Medicure Inc.

Welcome to Medicare's earnings conference call for the quarter ended September 30th, 2023. My name is Holly and I will be your operator for today's call. At this time, all participants are in a 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, amongst 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 22nd, 2023. I would now like to turn the conference call over to Dr. Albert Friesen, Chief Executive Officer of Medicare Inc. Please go ahead, Dr. Friesen.

Thank you, Holly, and good morning to everybody on the call. We appreciate your interest and participation in today's call. Joining me today on this Q3 2023 financial statement call is Dr. Neil Owens, President and Chief Operating Officer, and Horace Uden, Medicare's Chief Financial Officer. We're pleased to report that net revenue of $5.0 million for Q3 remains steady from the previous quarters, with a net income of $77,000 or more. one cent per share, an EBITDA of $628,000, all showing consistent good financial returns, particularly when you consider we're also investing $508,000 in R&D in this past quarter for the future growth potential. Agristat sales, Zipidimac sales, and Marley Road income are providing net earnings. The four focuses of the business continues, that is sales and profits of Agristat, growing Zypidemag revenue and profit, growing the Marley Drug online business, and development of MC1 for the PNPO deficiency application. The acquisition of Marley Drug, the online pharmacy, delivering to homes in all 50 states and other territories through mail was to expand our sales reach of Zypidemag, and it is contributing to the Medicare business. We believe the investments and experience over the past 25 years plus positions Medicare on a steady path for continued growth and success. I'd now like to turn the call over to Haris Uddin, CFO, to review and provide some color on the financial results of the Q3 2023 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 September 30th, 2023, 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 CDAR.com. I will now provide some key highlights of our financial performance for the quarter ended September 30th, 2023. Total revenues for the three-month period ended September 30th, 2023 were $5 million compared to $5.3 million for the period ended September 30th, 2022. Net revenues earned from Agristat during the current quarter totaled $2.4 million, a slight decrease from the prior year where net revenue from Agristat was $3.1 million. The decrease in Agri-Start revenue during the current quarter is the result of higher wholesaler fees on units of products sold, in addition to increased competition from generic tariff items in the current quarter. Net revenues earned from Zipidimeg during the current quarter totaled $398,000, which is a decrease from the $434,000 of net revenue recorded during the prior year. The decrease in net revenue can be attributed to coverage gap rebates paid during the current period, in addition to higher wholesaler fees, offset by a higher volume of Zepidemeg sold during the current period. The company continues to focus on Zepidemeg and see the growth of sales through both the traditional insured channels and through Murley Drug. Net revenues from Murley Drug during the current quarter totaled $2.2 million. which is an increase from the $1.8 million earned from Marley Drug during the same period in the prior year. The increase in Marley Drug sales during the current quarter is due to an increased volume of sales, including an increase in Zepidemag sales through Marley Drug, which are also included within this figure. Moving on to cost of goods sold, Agristat cost of goods sold for the quarter ended September 30th, 2023, totaled $648,000, an increase from the prior year. where cost of goods sold totaled $477,000. The increase noted in cost of goods sold for Agristat is a result of a one-time discount provided on a specific batch of Agristat in the prior year by the product's manufacturer, offset by a lower volume of products sold in the current quarter. Epidemec cost of goods sold for the quarter ended September 30, 2023, totaled $34,000, a decrease from the prior year, where cost of goods sold for Epidemec was $363,000. Included within cost of goods sold for Zepidimeg is $163,000 relating to products sold to customers, $152,000 from amortization of the Zepidimeg intangible asset, offset by a $281,000 recovery of previously expensed royalties, which the company deemed in the current period were recoverable. Marley drug cost of goods sold totaled $680,000 during the quarter ended September 30, 2023, which is an increase from the prior year, where cost of goods sold totaled $551,000. The increase in cost of goods sold during the current quarter is the result of a higher volume of products sold through Marley Drugs, which corresponds with the higher revenue during the current period. Selling expenses totaled $2.1 million for the quarter ended September 30, 2023, in comparison to $1.7 million during the same period in the prior year. Selling expenses increased in the current year due to the company recording a higher volume of products sold during the current period in addition to inflationary increases the company had been subject to during the current year. General and administrative expenses totaled $1 million during the current period, which is a slight decrease from the same period in the prior year. The decrease in general and administrative expenses is primarily related to a decrease in professional fees paid by the company during the current period. The company had incurred additional professional fees in the prior year as a result of its e-commerce platform launching during the prior year. The decrease in professional fees during the current quarter is offset by higher stock-based compensation expense during the current quarter. Research and development expenses for the current period totaled $508,000 compared to $314,000 during the prior year. The decrease during the current year 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 $3,000 during the current period compared to finance expense of $33,000 during the period ended September 30, 2022. The finance income recorded during the current period consisted primarily of interest income offset by finance expense related to the company's lease obligations and bank charges. The company recorded a foreign exchange loss during the period ended September 30, 2023 of $17,000 compared to a foreign exchange gain of $10,000 during the same period in the prior year. The change from the prior year relates to changes in the US dollar exchange rate during the respective years which led to an unfavorable foreign exchange loss during the current period. Adjusted EBITDA for the quarter ended September 30, 2023 was $429,000 compared to an adjusted EBITDA of $1.3 million during the quarter ended September 30, 2022. The decrease in adjusted EBITDA during the current year is due to a decrease in operating income which primarily stemmed from a decrease in overall revenue, higher selling expenses and higher R&D expenses. offset by lower general and administrative expenses and lower cost of goods sold. As of September 30, 2023, the company had cash totaling approximately $5.6 million, an increase from the $4.9 million of cash held as of December 31, 2022. 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, Haris, and good morning everyone. I'll start with some further details on the Agristat business. Net revenue was impacted by a 5% decrease in volume of products sold in Q3 compared to the previous quarter. In Q3, the first generic tire fiber and hydrochloride was launched for two product formats. However, it has only gained minimal market share. We continue to provide support to our more than 1,200 US hospital accounts and promote the brand in order to maintain market share. Medicare remains the only manufacturer of the 3.75 milligram bolus file format, which is typically administered before the infusion unit. Medicare has also secured a seven-year contract through a private label with its largest hospital purchasing group. However, the company still faces challenges from GPO and wholesaler fees, product returns, and price competition. Regarding Zipidemag, we continue to see growth in prescriptions filled through Marley Drug, including a 3% increase in units dispensed in Q3 2023 compared to the previous quarter. Units dispensed through insured channels also increased by 5% in the quarter. However, net revenue through insured channels was impacted significantly in Q3 from adjustments from product returns and increased coverage gap fees. which is another reason why selling Zepidimeg through Marley Drug is an effective approach. We continue to build brand awareness through efforts of our sales and marketing team and are adding hundreds of new Zepidimeg customers each month. We are focused on lowering our customer acquisition cost and increasing customer retention. The market opportunity remains very large and we are reinvesting profit into sales and marketing of Zepidimeg. In Q3, net revenue for the Marley Drug Pharmacy business was impacted by unfavorable PBM reimbursements for insured prescriptions. However, the company continues to add hundreds of new customers per month, and the rate of addition has accelerated over the past 12 months. We continue to invest in further improvements in the e-commerce website to improve customer experience, and through additions to the website, Marley Drug has become a leader and search engine traffic results for online pharmacies. Through organic and paid search, there has been an 80% increase in website visitors compared to the previous year. Medicare still plans to leverage Morley Drugs' fulfillment and distribution capabilities in more business partnerships. The company is still focused on growing brand awareness through multiple media channels and through PR publicity. Overall, we continue to look for ways to rapidly expand the pharmacy business. Medicare's R&D focus is primarily on its Phase III study to seek approval of MC1 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. In parallel to the planned Phase III study, Medicare is conducting several non-clinical studies to support the approval of MC1 as requested by the FDA. A successful use of Medicare's legacy product MC1 could lead to a priority review voucher which can be redeemed or sold and provides significant value. The issue that the company is addressing before the start of the study is that some patients may need to crush their tablet and the FDA has requested additional data on the impact of crushing on product quality. The crushed tablet study was completed and submitted to FDA, and we expect a response very soon. For Q3, we are able to report a positive EBITDA of $628,000 and a net income of $84,000 due to the noted adjustments this quarter, which is the fifth consecutive quarter we've reported net income. We remain debt-free and cash flow positive. Our goal is to continue growing revenue, controlling our costs, and making Medicare a long-term success. With that, I'd like to turn the call back to Dr. Friesen for final comments.

Thank you, Neil. Medicare's business, including the sales and marketing of Zypinibag, continues to grow. We're thankful for the continued strength of Agristat, market share, and certainly very pleased to continue to grow cash and have a strong balance sheet. still focusing on growing the business with a pipeline of products that will further diversify our revenue and asset base, carefully investing to grow for our future profitability. My goal and that of our board management 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 sincere appreciation to our outstanding team of employees we're so blessed with. Thank you to our shareholders for your continued support and interest. So now, Monterey, I'll turn it back to you to entertain any questions. Look forward to our continued discussion.

Thank you. We will now begin the question and answer session. If you have a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that is star one to ask a question. One moment please while we poll for questions.

Once again, if there are any questions or comments, please press star one. There are no questions in queue.

Again, thank you for all that are on the call. Appreciate your interest and wishing you all the best.

Thank you. This concludes today's conference. Thank you for participating. You may now disconnect.