decreased G&A and R&D expenses, again partially offset by increases in selling expenses. As at March 31, 2021, the company had cash totaling approximately $2.9 million compared to $2.7 million as of December 31, 2020. As of March 31, 2021, the company had net working capital of $3.1 million compared to net working capital of December 31, 2020 of $3.2 million. The company does not have any debt recorded on its statement of financial position; however, we are in the process of finalizing a loan with a commercial bank to replenish the cash expended through the Marley acquisition. I want to remind you, 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'd 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. The COVID-19 pandemic continue its impact on businesses worldwide, especially in the healthcare industry. For Medicure, all meetings with healthcare professionals continue to be virtual. This has required adjustments by Medicare sales team and also has resulted in reduced billing costs. Generally prescribers are receptive to video meeting. This has been a greater impact on meeting with interventional cardiologists regarding AGGRASTAT in a hospital setting compared to meeting with primary care providers regarding ZYPITAMAG. There have been no disruptions to manufacturing or distribution and Medicure continues to have normal supply of AGGRASTAT and ZYPITAMAG. AGGRASTAT has seen consistent monthly demand since April 2020 and remains the preferred glycoprotein IIb/IIIa inhibitor in more than 1,200 U.S. hospitals. However, price competition from generic eptifibatide has led to a decrease in net selling price of AGGRASTAT in order to maintain market share. In Q4 2020, Medicure announced the settlement of a patent infringement action that led to the acknowledgment that Medicure's 60 patent is valid, enforceable and infringed. The settlement of the litigation protects the AGGRASTAT brand and its intellectual property. We continue to make selective investments in AGGRASTAT including clinical research that we believe will help expand the market. We look forward to zoom presenting the results of the SAVI-PCI study which demonstrates the clinical and safety profile of using AGGRASTAT with a short infusion. We think this study will provide important evidence to support use of AGGRASTAT and patients who require protection from ischemic events while limiting risk of bleeding. We thank the steering committee for their efforts and contributions and seeing the study through to completion and publication. In Q1, we announced the early completion of the investigator-sponsored study on iSPASM, which was a randomized, double-blind, Phase 1/2a trial aimed at assessing the safety of AGGRASTAT administered over a 7-day period for a treatment of a type 1 stroke called aneurysmal subarachnoid hemorrhage. The trial was led by Dr. David Hasan at the University of Iowa and the study results were recently accepted for publication in a journal stroke. The results pave the way for a Phase 2 trial focused on efficacy in this clinical space for which AGGRASTAT does not currently have an approved indication. Turning to another significant development, Medicure was pleased to announce the acquisition of Marley Drug on December 17, 2020. It is a pharmacy located in North Carolina with national distribution of prescription medications, known for its excellent customer service, home delivery and very competitive prices. Marley Drug has been successful in marketing directly to consumers providing access to medications without the need for insurance and build a nationwide customer base of more than 30,000, one of the key aspects of marketing products through Marley Drug and part of the appeal for the acquisition. In addition to an existing customer sales base, it is truly an innovative approach. Through Marley, branded products can be accessible to all customers, where they can avoid requirements of insurance companies or step through therapy, prior authorizations and no requirements of a co-pay discount card. It will also very appealing for healthcare providers, who pay overhead for processing insurance claims and the reaction to the simplicity and certainty of filling in ZYPITAMAG prescriptions through Marley has been extremely positive. The addition of Marley Drug brings more than 20 experienced staff, who filled over 100,000 prescriptions per year. Sales through Q1 have remained consistent with previous quarters and with an expanded marketing approach are expected to grow. Overall, Marley provide simplicity and certainty for access to ZYPITAMAG. You're already seeing double-digit growth in sales month of month and our sales and marketing team is pushing hard to continue that trend. We continue to focus on adding new prescribers, new patients and having a high refill rate. Through Q4 2020 and into Q1 2021, we increased our focus on digital and social media advertising to consumers to explain the benefits of the ZYPITAMAG over other stuff 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. 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 U.S. market, especially those that can be sold through Marley Drug. In terms of our generic products, the sales of sodium nitroprusside increased through the end of 2020 and into Q1. Medicure continues to develop additional cardiovascular abbreviated new drug applications ANDAs, for in-hospital use. However, the regulatory review process has resulted in a delay in approval of one of our ANDAs due to deficiencies reported in Medicure's contracted manufacturing partner. Medicure is working with its partner on resolving these issues to obtain necessary approvals. In Q4 2020, Medicure announced e-filing of an IND for a pivotal Phase 3 study to find the first FDA approved therapy for patients with PNPO deficiency, which. is a rare pediatric disease leading to seizures and is ultimately fatal if untreated. A successful use of Medicure's legacy product MC-1 could lead to a priority review voucher, which can be redeemed to obtain priority review for any subsequent marketing application. In summary, although there have been challenges presented by COVID-19, there remains significant opportunity for AGGRASTAT, ZYPITAMAG and Marley Drug. Because of controlled spending, we are pleased to report a small positive EBITDA in Q1. Our team want our investors to know that we are driven and dedicated to growing revenue and making Medicure a long-term success. As noted, James will be moving onto another opportunity and I'd like to thank James for his contributions and we wish him the very best. With that, I'd like to turn the call back to Dr. Friesen for final comments.

Thank you, Neil. 2019 was a year of transition with the sales and marketing focus on 2 products, which were added in 2018 for our diversification to our main cardiovascular drug AGGRASTAT. There was considerable learning. 2020 as a drive to reduce investment losses and further learning to the marketing of ZYPITAMAG. This learning led us to the acquisition of Marley Drug as a more efficient way to provide a great product at a very affordable price. We are thankful for AGGRASTAT, the additional cardio assets and the addition of Marley Drug, a mail-order specialty pharmacy. 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, the goal of our team, the goal of our Board, management staff is to continue to build this business with a stable long-term outlook to generate value for our shareholders. As always, I want to express my appreciation to the outstanding team of employees we have been blessed with. Thank you, our shareholders for your continued support and interest. Colin, I'll turn it back to you to lead us through the Q&A. Thank you.

[Operator Instructions] So your first question comes from Caramanidis from Carl M. Hennig, Inc.

You guys talked about some other business -- businesses that might be interested in Marley and I'm just wondering if you can expand on different opportunities other than ramping sales, which obviously is positive, but other opportunities from Marley.

I can add a little bit of color to that. I think in terms of other companies or other products being marketed through Marley Drug, believe those the question. It's been interesting to see the response from other companies because they also have branded products, but they feel like have a lot of market potential, but have struggled to actually gain that market share or at least work through the PBMs and insurers. So we actually are continuing our discussions with other company. We think that there are definitely opportunities to work with them on marketing their product. And I think the success we've had so far with Marley in terms of the response from providers gives us a good leverage point in terms of negotiation with them. So I think it's still pretty early to say exactly with that -- that partnership would look like, but we have been approached by multiple companies and continue discussing with them.

Do you see something in 2021 or is that maybe not even until next year?

It's hard to say. Dr. Owens did a good job of describing the interest, but in negotiating agreements, we've learned in the past that sometimes it take over rapidly in recent months like we did with Marley, sometimes it can take a year or 2. So it's hard to predict. I understand your interest in knowing, but we're pursuing a number of that and it's hard to say what the timing going to be.

Okay, great. Good to know that there is opportunity. Do you see sales trajectory throughout the year because you are new with Marley ramping through the year? Is there seasonality? How do you kind of see -- do you see us expanding the whole out of $5 million run rate, do you see us exiting the year at $5.5 million, $6 million, just kind of in general, how should we look at the quarters as you're building through the year?

Again, Kurt. I understand the interest, but we have -- we've been in a practice not to provide guidance we -- as we said in our report, we do believe that there will be growth, the growth, it's hard to predict. We -- our prediction that the growth is because we've seen even in the first few months a little bit of growth and a lot of interest. So if that interest does translate to sales, we see a steady growth over the year.

Okay. And then am I right in thinking that you've got real good leverage to the bottom line as your sales increased with the margin profile, is that makes sense?

Yes. As we described -- the margins on these products are high 70%, 80%, not so much on the generic, so although sequence some of the generics from Marley are very high and it depends which product that is, but one of the reasons that ReDS is a great product. We -- reason -- one of the reasons we dropped it was that it wasn't taken marketing portion, cost us money, but the margins were there and so what we've focused on is trying to keep our eye on the ball of making money and profit. And so we're looking at higher margin products. So the 3 that we're focusing on now are very good margin.

Okay, great. And finally will you be able to measure your advertising and now you're doing targeted like micro advertising. How are you feeling about that, are you able to measure with the advertising from Marley and the ZYPITAMAG and that kind of thing.

Yes, we can track and measure the return on ad spend through multiple channels as you may have heard Marley actually has a call center as part of their team. So we actually get a lot of direct customer calls. It's one of the ways that we can actually track our different marketing spend through different channels as to tie it back to the original ad, but it also gives us pretty great insight into their response to being able to order through Marley either for ZYPITAMAG or other products, which helps us kind of tune our marketing. So the -- there is a combination of different approaches we're taking and that we can all track either digitally or actually just listening to them, how do they hear about Marley and how did they here about ZYPITAMAG. Interestingly, we do get calls from customers, but also physicians and other pharmacists who are interested in Marley.

Okay, great. I appreciate it. I'm sorry I thought of one more. That PNPO deficiency drug, can you give us kind of a timeline on that voucher. What kind of timeline you might know, if things go well when you might get that voucher and not is that the year and a half out, or what do you think in there?

Again it's hard to predict, Kurt, but the trial itself will be 12 months treatment, so -- and we expect to start shortly. So I would say, probably a 3-year kind of window by the time you roll -- get enrollment going, and then doing the analysis and submission.

Your next question comes from Sam Rebotsky from SER Asset Management.

I am surprised to see I looked at my records. I have been involved since 2004, and I am interested in knowing what's going on with Reliable, the Indian company and do you have something you could do within India, with the COVID? Is there anything that you thought of doing there?

Not really. Thanks, Sam. We have a relationship and agreement with Reliance Life Sciences, a large -- one of the -- Reliance is the largest Indian company, and we certainly feel for them, they are going through incredible difficult time. We are -- we communicate with them on a reasonably regular basis. But in terms of if your -- if your question is, do we have a COVID focus? No. Now, we had mentioned COVID, which you probably remember that there were some physicians that were using AGGRASTAT to inhibit the clots that sometimes are associated with COVID, and it is very effective. It's a small number of patients that were treated, but the cost of getting that label for AGGRASTAT would be very expensive and take a long time. And so, we didn't see it as our immediate commercial opportunity. Now having said that, some physicians will be using AGGRASTAT for that treatment on their own, as physician directed treatment, though -- but that -- we don't see that as a big market opportunity.

All right. And, as far as you're looking to raise some funds, do you have a dollar amount and with the -- your account-- financial -- gentlemen leaving, who are you working with to raise funds.

We're raising funds for equity, but we are -- we do have -- working on off bank line so bank rate, interest rates and that it's just to replenish some of the cash that we had. So it will be less than the -- probably less than $8 million, we spent something to increase our working capital a bit, so it's a bank loan.

Okay. And the drug company, pharmacy, there seems to be some smaller pharmacies that are raising funds in New York. Do you see the expansion or a basis for expanding your pharmacy?

We look at, I mean the pharmacy that we acquired has several advantages that Dr. Owens described fairly well and that enables patients survive very easily at a very low price. And it bypasses the cost of the PBMs and insurance. That means people think because they have insurance, they have a lower cost, but there are many examples. We're even coverage costs you more with co-pays, with minimal [indiscernible] where your insurance runs out and you are allowing to pay more money for drugs. The approach that we're using with Marley Drug is a very low cost, the lowest cost, proactive patient mail or you get your prescription within 2 -- 48 hours near to your house per the doctor's convenience. That process. Is a huge opportunity for us. And I think will be a revolutionary change in the U.S. and that's what we're -- we're looking towards building on with the existing Marley Drug operation and others are seeing it but in conferences where Dr. Owens participated, the industry is starting to recognize Medicure's leadership in this area. And a huge opportunity.

And what amount of your purchase of the companies that you have, is there --are you using a brokerage firm to find a business for you? And has the company bought any stock in the open market and what is the nature or size of stock that anybody has bought?

Okay. There is 2 questions, one is we have the normal course issuer bid, we've pretty much purchased that. There might be a little bit left, I'm not sure. And so we have some bought recently because we've had this reporting and blackout. So that's we haven't purchased more recently, but we have purchased in this year, I believe exactly. Not in 2021, so I think there is about 100,000 left that we can buy under the normal course issuer bid. The other question you asked is do we use a broker, while the broker approached us. So we don't have an agent that works for us, but there are agencies that have approached us about potential opportunities.

Have the offices or is the period opened for the offices to buy stock in the open market? Is that allowable? And if it is, when is it?

Okay. I don't know when the blackout is going to come out, but we have some other transactions that we're looking at. So it's hard to predict when the blackout will come out.

Okay. Well, since being the stock over since 2004, the size of my investment has increased pretty significantly. And I think we -- it would be nice to show some positive results as is going on now. Good luck, Bert.

[Operators Instructions] It appears there are no further questions at this time. Please proceed.

Thank you, again, all on the call. We appreciate your interest and we look forward to sharing next quarter's results as in the coming months. Thanks, again. Wish you all the best, safe and well.

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