Biosyent Inc

XTSX:RX

Earnings Call Transcript 2019-Q1

[René C. Goehrum, Chairman, CEO & President]

Hello, and welcome to the BioSyent Q1 2019 results presentation. My name is René Goehrum, and I'm the President and CEO of the company.I'll draw your attention to our disclaimer on forward-looking statements and start the presentation with a look at our sales, EBITDA and net income after tax for the first quarter.So to draw your attention to the right side of the screen, you can see our sales overall were up 1% versus year ago, our EBITDA down 19% and our net income after tax down 14% when compared to year ago. So a couple of comments generally on profitability and on revenue. So this quarter represented our 35th consecutive profitable quarter. So for those keeping score, that's almost 9 years.Our Pharma business in Canada is strong, showed 13% growth measured in dollars in the first quarter versus year ago. Our International Pharma business has got an unusual number there. It's minus 100%. So in the quarter, we didn't ship any orders to customers for our International Pharma business. And I've got some comments on that in subsequent slides.Our legacy business showed eye-popping growth conversely to the International Pharma results at plus 80%. But I just wanted to caution you to kind of run those numbers out over a course of a full year. So we often experience some variation both in quarters and years. The last couple of years in the first quarter, our business was down versus year ago. So a couple of years of decline in a quarter. As you know, overall, that business was down versus the previous couple of years for a full year last year. So a decent quarter to start the year. There's still some question marks around growing conditions in -- primarily in the Canadian market and how that might affect our business there because most of our sales of our legacy products are in Canada.One other comment on profitability and primarily focused on the EBITDA line. That was driven mostly around finance income and some additional investment on a relative basis or a proportional basis in selling and marketing expenses for the Canadian market.So this is a chart with which you're familiar if you have been following us. It shows the last 20 quarters or 5 years of evolution of our pharmaceutical sales by quarter. So you can see versus year ago Canadian Pharma sales plus 13%. And for the first quarter, after 16 consecutive quarters of sales to international customers, we did not have any sales of our FeraMAX products to customers outside of Canada. A couple of things there. One is, we have experienced some challenges of late in that business. That would be even more exceptional than what we -- we always have been talking about how lumpy that businesses is. It still is. We had some orders at the end of the fourth quarter in 2018 that would have blunted customer appetite for shipments in the first quarter. So we were not expecting as much. But we also continue to have issues in one of our large markets, our largest market for our customer getting import quotas and access to the regulatory approval to import.So they've been doing a decent job in generating demand in their market and now it's just a question of getting access to quota to import the product. So this obviously has had a material impact on the results. I think last year we had significant revenue in that business and so -- of about CAD 570,000. And so that business being absent in our first quarter obviously has a fairly large impact on our growth overall.So if we drill down into the Canadian business, you see that the 13% increase in dollars was made up of growth of FeraMAX 150 units of 6%; of FeraMAX Powder marginally at 2%; RepaGyn; Cathejell down 14% in units and the Aguettant System up 232%. So the puts and takes of that business added to some new momentum on Cysview ends the quarter at 13% over last year measured in dollars. And so overall, healthy for the Canadian market, but the challenges are really mostly with the international business and that I've already spoken to the key points there. We expect this variability is going to continue from quarter-to-quarter. We do have customer orders for shipping in -- for requested shipping, I should say, in Q2, Q3, and we're working on fulfilling those orders during that period of time.So subsequent to the quarter, a few things to report. For those that are paying attention, and I'm sure you are, in April, we received the Notice of Deficiency from Health Canada for the 2 cardiovascular assets that we've had in the regulatory process. So in essence, Health Canada has stopped the review, which is as part of their process they call that the Notice of Deficiency. They've specifically told us that -- they've written to us that they've got issues with data regarding efficacy and formulation. So we're working to answer the questions that they have. We're working with our partner and with some external service providers and working on a response to Health Canada.If you're listening to this presentation, you probably feel like you need more information. At this stage, we don't have anything more than we can share. We're working on it. And when we do have more that we can share we will do so.On a more positive front, in May, just earlier this month, we received approval from Health Canada for Tibella, which is a prescription women's health product. And I've got a little bit more information on Tibella on the subsequent slide.Also in May, at the beginning of the month, FeraMAX was named the #1 recommended iron supplement brand in Canada for the fourth consecutive year. And you'll recall that this is an independent survey that is conducted with physicians and pharmacists. So in this case, unaided recall of the #1 recommendation is 41% among physicians in Canada and 50% amongst doctors in Canada.So we're doing a number of things obviously to strengthen that position. As you could see, our units grew in the first quarter and in dollars as well, but we are investing back into the brand to continue not only its leadership position in the marketplace but to see how much more we can grow that business. So we're doing things with our sales force at the doctor's office, working on communication with the pharmacy, enhanced online activity, social media and developing alternative sales channels. So there's a lot of work going on here at the company with respect to continuing to build that brand. And you can see with the 4 years as #1 recommended by health care professionals in Canada that those efforts have so far been successful.So a couple more words on Tibella. So as I mentioned, it's a prescription product. That will be the first prescription product in our Community and Women's Health Business unit. So the product consists of tibolone. That's the active. And its indication is for short-term treatment of vasomotor symptoms resulting from estrogen deficiency in postmenopausal women. I think that's with postmenopausal 1 year. So in layman's terms, vasomotor is basically hot flashes and flushing, which a great number of postmenopausal women experience. And Tibella will compete against other estrogen and progesterone products in a roughly $200 million a year hormone replacement therapy market segment. So that segment grew in 2018 by just under 5% measured in dollars.And for planning purposes now, we're calling in a 2020 launch. There are some things that we have to get worked out with supply chain and that this product is handled slightly differently than others that we have in the market. And so we've got to follow those steps and expect to be launching the product next year, though we are starting a process to communicate with health care professionals immediately.So obviously, the approval of Tibella has had an impact of where it stands in our product life cycle. So we've moved it over into the prelaunch phase and it will join Proktis-M in the launch phase by next year. And now we're calling out on this chart that you may be familiar with from our MD&A that we've got the Notice of Deficiency from Health Canada on the 2 cardio products.So the other thing to give you an update on is our Normal Course Issuer Bid. As you know, in December of 2018, we received the TSX Venture approval for the repurchase of up to 950,000 common shares of the company over a 12-month period. So that's December 3 to December 2, 2019. We started immediately repurchasing shares in December and that continued in the first quarter. So in December, we repurchased 92,168. That's already been reported. And if you're trying to keep track, you can see that on a monthly basis on SEDI.In the first quarter, we repurchased 220,900. That will flow through all of the financial and MD&A disclosures. And then subsequent to quarter end, during the months of April and May, up until May 24, we had repurchased 120,600 shares. So all put, since we announced the NCIB, we've repurchased just under 434,000 shares. And our fully diluted share count now is down to 14.275 million and change as of May 24. And I suggest you keep an eye on that number as we'll continue to be active in the market when we think the shares are priced right.So obviously our activity in the NCIB flows through into our balance sheet in a couple of different places. It affects our cash position. So our cash and short-term investments down 8% from December 31, 2018, down to $22.5 million. We also reduced our equity. That's the accounting treatment of a portion of the investments in NCIB. So in the quarter, our equity went down by a little over $1.7 million. We continue to be debt-free and are building our balance sheet for deployment opportunities. Our calculation is that we need about 15% of the current cash on hand, the March 31 cash on hand, to operate our business and the balance is available for deployment in portfolio-building activities and potentially returning some to shareholders through our NCIB.So how does this flow through into our cash generation? So this chart shows you the last 3 years of Q1 cash generation. So you see after a couple of years of being cash positive in the first quarter, that is a month where we traditionally see some investment back in the inventories that are depleted in the fourth quarter. We often -- or we do from time to time have corporate tax, some corporate tax catch-up payments. We also -- that's obviously the quarter in which we pay bonuses for the previous fiscal year. So there's some puts and takes there in the first quarter. So it's not generally our most cash positive quarter. But obviously, this year, our NCIB has had a fairly material impact on our cash generation for the quarter and we did have a corporate tax catch-up payment in the first quarter as well. So mostly NCIB, a little bit contributed by the corporate tax payment.So how does our cash position over time impact our return on equity? So this is a 5-year chart. On the left-hand side, you see the axis showing our kind of low levels of cash and short-term investments. These are all from '15 through '18 as at December 31, so year-end, except for the far right-hand side, which is our current cash balance, March 31. So you can see, as I've just explained on the previous slides, that our cash is down slightly, that we've been investing in NCIB and that, of course, then has an impact on our return on equity calculation. And we're very active working on opportunities, quite interesting opportunities to deploy capital to grow our portfolio of products and the base of revenue that we've got in the company.So how do we stand from an EPS perspective? So on the left-hand side of the chart you can see the last 8 quarters. So we're flat over the last 4 quarters versus TTM March 31, 2018. So that's $0.38 in both of those periods. In the individual quarter, we were $0.07, so Q1 2019, $0.07. 2018, we were $0.08. The math won't lie that NIAT is down, but the impact flowing through on an EPS basis has been blunted somewhat by our investment in our own shares and cancellation of those common shares that we've repurchased in December and in the first quarter. And so on the right side after a strong run over the last 4 years, using 2014 as a base of $0.22, 77% EPS growth on a TTM basis were essentially flat. We don't expect that to be the case as the year progresses but that certainly is the reality of the day.So a snapshot of our stock information. So on the TSX Venture, we closed at $8.15 on May 24. This presentation is prerecorded to the date of release. The shares outstanding are just under 14.1 million, options of 179,000, so fully diluted 14,275,800. And I think those are the key stats.We appreciate your continued interest in the company. And as I always say that we're like that duck on the pond. Things may look a little calm on the surface though they certainly don't look so calm with both the puts and takes and what's happening in our business right now, but we're working hard at growing the value of our business and in particular, the value per share over the long term for our shareholders.So thank you very much and we look forward to reporting on our progress in subsequent quarters.