Medicure Inc.

Albert Friesen - President and CEO James Kinley - CFO Kevin Taylor - VP, Commercial Operations

Bob Gibson - PI Financial

Thank you and good morning to all on the call. We appreciate your interest and participation in today's call.

Joining me in the call is CFO, James Kinley and Vice President, Commercial Operations, Kevin Taylor. We're pleased to report on Medicure's continued growth that has continued increasing units of AGGRASTAT sold, increased revenue and with the FDA approval of Nitroprusside and recently, Medicure now has three cardiovascular drugs in the US market.

The number of patients using AGGRASTAT continued to increase in Q2 2018 compared to the previous quarters. We now have 60% of the share of the patient market, up from the 55% reported last quarter.

Revenue for the quarter ended June 30 of 2018 from AGGRASTAT was 7.2 million, which was up from the previous quarter of 6.1 million. The fluctuations in net revenue are due to fluctuations in the Canadian dollar versus the US dollar and competitive pricing with generic versions of Integrilin.

Medicure’s second drug in the market is branded cardiovascular drug called ZYPITAMAG, which is used in the treatment of patients with primary hyperlipidemia or mixed dyslipidemia. [indiscernible] initial orders of ZYPITAMAG from the US system of wholesalers and pharmacies, but it will take several months to realize the pull through from the patient use.

The third drug, Sodium Nitroprusside, is a generic intravenous cardiovascular drug, indicated for the immediate reduction of blood pressure for adult and pediatric patients in hypertensive crisis. It will be marketed by the existing Medicure commercial team, so no additional sales force is required.

Medicure plans to have at least five cardiovascular drugs in the market by the end of 2020, with our generic development pipeline expecting -- yielding two additional products within that timeframe. Medicure also closed Q2 with a strong balance sheet, featuring 70 million in cash and short term investments and no debt.

There is still a possibility of up to 10 million US in the holdback from the sale of Apicore. Purchase and sale of Apicore provided a great return for our shareholders and provides a strong balance sheet to continue to build a strong company with a vision to become a significant cardiovascular focused pharmaceutical company in the US market.

Medicure’s focus is continue to grow AGGRASTAT and the commercial growth of ZYPITAMAG, launching Sodium Nitroprusside and building our cardiovascular portfolio with the ultimate goal of continue to grow sales and profitability. I’ll now turn over the call to CFO, James Kinley, to review the second quarter.

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 quarter ended June 30, 2018 along with the previous financial statements on the Investors page of our website and a copy of the financial statements and management discussion and analysis can be obtained from sedar.com.

I’ll take you through the key highlights of financial performance for the three and six months ended June 30, 2018. Total revenues for the three and six months ended June 30, 2018 were 7.8 million and 13.9 million respectively, compared to 8.1 million and 15.1 million respectively for the three and six months ended June 30, 2017.

Net revenues from AGGRASTAT for the three months ended June 30, 2018 totaled 7.2 million compared to 8.1 million for the same quarter in the previous year and net revenues from AGGRASTAT for the six months ended June 30, 2018 totaled 13.3 million compared to 15.1 million for the six months ended June 30, 2017. As already mentioned, the two main reasons for the decline in net revenue were increased price pressure from generic Integrilin and the exchange rate.

To highlight this, the average exchange rate for the six months ended June 30, 2018 was 1.28 and for the six months ended June 30, 2017 was 1.34. This factor is estimated to have contributed approximately 600,000 of the decrease in Canadian dollar revenues for the six month period.

ZYPITAMAG, which was launched commercially in May 2018 contributed an additional $606,000 of revenue for the three and six months ended June 30, 2018. Our goal is to continue to grow the AGGRASTAT brand and provide product diversification, which is underway beginning with the recent commercial launch of ZYPITAMAG during the quarter and the recent FDA approval of our Sodium Nitroprusside ANDA.

Turning to cost of goods sold, AGGRASTAT cost of goods sold for the three months ended June 30, 2018 totaled 999,000 compared to 777,000 for the same quarter in the previous year. Cost of goods sold for AGGRASTAT for the six months ended June 30, 2018 totaled 1.8 million compared to 1.3 million for the six months ended June 30, 2017.

This resulted in gross margins for the three and six months ended June 30, 2018 of approximately 87%, down from 91% in the same periods in the previous year. The decrease in -- sorry, the increase in AGGRASTAT cost of goods sold is due to increased volume of products sold at lower net selling prices as noted earlier.

ZYPITAMAG cost of goods sold totaled 203,000 for the three and six months ended June 30, 2018 and contained approximately 65,000 of amortization, pertaining to the ZYPITAMAG tangible asset. Excluding the amortization, the gross margin on ZYPITAMAG sales totaled approximately 77%.

Selling, general and administrative expenses totaled 5 million for the three months ended June 30, 2018 and 9 million for the six months ended June 30, 2018. This is up from 4.1 million and 7.6 million respectively for the same periods in 2017.

If we remove stock-based compensation, a non-cash expense recorded during the three months ended June 30, 2018 of 258,000 and 675,000 during the six months ended June 30, 2018, as there was no stock-based compensation expense recorded in SG&A in 2017, then SG&A expenses would have been 4.7 million and 8.3 million respectively. SG&A expenses consist of costs associated with our commercial team and the ongoing sales and marketing of AGGRASTAT and ZYPITAMAG as well as costs associated with the commercial launch of ZYPITAMAG, which accounts for the increase in SG&A expenses for 2018.

Additionally, corporate level expenses and business development activities are including within SG&A expenses. Turning to research and development expenditures, which for the three and six months ended June 30, 2018 totaled 1.1 million and 2 million respectively compared to 1.4 million and 2.8 million respectively for the same periods of 2017.

Research and development expenses for the current year relate primarily to our additional ANDA projects, which are under development and have decreased from the prior period, due to the timing of expenses surrounding our R&D projects. The 2017 R&D expense primarily related to the completion of moving our AGGRASTAT manufacturing to new facilities for the 250 ml bag and other R&D costs associated with our first ANDA that has now been approved by the FDA.

The cost of the ANDA development projects is less than 2 million each, consistent with our research and development strategy to focus on low cost, quick to market projects with higher probabilities for success and we don't expect their R&D expenses to increase relative to this. The company recorded finance income of 95,000 and 18,000 respectively for the three and six months ended June 30, 2018.

This relates to interest on the company's cash balances and short-term investments, offset by the change in the fair value of the company's royalty obligation during 2018. For 2017, the company recorded finance expense of 317,000 and 634,000 respectively for the three and six months ended June 30, 2017 and that related to the change in the royalty as well as interest on the [indiscernible] which was repaid in the fourth quarter of 2017.

The company entered 2018 with no long term debt on its statement of financial position and with cash and short term investment balances of approximately 70 million at June 30, 2018. We expect our finance income, rather than expense going forward.

The company recorded 1 million and 2 million in foreign exchange gains for the three and six months ended June 30, 2018, relating to the significant US cash and investment position the company has maintained during 2018 and the increase in the US exchange rate throughout the period. The company recorded income tax expense of 87,000 and 182,000 during the three and six months ended June 30 of 2018, consistent with income tax expense recorded in the same periods in the prior year.

The expense primarily relates to taxes from our US commercial business. For the three and six months ended June 30, 2017, the company reported 184,000 and 6.4 million losses respectively from discontinued operations, which consisted of the results of the Apicore business, which has now been completely divested as well as interest related to the $60 million loan from Crown Capital, which was used to finance the Apicore acquisition and has since been repaid in full during the fourth quarter of 2017.

This resulted in net income for the three months ended June 30, 2018 of 1.6 million or $0.10 per share compared to 1.4 million or $0.09 per share, which included net income from continuing operations of 1.5 million and a net loss from discontinued operations of 184,000 for the three months ended June 30, 2017. Net income for the six months ended June 30, 2018 totaled 3 million or $0.19 per share compared to a net loss of 3.7 million or $0.24 per share for the six months ended June 30, 2017.

Adjusted EBITDA for the three and six months ended June 30, 2018 was 829,000 and 1.7 million respectively compared to adjusted EBITDA of 1.8 million and 3.4 million respectively for the same periods in 2017. The decrease is primarily due to lower revenues experienced during 2018 and higher cost of goods sold and SG&A expenses, primarily associated with the launch of ZYPITAMAG, which is partially offset by lower research and development expenses.

As at June 30, 2018, the company had cash and short term investments totaling approximately 70 million compared to 5.3 million as of December 31, 2017. This consisted of 17.3 million of unrestricted cash and 52.7 million of short-term investments in the form of term deposits with maturities of greater than three months and less than one year.

As at June 30, 2018, the company had working capital of 85.6 million compared to December 31, 2017 of 70.9 million. The company spent cash on operating activities of 2.5 million for the six months ended June 30, 2018 compared to 4.7 million for the six months ended June 30, 2017.

As of June 30, 2018, the company did not have any debt recorded on its statement of financial position. Additionally, during the quarter ended June 30, 2018, the company purchased 216,000 of our own common shares to be cancelled under the company's normal course issuer bid announced in May 2018 at a cost of the company of $1.6 million.

The company continues to feel that its underlying value exceeds the current share price and purchases continue under the normal course issuer bid. 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 and the company as a whole.

And with that, I'd like to turn the call over to our Vice President of Commercial Operations, Mr. Kevin Taylor for some additional commentary regarding our operations.

Thanks, James and good morning, everyone. As mentioned previously, AGGRASTAT remains the number one glycoprotein IIb/IIIa receptor antagonist with 60% market share.

This tremendous accomplishment has been achieved through an incredible amount of work done by the Medicure team. The indefinite shortage of Reopro has provided us with an opportunity to source additional competitive market share and assisted in the continued commercial success of AGGRASTAT.

We are mindful though of the pricing pressure from generic Integrilin products. As such, we remain vigilant to any market changes that require an appropriate response, so that we may remain competitive.

Turning our attention to ZYPITAMAG, we are now full three months into the launch of that product and are determined to obtain the best formulary access possible. With only 19% of commercial lives currently covered in the US, we are working tirelessly to gain access to more formulary plans.

We expect that by Q1, 2019, we will have Medicare access, which will make ZYPITAMAG available and affordable to patients with 65 years of age and older. Our sales reps continue to target the highest statin prescribing primary care physicians and cardiologists in the US who are responsible for writing over 80% of the statins.

With over 9,000 sales calls made by our reps since May, we are keeping our sales and marketing efforts concentrated on the top prescribers who can have the greatest impact on ZYPITAMAG growth. Our focus for 2018 and beyond is to continue to diversify our revenue base.

Our US hospital sales organization have access acute cardiology as well as hospital pharmacy and hospital system administrations is an asset that can be applied to other products. We are active in our search for approved revenue generating products that fit our organization.

We continue to pursue products via acquisition, in-licensing and co-promotion opportunities. Moreover, we are exploring low risk, low cost and quick to market drug development projects.

In addition to the recently announced FDA approval of Sodium Nitroprusside, we are also developing several other abbreviated new drug applications for high valued cardiovascular intravenous specialty generics. At this time, we're not able to release details about the identity of these products, but they’re congruent with the relationships and expertise that we have established with AGGRASTAT.

In summary, Medicure expects continued success from its lead commercial product, AGGRASTAT that has become the number one GP IIb/IIIa inhibitor within this $180 million market. We successfully launched ZYPITAMAG for the management of hypercholesterolemia and growth is expected as formulary coverage is expanded.

The approval of Sodium Nitroprusside now provides the opportunity for us to sell a new product in to the hospital market. We have a significant commercial organization in place with a proven track record in the US acute hospital care sales.

Lastly, we have an increased focus on expanding our product offering and diversifying our revenue base. And with that, I’d like to turn the call back to Bert for any final comments.

Thanks, Kevin. We're very thankful for the growth we've seen in our sales and organization over the past years.

We now have a strong balance sheet and we continue to focus on growing the business with a pipeline of cardiovascular products that will diversify our revenue and our asset base. My goal and that of our board and management and staff is to continue to build this business with a stable long-term outlook, generating value for our shareholders.

And as always, I want to express my appreciation to our outstanding team of employees that we've been blessed with. Thank you to our shareholders for your continued support and interest.

It is always a pleasure to be sharing news of continued growth and talking about our future. So moderator, I’ll turn it back to you for Q&A.

Okay. Let's start with the new one, Sodium Nitroprusside.

Can you give me just some color on the market size? How many competitors are out there?

Any information would be helpful.

The Nitroprusside, we think [ph], because it was a product that their price had increased substantially. It's injectable intravenous acute care cardiovascular product.

So, it fits our profile. But now, there are several other generics and the prices have come down.

So we really can't predict what our market share will be, but it will add product, no cost in terms of our commercial venture and as you know, we don't provide guidance on what our expected sales are. But -- at the price when it was high, peak sales revenue were around 200 million, but that's come down very substantially to what, we don't know.

Any idea of the number of the competitors out there?

I don't know the number. Do you?

I think there are 6 now.

Are you going to be, I didn't see it in the press release, release the number of units sold for AGGRASTAT?

So, it wasn’t included in the press release and we didn't refer to it on the call, but the units was just under 34,000, 33.8.

Okay. And the Reopro product, is that back in the market and what are you seeing from customers?

It's not back in the market. It is still on indefinite shortage.

We do believe in Canada, it has – it’s actually been pulled from the market. In the US, the FDA only updates twice a year, the status of product.

So we won't know probably close to the end of the year whether or not it is still available or if it's still in shortage.

Okay. Any color on the two ANDAs that you're working on.

No. They’re in the same category of Nitroprusside, but nobody -- typically in the generic business, you don’t release until it's approved.

Got you. Any color on the pull through for ZYPITAMAG, like, how much was filling the pipeline and then what are you seeing post that?

It’s mainly filling the pipeline. We really haven't seen pull through yet.

And as we've guided from the very beginning, this will take several months or even a few quarters. And as Kevin share, really we look to Q1 of 2019 to see really how we were doing and we need coverage to get the pull through.

We can’t share with you that -- the interest from physicians is very good, very positive. The feedback to the 9000 calls is very positive.

And what about from the drug stores and things like?

Well, the drug stores, they will just carry whatever the pull through is. So right now, they're just waiting to see how the pull through is.

And I know it's maybe something you can't comment on, but any update on PREXXARTAN.

No update. I think we have press release that Carmel was purchased and they’re working through it.

We understand there's meaningful discussions on a settlement.

So I think we'll just wrap it up then and thank you for your attention today and look forward to our upcoming call in Q3.