Medicure Inc. (MPH) Earnings Call Transcript & Summary

Welcome to Medicure's Q2 Financial Statement Earnings Conference Call for the Quarter Ended June 30, 2022. My name is Deborah, 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. Later, we will conduct a question-and-answer session. Please note that this conference call is being recorded, and today's date is August 25, 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, Deborah, and good morning to all on the call. We appreciate your interest and participation in today's call. Joining me today on this Q2 financial statements call is Dr. Neil Owens, President and Chief Operating Officer; and Haaris Uddin, Medicure's Chief Financial Officer. We're pleased to share that the net revenue from -- for the quarter was about the same as the previous quarter with continued increase in ZYPITAMAG sales. AGGRASTAT sales remained steady with a small decline in Marley Drug sales other than the ZYPITAMAG. Earnings dipped from the previous quarter, mainly due to a substantial increase in research and development spending, which totaled over $1 million, which was much more than the previous quarter and anticipated in the next quarter. Absent the unusual high R&D spend, we would have seen a further increase in earnings this quarter. The acquisition of Marley Drug, Inc., an innovative online pharmacy channel, helped drive the sales of ZYPITAMAG as did the general sales and marketing efforts on the Medicure team. With the acquisition of Marley, we now have 4 main focuses: continued sales and profits of AGGRASTAT; number two, ZYPITAMAG revenue and profit; developing Marley Drugs online presence; and the fourth is MC-1 development of PNPO deficiency. One of the reasons we acquired Marley, a pharmacy uniquely positioned to dispense medications to Americans in all 50 states and other territories through mail, was to expand our sales reach of ZYPITAMAG. This 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 via our e-commerce platform, coupled with our existing sales and marketing infrastructure. A goal of the platform is to bypass the traditional framework run by health insurers and pharmacy benefit managers, PBMs, that has made access to affordable medications too expensive for many Americans, including 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 medications to every state in the U.S. We believe the investments in the past several quarters in our programs and onboarding of new products has and will continue to provide growth in revenue, 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. So I'd now like to turn over to our CFO, Haaris Uddin, to review and provide some of the color on the financial results of Q2 2022. Haaris?

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 June 30, 2022, by the end of day today, along with the previous financial statements on the Investors page of our website. Alternatively, a copy of all financial statements and management's 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 June 30, 2022. Total revenues for the 3-month period ended June 30, 2022, were $5.8 million compared to $5.1 million for the quarter ended June 30, 2021. Net revenues from AGGRASTAT for the period ended June 30, 2022, totaled $2.9 million, a slight increase from the prior year where net revenue from AGGRASTAT was $2.8 million during the same period. The increase in AGGRASTAT revenue during the current year is the result of a higher volume of units sold. The company earned net revenues from ZYPITAMAG in Q2 of 2022 of $1.1 million, which is a significant increase in the net revenues earned during the same period in the prior year of $403,000. The company continues to focus on ZYPITAMAG and expect revenues to grow -- to continue to grow through the remainder of 2022 and beyond. The company earned net revenues from Marley Drug in Q2 of 2022 of $1.8 million, which is a slight decrease from the net revenues earned from Marley Drugs in Q2 2021 of $1.9 million. The decrease in net revenue earned through Marley Drug is a result of increased competition for filling generic medications. Turning to cost of goods sold. AGGRASTAT cost of goods sold for the 3-month period ended June 30, 2022, totaled $1.2 million. Cost of goods sold for AGGRASTAT consisted of finished products sold that was delivered to customers. ZYPITAMAG cost of goods sold for the 3-month period ended June 30, 2022, totaled $325,000 and includes $181,000 relating to products sold to customers, $143,000 from amortization of the ZYPITAMAG intangible assets and $43,000 relating to royalties on the sale of ZYPITAMAG resulting from the acquisition of the product in September of 2019. Marley Drug cost of goods sold was $456,000 during the 3-month period ended June 30, 2022, and pertained to the cost of products sold by Marley Drugs in-store and mail order pharmaceutical business. Selling expenses totaled $1.7 million for the 3-month period ended June 30, 2022, in comparison to $2.5 million for the 3-month period ended June 30, 2021. Selling expenses decreased in the current period as a result of the company implementing cost-saving measures at Marley Drug in addition to the company reclassifying certain expenses as general and administrative expenses based on their nature. General and administrative expenses totaled $1.6 million for the quarter ended June 30, 2022, in comparison to $571,000 during the period ended June 30, 2021. The increase in general and administration 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 the current year. This was partially offset by lower legal costs and a reclassification of certain expenses from selling to general and administrative expenses based on a review of their nature. Research and development expenses for the 3-month period ended June 30, 2022, totaled $1.3 million compared to $705,000 during the 3-month period ended June 30, 2021. The increase during the current period is primarily due to the timing of research and development expenditures related to each development project. The company recorded finance expense of $38,000 during the 3-month period ended June 30, 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 obligation, partially offset by interest income earned during the current period. The company recorded a foreign exchange gain during the 3 months ended June 30, 2022, of $98,000 compared to a foreign exchange loss of $172,000 during the 3-month period ended June 30, 2021. The change relates to changes in the U.S. dollar exchange rate during the respective periods, which led to a favorable foreign exchange gain during the current period. Adjusted EBITDA for the 3-month period ended June 30, 2022, was negative $210,000 compared to adjusted EBITDA of $158,000 during the 3-month period ended June 30, 2021. The decrease in adjusted EBITDA for the 3 months ended June 30, 2022, is a result of higher research and development costs and general and administrative costs related to the improvements in the Marley Drug E-Commerce platform, partially offset by decreased selling expenses and higher revenues when compared to the same period in 2021. As of June 30, 2022, the company had cash totaling $4.8 million, an increase from the $3.7 million of cash held as of 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 1% increase in units sold in Q2 compared to Q1. Of note is that we've seen a slight shift in demand towards a more profitable product format, which is one of the reasons why net revenue grew by 3% in the quarter. Knowing that we will have the first licensed generic of AGGRASTAT in November for 1 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 25% increase in units dispensed in Q2 compared to Q1. The reaction from customers and prescribers continues to be very positive. It should be noted that we see new prescribers added through efforts of both our sales team and our marketing campaigns. Net revenue was impacted to some extent from product returns through the traditional distribution channels. However, net revenue grew in Q2 and sales to Marley Drug continues to demonstrate lower returns and fees to wholesalers and reduced fees to pharmacy benefit managers. The Marley Drug pharmacy business generated sales of $1.8 million in Q2, which is a decrease of -- from Q1 of $1.9 million. This is primarily due to increased competition in the generic market. 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 invest in marketing and brand awareness and are expecting slow and steady growth. 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 and contacts in the U.S. market, especially those that can be sold through Marley Drug. Our Phase III 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, is planned to begin in Q4 of this year. This is an exciting moment for Medicure as well as the clinicians and families waiting to see the study begin. If successful, use of Medicure's legacy product MC-1 could lead to a priority review voucher, which can be redeemed or sold and provides significant value. Due to investments in our Phase III clinical study and improvements in the e-commerce platform, we are reporting a negative EBITDA in Q2 of $210,000. However, we are pleased to report an overall growth in revenue and increase in unrestricted cash. 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, Dr. Owens. We're thankful for the continued strength in AGGRASTAT market share and a strong balance sheet, the growth of ZYPITAMAG and our investment in Marley Drug. We're still focused 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 and that of our Board, management and staff is to continue to build this business with a stable, long-term outlook to generate value for our shareholders. And as always, I want to express my appreciation to the outstanding team of employees we've been blessed with. Thank you to our shareholders for their continued support and interest. And now I'll turn it back to the moderator for our Q&A. We welcome your questions.

[Operator Instructions] Your first question comes from Kurt Caramanidis from Carl M. Hennig.

Trying to understand how do you view the rest of the year as far as R&D spend and your cash balance? And then I was wondering how your cash went up with your R&D spend in the prior quarter.

Thanks, Kurt. We expect continued growth. The cash is growing because the statements also include a fairly significant amortization including the R&D spend. And the R&D spend was a little, as we mentioned, unusual in this quarter because of the expenses just came in, in terms of timing. But it should be flat for the year. It was around $700,000 the previous -- or $700,000 or $800,000 previous quarter and anticipate similar for the next quarter. But it is a significant R&D investment by Medicure, but the opportunity with the voucher is very significant. And once the trial is completed, it's 10 patients, relatively small trial, and it's been a challenge to get it going, but we're close to getting it going now and the return for the shareholders will be quite significant.

Great. Yes. I'm aware of that. That sounds good. So you think the cash will grow. So we're trading, I think, at about 2x cash or so. You're looking at other possible acquisitions or what are -- you want to guard that cash? What are you kind of thinking in terms of what to do with that?

I think the cash flow -- we expect the cash to continue to grow in the coming quarters. And although it's great to have a good, strong balance sheet, we are thinking to conserve the cash for the short term looking at really opportunities. And as you know, in the past, we've been able to make some acquisitions with little or no cash and that's sort of our -- continue to be our approach for the present until we see a significant growth in the cash.

Okay. And would buying stock be premature at this point when it's valued so low or what -- have you thought about that even if it was at a modest level?

Well, we continue to look at that pretty much at every Board meeting. And although it's tempting from time to time, we're still a little bit hesitant to get back into buying back. I'm not saying we won't, but I'm just sort of giving you an impression that we're cautiously looking at it. But with the price right now and also book-to-value is extremely attractive, so book value to -- and then the cash. So -- but when we were -- when we had a large amount of cash, we traded below cash and there are companies right now trading at or below cash, which is -- but -- so we want to conserve cash and use it opportunistically in the future for acquisitions. But right now, I'm trying to add product with little or no cash.

Great. Maybe the time for insiders to be buying some stock, but appreciate your work and we look forward to the future.

Thanks, Kurt.

[Operator Instructions] At this time, we have no further questions. You may proceed with your closing remarks.

Thank you for all that are on the call. Appreciate your interest and we very much value the shareholders, and look forward to reporting in the next quarter. Thank you again. Have a great day.

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