Medicure Inc.

Albert Friesen - President and Chief Executive Officer James Kinley - Chief Financial Officer

Robert Gibson - PI Financial Corporation

Thank you, Sylvia. Good morning to everyone.

We appreciate your interest and participation in today's call. Joining me on the call today is our Chief Financial Officer, James Kinley.

I am actually – I’m not in Winnipeg. I am returning in a flight from India, which was delayed, so I am calling in from Toronto Airport.

So you may hear some background announcements as we go through the call. So onto Medicure’s Q3 report, the number of patients using AGGRASTAT continues to increase from – we now have 65% of the patient market, up slightly from the 60% reported in – 65% today, up from the previous quarter.

The revenue for the quarter ending September 30 for AGGRASTAT was $7 million, which is about the same as Q3 2017. As expected, revenue from Medicure’s second product on the U.S.

market, ZYPITAMAG, is still small, as we await various insurance coverages to star, which is anticipated in Q1 and Q2 of 2019. Our market team has experienced a lot of interest in ZYPITAMAG, so we anticipate good uptake as coverage broadens.

The market introduction of our third drug Sodium Nitroprusside is on track for Q1 2019, as manufacturing gets product ready for distribution. Medicure plans to have at least five cardiovascular drugs in the market by the end of 2020, with our generic development pipeline expected to yield another two by then.

Medicure also closed Q3, 2018 with a strong balance sheet with $72 million in cash and short-term investments and no debt. There is still another approximate US$10 million in holdbacks, which will be realized in beginning and by the middle of 2019.

The lawsuit follows Gland's filing of an abbreviated new drug application seeking approval for U.S. FDA to market a generic version of AGGRASTAT before the expiration of – in 2023 of our 660 patent, that's the last three numbers of the patent, 6-6-0, 660.

Medicure will vigorously defend the 660 patent and pursue all legal options available to us to protect its product and we anticipate this will take an extended period of time for the defense, but anticipate success. Medicure's focus is continuing to grow AGGRASTAT, the commercial growth of ZYPITAMAG, marketing of Sodium Nitroprusside and building out its cardiovascular portfolio with the ultimate goal of continuing to grow sales and profitability.

I would like to now turn over the call to James Kinley, CFO to review and provide some color on the financial results.

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

I will take you through the key highlights of financial performance for the three months and nine months ended September 30, 2018. Total revenues for the three months and nine months ended September 30, 2018, were $7.3 million and $21.2 million, respectively, compared to $7 million and $22.1 million, respectively, for the three months and nine months ended September 30, 2017.

Net revenues from AGGRASTAT for the three months ended September 30, 2018 and 2017 both totaled $7 million and net revenues from AGGRASTAT for the nine months ended September 30, 2018, totaled $20.3 million compared to $22.1 million for the nine months ended September 30, 2017. The in-quarter revenues from AGGRASTAT were consistent between the two periods due to higher U.S.

dollar exchange rate during the three months ended September 30, 2018 when compared to the same quarter in 2017, which offset decreases to revenues as a result of higher discounted selling prices of the product due to increased pricing pressures from generic versions of Integrilin. The decrease in revenues from AGGRASTAT for the nine months ended September 30, 2018 when compared to the nine months ended September 30, 2017 was a result of the increased price pressure from generic Integrilin and lower U.S.

exchange rates for the nine-month period ended September 30, 2018 when compared to the same period in 2017. ZYPITAMAG, which launched commercially in May 2018, contributed an additional $326,000 and $932,000 of net revenue for the three and nine months ended September 30, 2018.

Our goal is to continue to maintain and grow the AGGRASTAT brand will providing product diversification in the form of ZYPITAMAG launched in May 2018 and the upcoming launch of our generic Sodium Nitroprusside in the first quarter of 2019. Turning to cost of goods sold, AGGRASTAT cost of goods sold for the three months ended September 30, 2018, totaled $909,000 compared to $844,000 for the same quarter in the previous year.

Cost of goods sold for AGGRASTAT for the nine months ended September 30, 2018, totaled $2.7 million compared to $2.2 million for the nine months ended September 30, 2017. This results in gross margins for the three and nine months ended September 30, 2018 of approximately 87% for both periods, down slightly from 88% and 91% respectively in the same periods in the previous year.

The decrease in AGGRASTAT gross margin during both periods in 2018 as due to costs associated with increased volume of product sold at lower net selling prices as noted earlier. ZYPITAMAG cost of goods sold totaled $65,000 and $268,000 respectively for the three and nine months ended September 30, 2018.

For gross margins from the product of greater than 70%. Selling, general and administrative expenses totaled $4.7 million for the three months ended September 30, 2018, and $13.7 million for the nine months ended September 30, 2018.

This is up from $3.6 million and $11.2 million for the same periods in 2017. If we remove stock-based compensation, a non-cash expense, recorded during the three months ended September 30, 2018, of $145,000 and $820,000 during the nine months ended September 30, 2018, as there is no stock-based compensation expense recorded in SG&A in 2017, then SG&A expenses would have been $4.6 million and $12.9 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 included within SG&A expenses.

Turning to research and development expenses for the three months and nine months ended September 30, 2018, a totaled $1.4 million and $3.4 million, respectively, compared to $807,000 and $3.6 million for the same periods of 2017. Research and development expenses for the current year relate primarily to our additional development projects, which are underway and have increased for the quarter ended September 30, 2018, compared to the same period in 2017 due to the timing of expenses related to these projects.

Research and development expenses for the nine months ended September 30, 2018 are down slightly from the same periods in the prior year. The 2017 R&D expenses primarily relate 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.

Medicure is in the process of developing additional generic cardiovascular products and we expect to have five products including AGGRASTAT, ZYPITAMAG, Sodium Nitroprusside, and two additional generics on the market by 2020. The cost of the ANDA development projects is approximately $2 million each, which is 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 research and development costs to increase relative to this.

The Company recorded finance income of $88,000 and $106,000 respectively, for the three and nine months ended September 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 $290,000 and $925,000 for the three months and nine months ended September 30, 2017, relating to the change in the royalty and interest on the MIOP loan, 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 $72 million.

We expect to have finance income rather than expense for the foreseeable future. The Company recorded loss of $916,000 from foreign exchange for the three months ended September 30, 2018, compared to a foreign exchange gain of $180,000 for the three months ended September 30, 2017.

A loss for the three months ended September 30, 2018, relates to a decrease in the U.S. dollar exchange rate between June 30 and September 30 of 2018 which applies to the significant U.S.

cash and investment balance held by the Company at the end of the period. For the nine months ended September 30, 2018, the Company recorded a foreign exchange gain of $1.1 million compared to $454,000 for the nine months ended September 30, 2017.

This relates to an increase in the U.S. exchange rate between December 2017 and September 2018, which again applies to the U.S.

dollar cash and short-term investment balance held by the Company. The Company recorded income tax expense of $70,000 and $252,000 during the three months and nine months ended September 30, 2018, consistent with income tax expense recorded in the same periods in the prior year.

The expense primarily represents taxes from our U.S. commercial business.

For the three months and nine months ended September 30, 2017, the Company recorded $5.9 million and $12.3 million loss, respectively, from discontinued operations, which consisted of the results of the Apicore business, which has now been divested as well as interest relating to the $60 million loan from Crown Capital, which was used to finance the acquisition of Apicore and has since been repaid in full during the fourth quarter of 2017. In summary, there was a net loss for the three months ended September 30, 2018, of $545,000 or $0.03 per share compared to $4.3 million or $0.28 per share, including net income from continuing operations of $1.6 million or $0.10 per share and a net loss from discontinued operations of $5.9 million or $0.38 per share for the three months ended September 30, 2017.

Without the FX loss in the quarter, we would have shown a small net income. Net income for the nine months ended September 30, 2018, totaled $2.4 million or $0.15 per share compared to a net loss of $8 million or $0.52 per share, including net income from continuing operations of $4.3 million or $0.27 per share and a net loss from discontinued operations of $12.3 million or $0.79 per share for the nine months ended September 30, 2017.

Adjusted EBITDA for the three and nine months ended September 30, 2018, was $522,000 and $2.2 million, respectively, compared to adjusted EBITDA of $1.8 million and $5.2 million, respectively, for the same periods in 2017. The decrease during both periods in 2018 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.

As at September 30, 2018, the Company had cash and short-term investments totaling approximately $72 million compared to $5.3 million as of December 31, 2017. This consisted of $20.2 million of unrestricted cash and $51.8 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 September 30, 2018, the Company had working capital of $84.3 million compared to December 31, 2017, of $70.9 million. The Company received cash from operating activities of approximately $3 million for the nine months ended September 30, 2018, compared to $28.4 million for the nine months ended September 30, 2017, which was primarily resulting from the changes in working capital of the Apicore level in 2017.

As at September 30, 2018, the Company did not have any debt recorded on its statement of financial position. Additionally, during the nine months ended September 30, 2018, the Company repurchased 270,000 of its own common shares that were either canceled or held to be canceled under the Company's normal course issuer bid announced in May of 2018 at a cost to the Company of $1.9 million.

The Company continues to feel that its underlying value exceeds the current share price and purchases may continue under the normal course issuer bid. I want to remind you that there'll 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.

With that, I'd like to turn the call back to Dr. Friesen, for some additional commentary regarding our operations as well as closing remarks.

Thank you, James. As mentioned previously, AGGRASTAT remains the number one glycoprotein IIb/IIIa inhibitor receptor antagonist with 65% of the market share.

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

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

As mentioned before our target is to get market share and if we have to re-compete. Turning our attention to ZYPITAMAG, we are now a full – several months into the launch and are determined to obtain the best formulary access possible.

ZYPITAMAG access is about 39% of U.S. commercial lives and increase of 20% over the last quarter.

Although most of these formularies currently imposed restrictions on coverage, we are working tirelessly to access more formularies with preferred status. We expect by Q1 2019, we will have better Medicare access that will make ZYPITAMAG available and affordable to patients 65 years of age or older.

Our sales reps continue to target the highest statin prescribing primary care physicians and cardiologists, who are responsible for writing over 80% of the statins prescribed in the U.S. With over 11,000 sales calls made by our reps since May, we are keeping our sales and market efforts concentrated on the top prescribers with the greatest impact for ZYPITAMAG growth.

Our focus for 2018 and beyond is continued diversifying our revenue base. Our U.S.

hospital sales organization and access to acute cardiology as well as hospital pharmacy 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 via acquisition and licensing and co-promotion. Moreover, we’re exploring low-risk, low-cost and quick-to-market development projects.

In addition to Sodium Nitroprusside, we also have a number of abbreviated new drug applications refer to ANDAsfor high-valued cardiovascular intravenous specialty generics. At this time, we're not releasing the details of these products.

They are congruent with our relationships and expertise that we’ve established with AGGRASTAT. We’re now in the 1,100 hospital in the U.S.

In summary, Medicure expects to continued success with its lead commercial product AGGRASTAT, that’s the number one glycoprotein IIb/IIIa inhibitor. We successfully launched ZYPITAMAG for the management of hypercholesterolemia and growth is expected as more and more coverage is approved in the coming months.

The approval of Sodium Nitroprusside now provides the opportunity for us to sell a new drug into the hospital market as mentioned in Q1 of 2019. We have a significant commercial organization in place with proven track record in U.S.

acute care hospital sales. We're very thankful for the growth of our sales and organization over the past years.

We’ve gone from 2% of the AGGRASTAT coverage to 65%. We have a strong balance sheet, and we continue to focus on growing business with a pipeline of products that will diversify our revenue and strength in our asset base.

We are carefully investing to for 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 generating value for our shareholders.

And as always, I express my appreciation to the outstanding team of employees, we've been blessed with. As mentioned AGGRASTAT’s grown from 2% to 65%, ZYPITAMAG just about to grow and two or three other products, and with $72 million in the bank, more cash coming in, Medicure is one of the strongest businesses with a stable and broadening market.

So we thank you, shareholders, for your continued support and interest. And now I'll turn it back to the Sylvia for handling the question-and-answer period.

Good morning.

Good morning, Bob.

Good morning, Bob.

So can we first start about ZYPITAMAG and insurance coverage and sort of in this quarter, what sort of percentage of the insurers were met that deal and then how should we look at it going forward? Like, do you expect all the insurers by the end of this year?

Or how is it going to look?

Yes. First of all, we wouldn't expect all the insurers by the end of the year.

We are sort of – we expect in Q1 – start of Q1 to really broaden the base. And as we said, we were – with insurers, we're at 20% U.S.

lives coverage. We’re up to 39%.

We would like to get to 70%, 80%, 90%, maybe even more of lives coverage. So there's quite a bit of coverage yet to come and we're working on that.

Okay, great. AGGRASTAT, the margins are really holding, which is really great.

If you could give us a little color on the price, like after your discounting, how has the price been trending over the nine months?

That’s been declining over nine months. Well, there are certain contracts that have been declining.

There are certain contracts that are not. So overall, in summary, some of the contracts that we have, we've been discounting to match the Integrilin generic pricing.

Okay.

But as you can see, the number of patients being sold to continues to increase. We expect the pricing pressure is going to continue, but we would like to retain the sales and our cost of goods is still pretty good.

So we can still get some margin, even though we're reducing the price.

Okay. And are you hearing anything on Reopro when they might come back?

We don't know if they will come back.

Oh really? Okay.

All right, okay.

That's sort of the – we don't know, but we don't know if – they might not.

Okay. The move to the new AGGRASTAT facilities is that over or how should we think about that cost?

That was all in the prior year. So that's been completed.

All been completed.

Yes.

And going forward, once the two new ANDAs have been applied for, how should we think about R&D?

Well, if there are opportunities, we'll continue to look for those opportunities. And so there maybe – I think it would certainly remain flat.

I think we'll continue to explore other generics as well as branded products – small branded products, where there we might be spending some. And so I wouldn't say we're going to decrease R&D.

Right now, we have no plans to dramatically increase R&D.

Okay. And then lastly, Nitropress, what's the market size of that product?

Do you have any idea?

We don't know.

Okay.

We have an idea, but I couldn't give you a number today.

Okay. And what else can I ask?

Have you thought about hedging your cash at all?

We discussed this. Go ahead James.

Yes. It is something we're discussing.

Currently, a lot of our expenses and potential investment opportunities are in U.S. dollars.

So for now, we're keeping in the U.S., but it is an ongoing discussion that we're having.

Okay.

We've done studies on the cost benefit and right now we think the cost in some cases would be higher than the benefit.

Okay. I guess lastly, ZYPITAMAG, how much promotion costs, is any of that promotion costs going to be finished or how should we think about that?

We had a fairly significant booth at the AHA. We continue – last year we're at 90 regional conferences or meetings.

And we will be at – plan to be at ACC, so our promotional will probably continue at the level that we've been at.

Okay, great. Thanks so much guys.

Thank you. End of Q&A

So if there's no further questions, again we’d like to thank everybody for being on the call and welcome your interest and participation and look forward to report in the next year-end. Thank you.