Medicure Inc. (MPH) Earnings Call Transcript & Summary

Welcome to Medicure's Earnings Conference Call for the quarter ended March 31, 2024. My name is Jenny, and I will be your operator for today's call. [Operator Instructions] Before we proceed, I would like to remind everyone that this presentation contains forward-looking statements relating to future events, results and expectations, which are made pursuant to the safe harbor provisions of the U.S. Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks 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 is being recorded, and today's date is May 29, 2024. 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, Jenny, and good morning to all on the call. We appreciate your interest and participation in today's call. Joining me today for the Q1 2024 Financial Statements Call is Dr. Neil Owens, President and Chief Operating Officer; and Haaris Uddin, Medicure's Chief Financial Officer. The net revenue for Q1 2024 was $5.7 million, which is similar to the previous year's Q1 net revenue of 5.6%, and a bit of an increase from the previous quarter, that being Q4 '23, which was 5.1%. The net income for the quarter was $51,000, which is a bit lower than the previous year's Q1, which was $290,000, but significantly better than the previous quarter, that being Q4 2023, which was a loss. Adjusting earnings before interest, taxes, depreciation and amortization for the quarter was a positive $359,000. In summary, the revenue from AGGRASTAT was down slightly, but revenue from both Marley Drugs and ZYPITAMAG were up. So just a reminder that the 4 focuses of Medicure business are: holding the sales and profits of AGGRASTAT; growing ZYPITAMAG, revenue and profit; growing the Marley Drug online pharmacy business; and investing in research and development in MC-1 for the PNPO deficiency. The online pharmacy through -- continues to help grow ZYPITAMAG and is growing, and are growing contributor to Medicure's business. We continue to explore acquisitions of additional pharmacies with a promising outlook for the near term while still focusing on the R&D for the long-term growth. We believe the investments and experience over the 27 years positions Medicure on a steady path for continued success. So now , I'll turn over the call to our Chief Financial Officer, Haaris Uddin, to review and provide some of the color on the financial statements.

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, 2024 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 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 3-month period ended March 31, 2024. Total revenues for the quarter ended March 31, 2024 were $5.7 million compared to $5.6 million for the quarter ended March 31, 2023. Net revenues earned from AGGRASTAT during the current period totaled $2.3 million, a decrease from the prior year where net revenue from AGGRASTAT was $2.7 million. The decrease in AGGRASTAT revenue during the current year is a result of a lower volume of units sold as a result of increased competition from generic tirofiban hydrochloride. Net revenues earned from ZYPITAMAG through the traditional insurance channel during the current year totaled $777,000, which is an increase from the $640,000 in net revenue earned during the same period in the prior year. The increase in ZYPITAMAG sales through the traditional insurance channel can be attributed to a higher volume of products sold. For Marley Drugs, net revenue during the current quarter totaled $2.7 million, an increase from the $2.3 million earned from Marley Drug earned during the 3-month period ended March 31, 2023. The increase in Marley Drug sales during the current period is due to an increased volume of sales, including an increased volume of ZYPITAMAG sales through Marley Drug, which is also included within this figure. The company continues to focus on growing Marley Drug, and growing the sales of ZYPITAMAG through Marley Drug into 2024 and beyond. Moving on to cost of goods sold. AGGRASTAT cost of goods sold for the quarter ended March 31, 2024 totaled $403,000, a decrease from the prior year where cost of goods sold totaled $770,000. The decrease in cost of goods sold is a result of a lower volume of AGGRASTAT sold, in addition to insurance proceeds received by the company during the current quarter, which related to inventory, which was damaged in transport in the previous period. ZYPITAMAG cost of goods sold for the current quarter totaled $315,000, which was consistent with the prior year, where cost of goods sold for ZYPITAMAG for the quarter ended totaled $317,000. Included within cost of goods sold for ZYPITAMAG in the current year is $162,000 relating to products sold to customers and $153,000 of amortization of the ZYPITAMAG intangible assets. The slight decrease in cost of goods sold noted during the current quarter is due to the conclusion of the company's royalty obligation on the sale of ZYPITAMAG, offset by a higher volume of ZYPITAMAG sold through the insured channel in the current period. Marley Drug cost of goods sold totaled $1.1 million during the period ended March 31, 2024, an increase from the period ended March 31, 2023, where cost of goods sold totaled $750,000. The increase in cost of goods sold during the current year is a result of a higher volume and the nature of products sold through both the mail order and e-commerce platform during the current year. Selling expenses totaled $2 million for the quarter ended March 31, 2024, consistent with the same period in the prior year, where selling expenses were also $2 million. Selling expenses slightly decreased in the current period as a result of less consulting expenses incurred by the company with regards to regulatory reporting on its government contracts, offset by a higher revenue amount earned through Marley Drug in the current quarter. General and administrative expenses totaled $1.2 million for the quarter ended March 31, 2024, in comparison to $905,000 during the same quarter in the prior year. The increase in general and administrative expenses in the current period is the result of higher legal fees in the current period, in addition to higher share-based compensation expense, which is based on the vesting schedule of previously granted stock options to key employees and directors of the company. Research and development expenses for the quarter ended March 31, 2024, totaled $680,000 compared to $526,000 during the same quarter in the prior year. The increase during the current period is primarily due to the timing of research and development expenditures relating to each development project the company is currently undertaking. The company recorded finance income of $51,000 during the period ended March 31, 2024. The finance income recorded during the current period consisted primarily of interest income earned on cash held by the company, offset by bank charges and finance expenses on the company's lease obligations. The company recorded a foreign exchange loss of $7,000 during the quarter ended March 31, 2024, in comparison to a foreign exchange loss of $24,000 during the quarter ended March 31, 2023. The change in foreign exchange loss relates to changes in the U.S. dollar exchange rate during the respective years, which led to unfavorable foreign exchange loss during the current period. Adjusted EBITDA for the quarter ended March 31, 2024 was $359,000 compared to an adjusted EBITDA of $916,000 during the quarter ended March 31, 2023. The decrease in adjusted EBITDA during the current period is due to a decrease in operating income, which primarily stemmed from decreased revenues from the sale of AGGRASTAT, offset by higher revenue through Marley Drug and from ZYPITAMAG. In addition, there were also higher selling, general and administrative expenses and higher research and development expenses. As at March 31, 2024, the company had cash totaling approximately $6.1 million, a slight decrease from the $6.4 million of cash held as of December 31, 2023. 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. I would like to start with some further details on our Marley Drug business. For Q1, net revenue increased by 13% compared to prior year, growing from $2.3 million to $2.7 million. This is due to a 33% increase in volume of ZYPITAMAG products sold through the pharmacy business and a 12% increase in other brand and generic medication sales. We continue to invest in further improvements to the e-commerce website, to improve customer experience and through additions to the website, Marley Drug continues to be a leader in search engine traffic results for online pharmacies. Medicure is still plans to leverage Marley Drug's reputation for customer service and national distribution in more business partnerships. One example is the start of the sale of BRENZAVVY tablets through Marley drug at a low cash price in late 2023, which is an accessible alternative SGLT2 inhibitor to brand Jardiance and Farxiga. While still early, we are seeing uptake and growth, and we'll continue to focus on it and other branded solutions in 2024. The company is still focused on growing brand awareness through multiple media channels. And overall, we continue to look for ways to rapidly expand the pharmacy business. Further on ZYPITAMAG. Net revenue through insured channels and the standard retail pharmacy model grew by 21% to $777,000 in Q1 2024 compared to Q1 2023. However, patients still have challenges in accessing ZYPITAMAG through their insurance coverage, which is a reason why selling ZYPITAMAG through Marley Drug is such an effective approach. Similarly, due to wholesaler and coverage gap fees, low PBM reimbursement and product returns, selling through Marley Drug provides a much higher gross margin. Overall, we continue to build brand awareness through the efforts of our sales and marketing team, and we are focused on lowering our customer acquisition costs and increasing customer retention. The market opportunity remains very large, and we are reinvesting profit into sales and marketing on ZYPITAMAG. In terms of our AGGRASTAT business. Net revenue was impacted in Q1 by generic tirofiban entries. And as a result, revenue fell from $2.7 million in Q1 2023 to $2.3 million in Q1 2024. This decrease is due to both a decrease in volume of products sold and pricing. Medicure remains the only manufacturer of the 3.75 milligram bolus vial format, which is typically administered before the infusion unit. We continue to provide support to our U.S. hospital accounts and promote the brand in targeted ways in order to maintain market share. Medicure's R&D focus is primarily on its Phase III study to seek approval of MC-1 as 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. And parallel to the Phase III clinical study, Medicure is conducting several nonclinical studies to support the approval of MC-1 as requested by the FDA, most of which are now complete. 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. The FDA granted approval to start enrollment, and so the company is now in the launch phase of the study. Medicure also recently received fast track designation for MC-1 for its intended indication, which will facilitate the review of Medicure's FDA new drug application. However, there are very few patients eligible to enroll, and they are very sensitive to changes in dosing. So Medicure is being careful in the enrollment process to increase our likelihood of receiving FDA approval for the indication. Medicure remains debt free and for Q1 2024, we are able to report a positive adjusted EBITDA of $359,000 and net income of $51,000 and we continue to invest in marketing and research and development. Our goal is to grow revenue, control our costs and make 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 overall revenue is consistent. It's growing slightly. There are significant developments through the acquisition of Marley Drug, which we think strongly complements Medicure's business, including the sales and marketing of ZYPITAMAG. We're still focused on growing the business and diversifying our revenues and the asset base near term through acquisition, and long term through R&D, carefully investing to grow our future profitability. My goal and that of our entire team, Board, management is to continue to build this business with a stable, long-term outlook to generating value for our shareholders. And as always, I want to express my appreciation to the outstanding team of employees we've been blessed with. Thank you to our shareholders for your continued support and interest. And now, I'll turn it back to the moderator to lead our question-and-answer and welcome those from the years those listening on the call.

[Operator Instructions] We will now be conducting our question-and-answer session. Your first question is coming from [ David Bochum ], who's a private investor.

I had a couple of questions. Number one was in regards to AGGRASTAT. It's kind of been kind of a slow decline, and I understand why. There's no criticism there. I was wondering in that regard, you guys had any rough idea of when you thought kind of the bleeding would stop or, at least, slow down significantly. And as part of that question, I was just going to ask, has having the only bolus version of AGGRASTAT, I was wondering what percent of total AGGRASTAT sales, the bolus version comprises?

Yes, those are really good questions. We do see a bottom to the decline in terms of pricing and loss of product volumes sold. That's probably 1 or 2 years out. We've only seen 2 generic entries at this point. We're not expecting any more in the space, which is good news for us. We have been pretty aggressive in terms of contracting with the hospital groups to maintain market share. So we are expecting to actually -- if not the majority, we are expecting to have a significant portion of the market, even with generics in the markets. In terms of the bolus vial sales, it's about 20% of the overall volume. However, all hospitals who use the infusion unit tend to use the bolus vial as well. So it's a leverage point for us, in terms of negotiating with the hospital accounts to keep using branded AGGRASTAT. But it's about 20%.

All right. The second one I had was just kind of a general question is would Marley Drug itself at this point, which includes, obviously, ZYPITAMAG sales. Would that be profitable at this point as a stand-alone?

Yes is the answer.

Just -- yes, I can add a bit of color to that. So again, Marley Drug has been really helpful for selling ZYPITAMAG. But it still does have quite a strong base in terms of generic and other branded medication sales. So we've been sort of shifting the focus of the pharmacy, obviously, from -- after we bought it. But it is still profitable on its own. And as we continue to add other branded products, we are really expecting that to really help Medicure overall in terms of revenue.

It's a very good question because the brand, believe it or not, the U.S. pharmacy sales is very complicated. And the branded products that we sell through insurance have a lower margin. The cash, believe it or not, have a much larger margin. And our branded products, that we sell through cash that we're now adding to the business, have a pretty good significant margin. So the generics are actually better margins than the branded because of the insurance process so -- but yes. It's a profit center. And we're trying to develop the mix to further increase the profit center.

And then my last question, you may or may not be able to tell going forward. I was just wondering, due to the rarity of PNPO deficiency, and I know some other challenges you had just mentioned, Neil just mentioned a little bit ago regarding that study getting up and running. I think the goal, I believe, I read was 10 patients. And I was curious with the rarity and some other challenges when realistically, you thought we would have data on 10 patients. It would seem like it might still be a while.

Yes. You understand the challenges from the questions and the comments. It's very difficult to say. But right now, we can say that we probably won't be completed by the end of '25. The question is how far into '26 we're going to go, without trying to go -- and it took us over a year and something focused on trying to find. We found ultimately about 20 patients in the world that qualified to start to enroll the depth of 10. And we think there's probably -- based on our search, there may only be 50, 60 throughout the world. And they're not -- they all -- it's a very challenging disease. And so not everyone would be willing to enroll in the study. So we continue to persist because of the large opportunity at the end.

[Operator Instructions] Okay. We don't appear to have any further questions in the queue. [Operator Instructions] Right. We have no further questions at this time. So I will now hand the call back over to Dr. Friesen.

Well, thank you again for being on the call. Thank you for the question, David, and appreciate the support from our shareholders. Thank you. Have a great day. We look forward to the next call.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.