Medicure Inc. (MPH) Earnings Call Transcript & Summary

Welcome to Medicare's Earnings Conference Call for the Quarter Ended March 31, 2022. My name is Cuffe, and I will be your operator for today's call. [Operator Instructions] And 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 as risks and uncertainties include, amongst 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 31, 2022. 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, Kelsey, and good morning to all on the call. We appreciate your interest and the participation in today's call. Joining me in the call today is Dr. Neil Owens, President and Chief Operating Officer, Medicure; and Haaris Uddin providing consultation for the preparation of Q1 financial statements for 2022, which are the statements we will be discussing this morning. We're pleased to share that both the net income and EBITDA continued to increase. The acquisition of Marley Drug, an innovative online pharmacy sales channel helped to drive sales on ZYPITAMAG, as did the general Medicure sales and marketing efforts. With the acquisition of Marley Drug, Medicare's business focus now is the following on growth and development. Number one, continued sales and profits of AGGRASTAT; two, growing ZYPITAMAG revenue and profit; three, developing the Marley online presence; and four, continuing the MC-1 development for PNPO deficiency. The sales of AGGRASTAT have remained steady with a small growth over the previous year. We're hopeful that the launch of our e-commerce platform will further enhance both sales of ZYPITAMAG and the other pharmaceuticals provided through home delivery. One of the reasons we acquired Marley Drug, a pharmacy uniquely positioned to dispense medications to Americans in all 50 states and territories through mail, was to expand our sales reach of ZYPITAMAG. The acquisition also gives us the opportunity to provide all FDA-approved medications at affordable prices. We believe the best way to do this is through a direct-to-consumer approach through an e-commerce platform, coupled with our existing infrastructure. The goal of the platform is to bypass the traditional framework run by health insurers and pharmacy benefit managers that has been made access to affordable medications too expensive for many Americans, including both generic and branded products such as ZYPITAMAG. The platform will focus on ease-of-use and customer service and is differentiated by being able to ship to every state. That being said, the sales and marketing of AGGRASTAT franchise continues as does our dedication to growing the ZYPITAMAG business through more direct market [ interpretations ]. AGGRASTAT continues to hold the majority of patient share with sales for Q1 of $5.7 million and -- compared to $4.9 million for the previous year. Sales of ZYPITAMAG continued to increase as $1 million for Q1 compared to $161,000 for Q1 in the previous year. And together with Marley Drug, revenue of $1.9 million results in a Q1 net revenue compared to $2.1 million in the previous year's quarter 1. We believe the investments in the past several quarters in our programs and onboarding of new products has and will continue to provide the growth in revenue and profits for the coming quarters and years. It takes time and persistence. Medicure has a 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 I'll turn over the call to our financial consultant, Haaris Uddin, to review and provide some color on the financials for Q1 '22.

Thank you, Dr. Friesen. 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 will be able to obtain a complete copy of our financial statements for the quarter ended March 31, 2022, and by the end of day today, along with previous financial statements on the Investors page of our website. Alternatively, a copy of all financial statements and of management discussion and analysis can be obtained immediately from sedar.com. I will now provide some key highlights of our financial performance for the quarter ended March 31, 2022. Total revenues for the 3-month period ended March 31, 2022, were $5.7 million compared to $4.9 million for the 3-month period ended March 31, 2021. Net revenues from AGGRASTAT for the period ended March 31, 2022, totaled $2.8 million, which is an increase in net revenues in comparison to the period ended March 31, 2021, where the net revenue for AGGRASTAT was $2.6 million. The increase in revenues when compared to the same period in the prior year is primarily a result of an increased volume of AGGRASTAT sold in Q1 of 2022. The company earned net revenues from ZYPITAMAG in Q1 of 2022 of $1.1 million which is a significant increase from the net revenues earned during the same period of the prior year of $161,000. The company continues to focus on ZYPITAMAG and expects revenues to grow -- to continue to grow throughout the remainder of 2022 and beyond. The company earned net revenues from Marley Drug in Q1 of 2022 of $1.9 million, which is a decrease in the net revenues earned from Marley Drug during Q1 2021 of $2.1 million. The decrease in net revenue earned from Marley Drug is a result of the timing of promotional offers to customers, in addition to increased competition within the industry. The company did launch its e-commerce platform during Q1 of 2022 and as a result, is expecting to see a growth in revenue from Marley Drug in subsequent quarters. Turning to cost of goods sold. AGGRASTAT's cost of goods sold for the 3-month period ended March 31, 2022, totaled $911,000. Cost of goods sold for AGGRASTAT consisted of finished products sold and delivered to customers. ZYPITAMAG cost of goods sold for the 3-month period ended March 31, 2020, totaled $224,000 and included $41,000 relating to product sold to customers, $143,000 from amortization of the ZYPITAMAG intangible assets, and $40,000 relating to royalties on the sales of ZYPITAMAG, which is resulting from the acquisition of the product in September of 2019. Marley Drug's cost of goods sold for the 3-month period ended March 31, 2022, was $556,000 and pertained to the cost of products sold by Marley Drug's in-store and mail-order pharmaceutical business. Selling expenses totaled $1.7 million for the 3-month period ended March 31, 2022. Selling expenses decreased in the current period as a result of the company implemented cost-saving measures at Marley Drug. In addition to the company, reclassifying certain expenses as general and administrative based on their nature. General and administrative expenses totaled $1.3 million for the quarter ended March 31, 2022. The increase in general and administrative expenses is primarily related to professional fees incurred during the current period as the company continues to improve its e-commerce platform, which was launched during 2022. This is partially offset by lower legal costs and a reclassification of certain expenses from selling to general and administrative expenses based on the review of their nature. Research and development expenses for the 3-month period ended March 31, 2022, totaled $345,000 compared to $581,000 during the 3-month period ended March 31, 2021. The decrease during the current period is primarily due to the timing of research and development expenditures relating to each development project and a declining research and development budget. The company recorded finance expense of $19,000 during the 3-month period ended March 31, 2022. The finance expense recorded during the current period consisted primarily of accretion on the ZYPITAMAG acquisition payable, bank charges incurred and finance expense on the company's lease obligations. These expenses were offset by interest income earned during the current period. The company recorded a foreign exchange loss during the 3-month period ended March 31, 2022, of $133,000 compared to a gain of $2,000 during the 3-month period ended March 31, 2021. The change relates to changes in the U.S. dollar exchange rate during respective periods, which led to an unfavorable exchange loss during the current period. Adjusted EBITDA for the 3-month period ended March 31, 2022, was $1.2 million compared to adjusted EBITDA of $31,000 during the 3-month period ended March 31, 2021. The change is primarily due to increased revenues as a result of increased ZYPITAMAG revenue and a decrease in selling and research and development expenses which is partially offset by higher cost of goods sold and general and administrative expenses during the current period. As at March 31, 2022, the company had cash totaling approximately $2.8 million, a decrease from the $3.7 million had at December 31, 2021. The decrease in cash is a result of the timing of sales, which is further corroborated by the $4.9 million net working capital the company had at March 31, 2022, compared to the net working capital of $4 million the company had at December 31, 2021. The company does not have any debt on its books. 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 of 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, Haaris, and good morning, everyone. A few updates I can provide. First, we are pleased to report that AGGRASTAT continues to see consistent demand with a 4% increase in units sold in Q1 compared to Q4 2021. I've noted there's a less market pressure on pricing from [ generics appetite ]. Knowing that we will have the first license of generic of AGGRASTAT in November for one format, we continue to take strategic steps to protect our market share through contracting, and by strengthening our brand. Regarding ZYPITAMAG, we continue to see consistent growth in prescriptions filled through Marley Drug including a 40% increase in units dispensed in Q1 compared to Q4 2021. The reaction from customers and prescribers continues to be very positive. And as a result, we have expanded our sales team to increase our sales reach even further. It should be noted that we see new prescribers added through efforts of both our sales team and our marketing campaigns. The improvement in net revenue is also attributed to lower returns and fees to wholesalers, reduced fees to pharmacy benefit managers, and importantly, an improvement in full conversion rates by Marley Drug. Medicure was also able to diversify its product portfolio with revenues from the Marley Drug business of $1.9 million in Q1, which is an increase over Q4 2021 of $1.4 million. Our team cross-sells Marley Drug with ZYPITAMAG and despite a decrease in sales year-over-year from $2.1 million due to the increased competition, we are focusing our marketing to differentiate and gain customers. Also, as national name recognition grows from Marley Drug, we are seeing more competitive attention to focus on us. Earlier this year, we announced the launch of an e-commerce platform to fill generic and branded medications in all 50 states, and a partnership as an exclusive mail-order fulfillment pharmacy. Our goal is to provide best-in-class experience for customers and meet the demand for home delivery of medications. We continue to evaluate branded products and products with high market share potential to add to Medicure's portfolio and those that would align well with our focus on contacts in the U.S. market, especially those that can be sold through Marley Drug. We are pleased to report a positive adjusted EBITDA in Q1 of $1.2 million compared to an adjusted EBITDA of $31,000 in Q1 of 2021, as well as a net income of $482,000 in Q1 compared to a net loss of $1 million in Q1 2021. Our team wants our investors to know that we are driven and dedicated to growing revenue, controlling our costs 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. First, I'd like to apologize for -- I misstated -- the AGGRASTAT sales for Q1 are actually -- use the total sales for Medicure in the previous comments. So the AGGRASTAT sales were increased to $2.8 million for Q1 versus $2.6 million for the Q1 previously. And -- but the total sales for Medicure for the quarter of $5.6 million compared to $4.9 million in the previous quarter. So I wanted to correct an error I made in the comments. Having said that, there were increased sales. We continue to see steady growth over the last number of quarters, and we believe there's considerable learning from the 20 and 21 years which we now apply to not only the continued sales of AGGRASTAT, but with the acquisition of Marley, strengthening sales of ZYPITAMAG. We're thankful for the continued strength of AGGRASTAT's market share and a strong balance sheet. So we're continuing to focus on growing this pipeline of cardiovascular products, further diversifying our revenue and asset base. 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 I want to express my sincere appreciation to the outstanding team of employees we've been blessed with. Thank you to all the shareholders for your continued support and interest. And now I'll turn it over to Kelsey to handle the Q&A. So we welcome your questions.

[Operator Instructions] And your first question comes from [ Alan Posnick from Posnick Asset Management ]

Could you explain in some detail why the sales revenues of ZYPITAMAG declined sequentially quarter-over-quarter?

I'm not sure where you saw that, but our statement show that there's been a steady increase in ZYPITAMAG sales.

What were ZYPITAMAG sales revenues last quarter? Not the quarter ended December 31?

I don't have the numbers in front of me, but sometimes we report sales of ZYPITAMAG through Marley Drug separately from the sales through our insured coverage marketing. And that may be the reason, but the total net sales of ZYPITAMAG to the combination of Marley Drug sales and the -- through insurance have gone up steadily quarter-over-quarter over the last year.

What I can add as well is because we sell many times, not just through Marley Drug but through wholesaler channels, sometimes, there are larger purchases by the wholesalers that are a little bit cyclical. So depending on when we actually had a purchase or a large purchase, it might have happened at the end of the last quarter. So there's a bit of a delay between that sales to the wholesaler and when there's pull-through at the local retail pharmacy. But Marley Drug sales tend to be like very high correlation between, obviously, when we dispense the medication and an actual sale occurring.

Okay. Could you comment on when AGGRASTAT goes off patent and the implications?

Yes. Well, I think part of the story of AGGRASTAT is we -- we've been able to maintain that majority of market share in the U.S. And I believe that there is reasons for that, in part because of our branding, but also just the relationships we have with these hospitals. There's also been quite a bit of pricing pressure over the past few years from generic eptifibatide. So it's a little bit of a temp situation then with most brands going generic, so there's a huge price adjustment. We've already seen all of that price differentiation. But as I mentioned, we are actually doing quite a bit of work to maintain our market share through contracting and then just through brand strengthen our brand with hospitals. So -- yes, the actual patent doesn't expire until May 2023.

Okay. Can you comment on your efforts to utilize the cash?

Right now, we are basically building cash. Cash has continued to steadily increase a little bit quarter-over-quarter. So we're not presently considering deployment of the existing cash we have. We are looking at arrangements but business opportunities. The business opportunities we're looking at are in most -- in almost all cases, partnerships and relationships and noncash acquisition. Like, when we bought Apicore, we bought it without cash. We had less cash then and we used innovative ways of making the purchase.

Just going to add that we are obviously retaining some cash for R&D work. But we've also made investments in our e-commerce platform to make it as the best it can be best-in-class. So we have made investments in that sense as well.

So do you anticipate any acquisition you make would be immediately accretive to revenues and earnings?

I can't make that prediction. And we'd like to, but -- we're looking at a variety of different arrangements right now. So I can't predict that there will be.

Just to answer that question. We do feel like ZYPITAMAG and Marley Drug have significant potential for revenue. So we are really trying to push those as far as we can and but also thinking in parallel about acquisitions. But we still think there's quite a bit of room to move both.

[Operator Instructions] At this time, there are no further questions. You may please proceed.

Yes. Thank you to all those on the call. We appreciate your interest, and we look forward to further reporting in Q2. Have a great day. Thank you, again.

Ladies and gentlemen, this concludes your conference call for today. We thank you very much for participating and ask that you please disconnect your lines. Have a great day.