Medicure Inc. (OTCPK:MCUJF) Q3 2022 Results Conference Call November 25, 2022 8:30 AM ET
Company Participants
Dr. Albert Friesen – CEO
Dr. Neil Owens – President and COO
Haaris Uddin – CFO
Conference Call Participants
Kurt Caramanidis – Carl M. Hennig, Inc.
Operator
Good morning, ladies and gentlemen and welcome to Medicure’s Earnings Conference Call for the Quarter Ended September 30, 2022. My name is Michelle and I’ll be your operator for today’s call. At this time, all participants are in listen-only mode.
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 November 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.
Dr. Albert Friesen
Thank you, Michelle, and good morning to all on the call. We appreciate your interest and participation in today’s call.
Joining me today on this Q3 2022 financial statements call is Dr. Neil Owens, President and Chief Operating Officer; and Haaris Uddin, Medicure’s Chief Financial Officer.
We’re pleased to report that net income for the quarter increased significantly from the previous quarter, with net revenue remaining steady. Net income for the quarter ended September 30, 2022, was $1.1 million or $0.11 per share and EBITDA was $1.4 million. AGGRASTAT sales remained steady, ZYPITAMAG sales increased steadily, and the Marley Drug business provides a diversified revenue and helps grow our ZYPITAMAG sales and profit.
With the acquisition of Marley Drug and the online pharmacy continue — and the online pharmacy continues to provide steady growth. Medicure’s business focus is on the following growth and development initiatives: one, continued sales and profits from AGGRASTAT; growing — two, growing ZYPITAMAG revenue and profit; three, developing Marley Drug online presence; and four, the MC-1 development for PNPO deficiency.
One of the reasons we acquired Marley Drug, a pharmacy uniquely positioned to dispense medications to all Americans in all 50 states and territories through mail, was to expand our sales reach for ZYPITAMAG. We believe the best way to do this is through a direct-to-consumer approach via 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 made access to affordable medications too expensive for many Americans, including both generic and branded products such as ZYPITAMAG.
This past few months, Medicure celebrated its 25th anniversary. For 25 years, our mission has been to serve patients by delivering safe and efficacious, life-changing medicines at affordable prices. Capitalizing our strength in cardiovascular therapy and knowledge of the ever-changing U.S. market, we’re excited to continue working our mission over the next 25 years and more. We believe the investments and experience over the past 25 years positions Medicure on a steady path to continued success. It takes time and persistence, and we’ve demonstrated that.
Now, I’d like to turn the call over to our CFO, Haaris Uddin, to review and provide some color on our financial results for Q3.
Haaris Uddin
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 September 30, 2022, by the end of the day today, along with previous financial statements on the Investors page of our website. Alternatively, a copy of all financial statements, and 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 September 30, 2022. Total revenues for the three-month period ended September 30, 2022, were $5.3 million compared to $4.9 million for the quarter ended September 30, 2021. Net revenues from AGGRASTAT for the period ended September 30, 2022, totaled $3.1 million, an increase from the prior year, where net revenue from AGGRASTAT was $2.9 million. The increase in AGGRASTAT revenue during the current year is a result of a higher volume of units sold.
The Company earned net revenues from ZYPITAMAG in Q3 of 2022 of $434,000, which is an increase in the net revenues earned during the same period in the prior year of $388,000. The company continues to focus on ZYPITAMAG and expects revenues to continue to grow throughout the remainder of 2022 and beyond.
The Company earned net revenues from Marley Drug in Q3 of 2022 of $1.8 million, which is an increase from the net revenues earned from Marley Drug during Q3 of 2021 of $1.6 million. The increase in net revenue earned from Marley Drug is a result of an increased volume of sales, including sales through the Marley Drug e-commerce platform, which launched during the current year.
Turning to cost of goods sold. AGGRASTAT cost of goods sold for the three-month period ended September 30, 2022, totaled $477,000. Cost of goods sold for AGGRASTAT consisted of finished products sold that was delivered to customers.
ZYPITAMAG cost of goods sold for the three-month period ended September 30, 2022, totaled $363,000 and includes $153,000 relating to products sold to customers, $148,000 from amortization of the ZYPITAMAG intangible assets and $62,000 relating to royalties on the sale of ZYPITAMAG, resulting from the acquisition of the product in September of 2019. Marley Drug had cost of goods sold of $551,000 during the three-month period ended September 30, 2022, and this pertains to the cost of products sold by Marley Drug’s in-store and mail order pharmaceutical business, which also included sales through the Marley Drug e-commerce platform.
Selling expenses totaled $1.7 million for the three-month period ended September 30, 2022, in comparison to $2.6 million for the three-month period ended September 30, 2021. Selling expenses decreased in the current period as a result of the Company’s implementing cost-saving measures of 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 million for the quarter ended September 30, 2022, in comparison to $538,000 during the period ended September 30, 2021. The increase in general and administrative expenses primarily related to professional fees incurred during the current period as the Company continues to improve its e-commerce platform, partially offset by lower legal costs and a reclassification of certain expenses from selling to general and administrative, based on their nature.
Research and development expenses for the three-month period ended September 30, 2022, totaled $314,000 compared to $468,000 during the three-month period ended September 30, 2021. This 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 $33,000 during the three-month period ended September 30, 2022. The finance expense recorded during the period consisted primarily of accretion on the ZYPITAMAG acquisition payable, bank charges incurred and finance expense of the Company’s lease obligations, partially offset by interest income earned during the current period.
The Company recorded a foreign exchange gain during the three-month period ended September 30, 2022, of $10,000 compared to a foreign exchange loss of $226,000 during the three-month period ended September 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 three-month period ended September 30, 2022 was $1.4 million compared to an adjusted EBITDA of $282,000 during the three-month period ended September 30, 2021. The increase in adjusted EBITDA for the three-month period ended September 30, 2022, is a result of a lower research and development costs, lower general administrative costs relating to improvements on the Marley Drug e-commerce platform in addition to higher revenues in the current period when compared to the same period in the last year.
As at September 30, 2022, the Company had cash totaling approximately $4.5 million, an increase from the $3.7 million of cash held at December 31, 2021. The Company does not have any debt on its books.
I want to remind you all, 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 hand the call over to our President and Chief Operating Officer, Dr. Neil Owens, for some additional commentary regarding our operations.
Dr. Neil Owens
Thank you, Haaris, and good morning, everyone.
A few updates I can provide. First, we are pleased to report that AGGRASTAT provided 6% higher net revenue in Q3 compared to Q2. This is despite the fact that a lower number of units were sold in Q3, which reflects improvements in our contracting and fewer product returns. Our goal is to be as efficient as possible with marketing and account support to reinforce our brand into 2023. The first licensed generic of AGGRASTAT was granted for November for one format. However, to our knowledge, it has not yet been made available.
Also of note is that there has been less pricing pressure from generic eptifibatide competition year-to-date compared to previous years.
Regarding ZYPITAMAG, we continue to see consistent growth in prescriptions filled through Marley Drug, including a 4% increase in units dispensed in Q3 compared to Q2. There was some impact from Hurricane Ian Q3 on patients being able to see their physician, which resulted in a decrease in fills in the Florida, Georgia and North Carolina in September. Net revenue was impacted by timing of PBM rebates through our insured sales, which decreased our net revenue in Q3 compared to Q2. Net sales for the 3- and 9-month periods ended September 30, 2022, were $434,000 and $2.57 million, respectively, compared to $338,000 and $941,000 in the same period in the previous year. We continue to build brand awareness through efforts of our sales and marketing team.
Overall, ZYPITAMAG sales through Marley Drug continues to demonstrate growth, lower returns and fees to wholesalers and reduced fees to pharmacy benefit managers. This is why we’ve received attention from other manufacturers who are interested in our approach and Medicure plans to provide through a fee-based approach other innovative brand medications that have a clear clinical advantage at a cash price through Marley Drug.
The Marley Drug pharmacy business generated sales of $1.8 million in Q3, which is similar to Q2. Through our sales team and marketing efforts, we’ve seen increased sales of generic and branded medications, website traffic and specifically sales through our e-commerce platform. We’ve also been able to implement free shipping across the U.S. on all orders, in part through improvements in our shipping costs. This has been offset by decreased sales of a few specific high-margin generic medications due to increased competition.
Overall, the pharmacy provides consistent revenue and an opportunity to better market ZYPITAMAG and other branded medications as the Company does plan to further invest in this area through 2023.
Our 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, is planned to begin in Q1 of 2023. It was slightly delayed due to study site start-up timing. 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. This study currently represents the major R&D investment for the Company.
Due to improvements in our revenue and controlling spending, we are pleased to report a positive adjusted EBITDA in Q3 of $1.4 million as well as net income of $1.1 million or $0.11 per share.
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.
Dr. Albert Friesen
Thank you, Neil.
There’s been considerable learning in the last few years and Medicure’s also adopted to the COVID environment, and during this time, achieved significant developments, including the acquisition of Marley Drug and expanding this online pharmacy with e-commerce. We think this approach strongly complements Medicure’s overall business, including sales and marketing of ZYPITAMAG.
We’re thankful for the continued strength in AGGRASTAT and a strong balance sheet. We’re still focusing on growing the business with a pipeline of products, including cardiovasculars, which 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 generating value for shareholders. And as always, I want to express my appreciation for the outstanding Medicure team we’ve been blessed with. Thank you, our shareholders, for your continued support and interest.
And now, we will turn it over to the moderator to facilitate the Q&A.
Question-and-Answer Session
Operator
Thank you, sir. [Operator Instructions] Your first question will come from Kurt Caramanidis of Carl M. Hennig, Inc.
Kurt Caramanidis
That was the best pronunciation of my name ever for first shot.
Dr. Albert Friesen
Good job. Welcome, Kurt.
Good. Thanks. So a question on ZYPITAMAG, are you thinking in the current quarter, you’re back to a run rate closer to Q2, around $1 million a quarter, or what — is there something else up there?
Haaris Uddin
Yes. Sales — I mean, sales through the insured channels are impacted more by those PBM rebates, which tend to have some delayed impact on our net revenue. But those have been very consistent. So sales through the insured channels and then Marley Drug, overall, are actually growing. It just comes down to those PBM rebates that are sometimes not in the same quarter. So, we do expect a return to consistent revenue into Q4.
Kurt Caramanidis
Okay, great. And then PNPO, if I’m getting that right, when would we see any indications of how that’s going? Is that a year from now, or what’s kind of — from an investor standpoint, when would we see something, whether we know it may be working or not?
Dr. Albert Friesen
Well, we — the trial is with 10 patients. There is very small number of patients in the world. So it’s been challenging to find the patients. That actually took us well over a year — few years. When we discovered this or became aware of this disease, I think there was only 20 or 25 patients known worldwide. So part of the challenge, although a 10-patient trial was pretty easy, you would think there aren’t many patients. And the treatment protocols for 12 months, although we do have a six-month look. So we’ll see what the six-month look is. Enrolling the 10 will take a bit of time. So, there’s several months with roll-in or several — not maybe several, but three or four months to roll in. There’s six months to look and then a 12-month look. So — and we’re predicting it’s 2025.
Kurt Caramanidis
Okay. But I mean, the first time you get an idea would be 2025?
Dr. Albert Friesen
No, it would be — well, in beginning of ‘24, but then — I would say, it’s the first time we’ll have a look.
Operator
Your next question comes from David Balcom, [ph] a private investor. Please go ahead.
Unidentified Analyst
I was just looking to see if there’s — you could update us a little bit on the Sensible Medical investment. I believe it was 7.7%. I was curious if that remains 7.7%. And if you could provide maybe a general update on maybe potentially the value of that, or if not that, at least an update on how Sensible Medical is doing in general, in the short term?
Dr. Albert Friesen
We have written down the investment to a $1. It’s a long story, but I’ll try to be precise and in a reasonable amount of time. The product is — as we introduced it into the U.S. market, that was our role. There’s reasonably good reception. It is a change of practice. So, that takes a bit of time. But I would say still the product was reasonable. And I think we’ve made this public to the Sensible board. We felt that they were spending too much money in R&D. They did require additional financing, which we didn’t participate in, which caused dilution. And we pulled out of marketing because the cost of marketing and the return for us on the margins were very small, and that’s what we’ve pressed release prior — previously.
So long term, there had been refinancing, which has created a significant dilution. At the present time, our interest is — probably remains about 1.5%.
Now, that has the — according to the investors, the value of the corporation has gone up quite a bit. But I wanted to present the fact that there still remains a challenge of introducing the sales. They have grown, but slowly. They’ve grown mainly outside of the U.S., and that has grown fairly steadily and significantly. And the new investor group includes China. And so, their hope is to gain significant growth in the next couple of years in China, in addition to outside the U.S. But COVID was really also a factor because they had to visit hospitals. It’s a capital budget item. So, you introduce it to the hospital, there was interest. They have to wait sometimes for their annual budgets — to put it on their budget. So, we just felt that for us our energy and dollars invested in AGGRASTAT, ZYPITAMAG and products that we own and actually have margins in the 80% versus that margin was more like 30% or 40%.
So, that gives you sort of a color on our — so we have the investment. At some point, we hope we can liquidate. It might be — as I said — as we’ve said, we’ve written it down to $1. But right now, the value is potentially greater than that.
Unidentified Analyst
All right. Thank you very much on that. I had one other question. I was just curious as far as the marketing of Marley Drug. If — kind of what the plan was as far as marketing that as far as name recognition nationally going forward, if there was any plans for infomercials, anything such as that?
Dr. Neil Owens
Yes. It’s a great question and something we talk about every day. And it’s always a balance of investing in a wise way to ensure that we’re still profitable. So, the goal is really to focus on markets where we think we can have an impact. We’ve got some focus groups and there’s a clear interest in home delivery of medications. There’s also been some competitors who brought some attention to the idea of home delivery of medications and low-cost generics.
So, we’re really focused on patients who are generally in the age of 50 to 70 who don’t necessarily have great insurance coverage who are looking for some better costs on their medication. So, we’re actually trying many — or using many different media to reach those patients. And we haven’t done any infomercials per se, but we have done a lot of TV, radio, digital advertising, and we’re focused on where we’re getting the best ROI from those. So, we’re very much interested in expanding our marketing reach. But we’re just trying to do it in a smart way.
Operator
[Operator Instructions] There are no further questions. I’ll turn the conference back to your hosts for any closing remarks. Gentlemen?
Dr. Albert Friesen
Thank you, Michelle, and thank you for all that attended the call. We welcome your questions, appreciate that and your interest and look forward to connecting again with the next financial report. Thank you.
Operator
Ladies and gentlemen, that does conclude the conference call for this morning. We would like to thank everybody for participating and ask you to kindly disconnect your lines.
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