Medicure Inc.

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

Joining me is the CFO, James Kinley; and Vice President, Commercial, Kevin Taylor. The number of patients using AGGRASTAT continues to increase although modestly to now just at 65%, but with pricing pressures the net income is lower for this quarter.

The revenue for the quarter ended March 31, 2019 from AGGRASTAT it was $4.8 million, which is lower than Q1 2018, which was $6.1 million. We also experienced negative earnings substantially because of the significant investment in the market push for both ZYPITAMAG and ReDS.

The adjusted EBITDA for Q1 was $1.7 million compared to -- negative $1.7 million compared to EBITDA of positive of about $1 million in Q1 of 2018. As expected revenue from Medicure second drug on the U.S.

market ZYPITAMAG is still very small as we wait for various insurance coverage to start. This is anticipated in the second half of 2019.

Our marketing team is experiencing interest in ZYPITAMAG so we anticipate good uptake once the coverage is completed. The market introduction of our third product Sodium Nitroprusside was delayed because of contract manufacturing issues, but is expected in Q2 of 2019.

In January 2019, Medicure acquired the U.S. marketing rights for ReDS.

ReDS is a noninvasive, FDA approved medical device provides accurate measurements of lung fluid, which is important in management of congestive heart failure. Lung fluid measurements are used in guiding treatment and monitoring the heart failure patients and may lead to significant decrease in readmissions and hospital costs.

Clinical studies have shown that 87% reduction in heart failure readmission rates for patients using ReDS systems at home for three months, post-discharge versus those who are treated with the usual care alone. This provides the fourth cardiovascular product for Medicure's marketing team for the U.S.

market. Medicure continues to have a strong balance sheet with a $55 million in cash and short-term investments plus the $10 million investment made in sensible medical with no debt.

The final payment of $10 million from -- and holdback funds for the sale of Apicore is still in dispute, but insurance was obtained at the time of sale to cover this potential dispute. The timing of the release of holdback or insurance proceeds is still not known at this time.

Medicure continues to vigorously defend the 660 patent against Gland who filed an ANDA for the U.S. FDA, market or generic version of AGGRASTAT.

Medicure will pursue all legal options available to protect this product and we anticipate this will take an extended period of time. So Medicure's focus is continue to grow AGGRASTAT and begin growing sales of ZYPITAMAG and we're just getting going with ReDS and the second quarter and third quarter with Sodium Nitroprusside, also looking at other additional products, but the focus is and investing in the marketing of these products and unfortunately, so I had to invest significantly in Q1 to really build the sales for later this year.

Now like to turn the call over to the CFO, James Kinley to review and provide more detailed information on the financial results for Q1.

Thank you, Albert 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 three months ended March 31, 2019, 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 cedar.com. I will take you through the key highlights of financial performance for the three months ended March 31, 2019.

Total revenues for the quarter ended March 31, 2019 were $4.9 million, compared to $6.1 million for the same quarter in 2018. Net revenues from AGGRASTAT for the quarter ended March 31, 2019 totaled $4.8 million, a decrease from net revenue from AGGRASTAT for the quarter ended March 31, 2018 of $6.1 million.

The decrease in revenues from AGGRASTAT due to higher volumes of product sold in Q4 of 2018, which affected the volume of product sold in Q1 2019, as well as higher discounted selling prices of the product due to increased pricing pressures from generic versions of Integrilin. The ReDS device for which a license was acquired in January of 2019 contributed approximately $100,000 of net revenue in 2019.

Our goal is to continue to maintain and grow the AGGRASTAT brand, while providing product diversification in the form of ZYPITAMAG launched in May of 2018, ReDS acquired in early 2019 and the upcoming launch of our generic Sodium Nitroprusside in mid-2019. Turning to cost of goods sold, AGGRASTAT cost of goods sold for the quarter ended March 31, 2019 total $855,000 compared to $789,000 for the same quarter in the previous year.

This resulted in gross margins for the quarter ended March 31, 2019 of approximately 82% down from the margins for the same quarter of 2018 of approximately 87%. The increase in AGGRASTAT cost of goods sold is due to increased volume of products sold at lower net selling prices as noted earlier.

Cost of goods sold for the quarter ended March 31, 2019 contains $66,000 and $117,000 pertaining to amortization of the licenses for ZYPITAMAG and ReDS respectively. SG&A expenses totaled $5.1 million for the quarter ended March 31, 2019, compared to $3.9 million for the quarter ended March 31, 2018.

SG&A expenses consist of costs associated with our commercial team and the ongoing sales and marketing of AGGRASTAT, ZYPITAMAG and ReDS, including costs associated with the commercial launch of new products, which accounts for the increase in SG&A expenses for 2019 due to additional marketing expenses, launch activities, and additional headcount relating to the additional products. As well corporate level expenses and business development activities are included within SG&A expenses, which have increased for 2019 as the company continues to look at expansion of its product offerings.

Research and development expenses remained consistent between the three months ended March 31, 2019, and 2018 at $921,000 and $909,000 respectively. R&D expenses for the current period relate primarily to our additional ANDA development projects, which are underway.

Medicure is in the process of developing additional generic cardiovascular products and we expect to have more than five products including AGGRASTAT, ZYPITAMAG, ReDS, SNP, and the two generics in the market by 2020. The cost of each ANDA development project is approximately $2 million consistent with our research and development strategy to focus on low cost quick to market products, with higher probabilities for success and we don't expand our R&D costs to increase significantly, relative to this.

The company recorded finance income of $190,000 for the quarter ended March 31, 2019, compared to finance expense of $76,000 for the same quarter in 2018. The finance income and expense relate to interest in the company's cash balances and short-term investments offset by the change in the fair value of the company's royalty obligation during the quarter.

The company does not have any long-term debt on its statement of financial position, and had cash, short-term investment balances of approximately $55.5 million as at March 31, 2019. We expect to have finance income for the foreseeable future.

The company recorded a loss of $881,000 from foreign exchange for the quarter ended March 31, 2019 compared to an FX gain of $1 million for the quarter ended March 31, 2018. The FX loss during 2019 resulted from decreases in the U.S.

dollar exchange rate during 2019. With the bias to the significant U.S.

dollar cash and short-term investment balance held by the company as at March 31, 2019. This compares increases in the U.S.

dollar exchange rate between December 31, 2017 and March 31, 2018, which resulted in the FX gain for the comparative quarter. The company recorded an income tax recovery of $77,000 during the quarter ended March 31, 2019, related to the operating loss experienced during the quarter.

This results in a net loss for the quarter ended March 31, 2019 of $2.8 million or $0.18 per share, compared to net income of $1.4 million or $0.09 per share in the previous year. Adjusted EBITDA for quarter ended March 31, 2019 was negative $1.7 million compared to adjusted EBITDA of $927,000 for the quarter ended March 31, 2018.

The decrease in earnings is primarily due to lower revenues between the two quarters, higher SG&A expenses, primarily associated with the additional products in our portfolio, and FX loss experienced during Q1 2019. As at March 31, 2019, the company had cash and short-term investments totaling approximately $55.5 million compared to $71.9 million as of December 31, 2018.

This consisted of $10.1 million of unrestricted cash and $45.4 million of short-term investments in the form of term deposit maturities of greater than three months and less than one year. As of March 31, 2019, the company had working capital of $54.9 million, compared to December 31, 2018 of $72.7 million.

The decrease in cash primarily related to the US$10 million investment in Sensible Medical, which we acquired approximately 8% equity on a fully diluted basis in Sensible Medical as well as the U.S. rights to the ReDS device.

Additionally, the company used cash in operating activities of $1.9 million for the quarter ended March 31, 2019, which primarily related to the loss experienced during the quarter. Also, during the three months ended March 31, 2019, the company purchased 105,700 of our own common shares that were then cancelled into the company's normal course issuer bid announced in May of 2018, at a cost to the company of $899,000.

The company continues to feel that its underlying value exceeds the current share price and purchases continued under the normal courses issuer bid and included the purchase of 187,000 shares for $1.2 million between March 31 2019 and today. As of March 31, 2019, the company did not have any debt recorded on its statement of financial position.

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 of the company and the company as a whole. And with that I would 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 approximately 65% market share.

This tremendous accomplishment has been achieved through an incredible amount of work done by the Medicure team. We continually focus on maintaining that market share held by AGGRASTAT and look for subsequent growth by exploring new opportunities within the hospital environment.

We’re mindful of the pricing pressure from generic integument 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 one year into the launch and have seen almost a doubling of the percent of commercial lives with unrestricted access to ZYPITAMAG. This increase to 36% represents an estimated 30 million people who now have pharmacy benefits that cover ZYPITAMAG.

To capitalize on this growing population of covered patients, we have begun executing a new sales strategy that would target payers, patients and health care practitioners who already exist in the ZYPITAMAG value chain. We expect that by Q3 2019, these efforts will have a positive impact on ZYPITAMAG growth.

The marketing and sales partnership with Sensible Medical on the ReDS device has provided us with a great opportunity to expand our product offering and diversify our revenue base. We have only been active in the field for about 90 days with the device and are excited at the response and interest from both purchasers and practitioners.

Our ability to communicate how ReDS can improve patient care and decrease healthcare utilization costs, have been extremely well received. We’ve been able to leverage our existing relationships with cardiologists, the integrated delivery networks and group purchasing organizations to drive incredible awareness of the device and gain access to both influencers and decision makers.

Initially, we are actively focused on hospitals located in regions of the United States that have very high heart failure rates. However, as we gain traction and raise awareness of ReDS device, we will expand our footprint to include more territories and increase the number of hospitals.

Our focus for 2019 and beyond is to continue diversify our revenue base. The access of our U.S.

sales organization has to acute cardiology specialists as well as hospital pharmacy and hospital system administration is an asset that can be applied to other products such as the ReDS device. 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-promotional opportunities. Moreover, we are exploring low risk, low cost and quick to market drug development projects.

We’re also developing additional abbreviated new drug applications or ANDAs for high-value cardiovascular intravenous specialty generics. At this time, we’re not going to release details about the identity of those products, but they are congruent with the relationships and expertise we have established with AGGRASTAT.

In summary, Medicure expects continued success from its lead commercial product, AGGRASTAT, that has become the Number 1 used GP IIb/IIIa inhibitor in the market. We successfully launched ZYPITAMAG for the management of hypercholesterolemia and growth is expected as formulary coverage is expanded.

The partnership on the ReDS device now provides the opportunity for us to sell a new product into the hospital market. We have a significant commercial organization in place with a proven track record in U.S acute care hospital sales.

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

Thanks, Kevin. We’re very thankful for the effort we're seeing in our sales and commercial organization over the past quarter, which we expect will return the sales in the coming quarters.

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

And as always, I want to express my appreciation to our outstanding team of employees whom we’ve been blessed with. Thank you to our shareholders for the continued support.

Now, Pallet I’ll turn it back to you for Q&A and we look forward to your questions.

Good morning gentlemen.

Good morning, Bob.

Good morning, Bob.

Okay, so let's start with AGGRASTAT, can you give me some color on what happened as far as the discounting win some event might have happened and what you see for the future?

Well, I don't know if there's an event that happened, there just continue -- there's a number of generics and where the prices are fairly aggressive. I would say that the main event in Q1 causing the revenue to go down is that Q4 -- right at the end of Q4 there was a spike in purchasing and that affected January sales.

So the volume was actually down in Q1 compared to Q4. But as far as an event meaning the significant spike in discounts that didn't happen, I mean, that's been happening over the past couple of years.

Okay. So, it's fair to say then that the discount that you were providing your customers in Q1 versus Q4 was pretty much the same?

Yes, and if you look at the gross margins are pretty close to a cent.

Right, right, okay. Can we talk about -- sorry, James, can we talk about the impact of IFRS 16 on your income statement?

Yes, I mean, it really isn't any impact. All it's going to do is flip between -- there'll be an expense flips between rent expense and finance expense.

So it's going to remove rent from the P&L and then a small finance expense will flow through. You can see a note for basically an asset and the liability are set up for those at lease in the value of the office building.

But they will be announced that are the same, so it actually helps the P&L.

Right. While we're on the topic of expenses, is most of that increase is salaried employees.

What -- can I get a little color on just sort of how to make-up of those expenses?

It would be -- there were partly with salaries, but I think the major expenses are marketing. And we went out fairly aggressively with marketing programs, as well as attending a number of events to introduce both ZYPITAMAG and ReDS actually in the first quarter.

So there was a significant increase there. And some of the other expenses related to our R&D which has happened to be in the Q1 and we'll not be -- it's little loaded into Q1 versus spread out over to Q2 and Q3.

So how do you see marketing expenses for the rest of the year?

Right now the budget is lower for the coming quarters.

Okay, great. Thank you very much.

Thank you.

Yes. Hi, thanks for taking my question.

I'm just a Private Investor. My question is AGGRASTAT, with AGGRASTAT what is the standalone EBITDA for that right now?

So we don't break out the EBITDA numbers between products, because we are -- it's essentially a commercial suite of products, we use the same sales force for conferences overlap between products. So that's not really a number that we present.

Great. I'm trying to understand, what value this product still provides this company.

It doesn't seem -- I mean, I -- the market shares impressive, but this assets seems to be in a permanent decline? Is it actually generating any value for the business or is it just providing whatever cash flow it is to support your new ventures?

What would you pay for this if you had to buy it today? Maybe another way of asking something I guess.

I don't know what we would pay for buying it today. But we would definitely -- it's definitely an asset, even if minimally it provides the cash flow for the other developments, majority is generating positive cash flow, which is the value to any company.

But you can also potentially sell it. I guess, what I'm trying to understand is, what is the point of being in this business if it looks like everyone's just -- if it's a race to the bottom?

And your competitors I'm not sure how profitable your competitors are. But it certainly looks as if there is they're impacting your profitability.

And if it's a race for the bottom, does it even make sense to hold this asset monetize it, and use the proceeds to fund your other initiatives before the value declines even further.

We believe it is generating a value right now by leveraging the potential for the other products.

And I think because of the patient market share that we have, it creates significant positive relationships with cardiologists in the U.S. with hospitals, with IDNs, GPOs like the relationships that we built off of the AGGRASTAT brand and we're maintaining is still an asset to us.

Right. Okay.

So this company used to do $8 million $9 million in EBITDA not that long ago, it's obviously now in the red. Does this business, given the assets, the portfolio that you have today ever get back to that point in the near future?

Or is that just history and whatever happens going forward depends on a whole host of other factors?

The reason we're investing in the other products is that we anticipate that we will be back in positive cash flow this year not in the…

No, I understand, but my point -- I'm trying to compare to what this business was doing before versus what it's doing now, and so again, I'm not an expert on drugs, but I am trying to understand what your portfolio can generate at some reasonable time period going forward. Is it -- does it get back to that level of profitability or will it be less, more, I'm just trying to gauge.

Our projections are that there will be more.

More than the $8 million, $9 million that you were doing in 2015 and 2016?

Yes. That's why we're developing these other products.

When we started AGGRASTAT it had $2 million in sales. It went up to $25 million in sales.

So we had -- and in the first three years it generated no EBITDA, and expenses, and took about two to three years to transition from the investment to providing an investment for other products. And that's how the businesses are growing.

And I said publicly before that our plan is to have 10 to 12 products in the near future. And so duplicating the AGGRASTAT story.

And the only way you can do it in AGGRASTAT was the same, we invested for three years to build the margins. And these other products maybe that won't take three years, but definitely it takes a year or two, which is fairly standard.

And in the pharmaceutical industry the cycle of building and then continuing to recycle in new products is standard. Because patents last 10 to 15 years, usually, more or less by the time you get into the commercial cycle.

And so the cycle is sort of trying to build a product for five to seven years and then follow on with follow on products with that cycle. And so for the -- and the goal of our business is to not stop at 10 or 12, but that's a near-term goal.

And then just duplicating the model of AGGRASTAT with other products and that's the plan. So AGGRASTAT is a huge asset for us, James said.

The relationships we're in 1,100 hospitals in the U.S. right now.

We approached right now, almost on a monthly basis by parties that want us to market their cardiovascular product. It's a tremendous asset.

And so we have -- we're slowing down the addition of products, because we want to focus on making sure the marketing of AGGRASTAT continues, the addition now will be ZYPITAMAG and ReDS. So we need to focus on developing and just like we did with AGGRASTAT and then add products, so we don't add too many products at the same time.

Right. Last question.

Thanks for that, by the way. When you get to that 10 to 12 goal -- product goal, how much of your $55 million do you need to get to that point?

Because it seems like you spent $13 million on just one product and sort of like, took me by surprise. How much…

We didn't -- we haven’t spent a lot of money. Our model has been to spend very little upfront.

And that you say the $13 million it's actually $13 million or $14 million stated [ph] which we invested in the company, we didn't spend it many companies are buying products and basically spending the money. We haven't done that.

So we've retained our cash position and our asset base, while we've added two products.

No, I understand that. But we -- shareholders invested in Medicure, not because we wanted to speculate on Venture Capital, healthcare opportunities.

And so you did invest C$13 million in something that was sort of outside, what at least I think was your core business. And so, I mean, I'm sure you've done your due diligence, but it's possible that -- I mean, it’s obviously speculative, correct?

Well, either pay $13 million, and then buy the product, or get the product to buy that product and then have the investment there. To me, it seems like a lower risk, better return for the shareholders.

All right. Okay, I appreciate your answers.

Thank you so much.

Yes. Thank you for your questions.

Thanks, Pallet. Thank you for all you that have attended this call.

Appreciate your interest, and we look forward to continuing our discussion in the future quarter. Thanks again.