Biosyent Inc

XTSX:RX

Earnings Call Transcript 2020-Q1

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

Hello, welcome to the Q1 2020 results presentation for BioSyent, Inc. My name is René Goehrum, and I'm the President and CEO of the company. After directing your attention to our disclaimer about forward-looking statements, I'll start today's presentation with a look at our sales, EBITDA and net income after tax for the quarter ended March 31.So you can see our sales on a comparative basis versus a year ago were up 35% to just under $6.1 million. This was driven by a record quarterly performance for our Canadian pharmaceutical business and really came from a combination of factors. A large part of that was COVID-19 related. We had an acceleration in the second half of March on our business. This was demand that came both from consumers or patients of our product for those that were purchasing at the pharmacy through the uncertainty that was caused by COVID and its onset here in Canada. It also flowed through to hospitals, which were basically provisioning hospitals for an onslaught of patient traffic, COVID-19 patients. And then it also flowed through to our wholesale and pharmacies. So there was clearly an impact on our business through COVID, and in this case, a positive impact on our business.We did start the year, on a revenue basis, very strongly. January and February, we were up double-digit to start. And then we had a lot of momentum going into March. And in the second half of March, that momentum clearly accelerated. So this past quarter was our 39th consecutive profitable quarter, and you can see our EBITDA margin worked out to 33%.So looking at our sales summary. So total pharma sales, just over $6 million, that was up 41% to the year ago. In Canada, the business was up 39% to the year ago, just under $6 million. The highlight brands would be FeraMAX at 44%, ahead of a year ago; RepaGyn at 25%; Cathejell at 22%; and the Aguettant System at 39%, up versus a year ago. And you can see here that Cysview was down a 62% versus the year-ago quarter. So a couple of comments on those last 3 products. So we had seen a decline in February for Cysview. I think there was a shift as kind of as we got to the end of February and the health care system started looking, at the time it was the epidemic of COVID-19, it became a pandemic declaration, and elective procedures were slowed down or canceled. This has affected Cysview. It did affect it in the quarter and certainly has affected Cysview subsequent to the quarter end.Cathejell, though, is also used in elective procedures, and we saw some kind of ramp-up of inventory by the hospital system. And subsequent to the end of the quarter, we've seen some deceleration in sales as things have kind of balanced out in the inventory. The Aguettant System, 2 critical care products that are sold in that system, and there was a lot of demand in the hospitals. And I've got some more COVID-19 comments kind of later on in this presentation.Moving down to our international business. So we had shipments of FeraMAX to international customers a modest $68,000, but looks really good on a comp basis because the comparable period had no sales. And our Legacy Business sales of $39,000, down 80%. A couple of factors here. To begin with, the first quarter isn't typically an important quarter for the business. We did have last year and a year ago, some orders for customers outside of Canada that was kind of delivered to a site in Canada and then shipped to an international customer. That business was not there this year in the first quarter. We also saw some carryover inventory coming out of 2019 and into 2020 that has had some impact kind of on the start of the year, but we expect most of that business for our legacy product to come in kind of May to September, in any case.So a couple of comments on COVID-19. Certainly, not business as usual. I guess business as unusual is the best way to put it. So we've got some comments here really about in the quarter impacts, but subsequent impacts that are -- I think, are important for you to be aware of. So sales volume and timing of revenues has been impacted. I've spoken a little bit about kind of forward purchasing. Some of that forward purchasing would then have had an impact on kind of rebalancing inventory, certainly in the wholesale network. And in April, we didn't see it -- that rebalancing in the hospital network in April. We saw continued strong sales in April. So there are kind of puts and takes on the revenue side. We did run out of stock on one of our products for the hospital system. That's the first time that's happened, just through really exceptional demand, and we are just about to come back into inventory and be servicing back orders for that product either later this week or beginning of next. We've certainly seen impacts on the timing going forward and looking back, we really can't speak to kind of when that normalizes absolutely. But what we have seen is a balancing for our key products in revenue between March, April and some building momentum, as we're looking at the business here through -- we've almost completed the month of May, and it looks like that revenue is building back up and the volumes, unit volumes are building back up through what would have been a somewhat weaker April, but taken on the whole March, April, those 2 months together would be deemed outstanding.We have seen some impacts on consumer and patient demand. Some of that is less traffic in the doctor's office, less interaction with the doctor. A lot of it, you're seeing telemedicine consults. And so that's meant less traffic at the doctor's office. Pharmacies have reported to us, after an initial surge, some reduction in patient traffic in some sites, some are reticence, I guess, of patients and consumers going out and going to the pharmacy. We've seen that change of late certainly. I think in different regions across Canada, things are -- they're not going to normal, but they are moving towards somewhat of a normalization, and so that has impacted our business, I would say, in a positive way. But overall, it has created a little bit of uncertainty on the supply chain side, both for existing products. We started working with our supply partners back in February to get a heads-up on any issues that there might be. I mentioned a surprising out-of-stock situation, that just really exceptionally strong demand from -- through the March and April period. And so these things, we've kind of ebbed and flowed. I think we've benefited overall in the COVID environment from a strong, experienced management team that has been working together for years. We've benefited from investments in technology that we've been making for a number of years and kind of a nimble approach to business, kind of getting the pulse, listening to our customers, to our people and then making calm and steady business decisions but making decisions and moving. And I think we've benefited from that as we've managed through a somewhat chaotic environment.On the credit and receivable side, you'll see, March 31, we had a large amount of receivables, not a surprise if we had such a surge in revenue in the month of March. 98 -- as of the date of this presentation, 98% of those receivables have been collected. Certainly, COVID-19 has impacted our access to customers, whether that customer is a doctor and a doctor's office or it's a pharmacist who really doesn't have time to see a sales rep and really our access to getting our salespeople out into the field was largely reduced and our access to customers in the hospital environment. So that whole kind of access to the customer, which is a real big part of our business, about how we do business, has been affected our sales force. Our 2 sales teams for Canada have been out of the field now since March. They've been interacting with customers as they can sporadically via telephone, via e-mail, via Skype and Teams calls, Zoom as well. So we continue to have a dialogue with our customers, but not nearly at the, what I would describe as normal. There is a move now to getting out into the field. We've seen that in Western Canada, where some of our sales people have been out on an ongoing basis -- sporadic and ongoing basis. So we see it changing. We see it shifting. There's some interest that we've got from our customers, our doctors that want to see us. And so we continue to support them and to those people to use our products on an ongoing basis.And certainly, to be in a product set as we are, as an essential business, we have been deemed essential from the very first of the emergency declarations across Canada by the various provincial governments. So we've -- we're an essential business, and we have products that are required by health care professionals and patients and that has given us the ballast to weather the stormy seas.We pivoted very quickly to moving our office operations to work at home, remote, and those investments in technology that I mentioned earlier have borne fruit, not just for past benefit but certainly through the COVID crisis, we were able to make the shift to working at home. We are having discussions now about a return-to-office environment in a phased process and how we're going to manage that. So that is moving as well.I guess the last thing I wanted to mention about the impact of COVID-19 on our business is really around planning. The biggest impact on product launches. We've -- in a couple of slides, I'm going to talk about some product launches that we've got planned. And for those product launches, COVID-19 is not the best environment to be moving products into the market for the first time. So there have been some impacts there. It's made things a little bit more challenging on a roll forward basis, and we've just had to make those adjustments and to do things somewhat differently than we may have contemplated when we were planning our year.Further driving our sales growth has been FeraMAX for the fifth consecutive year. Earlier this month, we announced that it had been selected by Canadian pharmacists and physicians as the #1 recommended iron supplement in Canada. Just under half of all pharmacists and physicians that were surveyed across the country by a third-party independent survey named FeraMAX as their #1 recommended iron supplement. We humbly accept their recognition of the strength of the brand and the role it serves in serving their patients. And it reflects the investments that we've been making on a steady basis on this brand in growing both its presence in the marketplace and how it's identified and consumed. And there is more news coming on the FeraMAX brand as we roll through, not just this year but over the next couple of years. We've been working on a few things over the last couple of years on this brand. So stay tuned for some news on that topic.A couple of other new products that I wanted to mention. A year ago, we got Tibella approved by Health Canada. That product has been in kind of launch preparation phase, has been impacted on a timing basis by COVID-19, but I can report to you that promotion on this brand will start in the month of June, and we'll start shipping this product in July.We in-licensed Combogesic last November. We had a really aggressive time line to get that product into the market. It, too, has been affected by COVID-19. And we see somewhat of a delay in getting this product into the marketplace. Just as a reminder, this is a double-action pain relief of acetaminophen and ibuprofen, 2 well-known pain relief compounds, in a single pill for the first time in Canada. And the product has superior efficacy to acetaminophen and ibuprofen alone and a very similar safety profile to each of those compounds as well. So we're looking forward to a considerable opportunity for launching this product. We've been investing in a number of things that we've had to do to get it ready for launch. There have been some supply chain disruptions caused by COVID-19 or made worse by COVID-19. And so we're forging forward and stay tuned for news about this product later in the year.I wanted to update you on our Normal Course Issuer Bid. So just to take you back to when we initiated activity under NCIB back in December of 2018, we got our first NCIB approved by the TSX Venture Exchange. So in the month of December, I should say, between December '18 and December 9 of 2019, we maximized the number of shares that we could purchase under the NCIB that were approved by TSX Venture. So we started at fully diluted shares of 14.675 million, reduced that by the 950,000 we purchased under what we coin as NCIB 1 in the month of December. So for the quarter ended December 31, we purchased 51,000 shares. In the quarter that we're reporting today, ending March 31, we purchased another 262,000 rounded shares. And subsequent to quarter end, up until May 26, we purchased a further 332,400 shares. So in total, just under 1.6 million shares repurchased, and on a fully diluted basis, we're down to just over 13.1 million shares. So that represents an 11% reduction in fully diluted shares since we commenced NCIB activities in 2018.So I wanted to take a look at our cash balance and return on equity. So a couple of comments here. This shows you our trailing cash balances and ROE using 2016 as the base year, the year that we started this graphic, our cash position on March 31, 2020. So this is representing TTM in the case of ROE and an actual cash balance on March 31. We were at $21.2 million in cash, compares quite favorably to the $22.5 million of the year-ago March 31 and as well in excess of the $19.6 million of 2018. But keep in mind, in that period of time, since late 2018, we've invested almost $10 million in returning capital to shareholders. So in the first quarter, we generated cash of just over $0.5 million and then invested just under $1.3 million in NCIB and purchase of shares to fund RSU grants. And so you'll note there that we did not issue any share options this year. We are not terribly fond of the dilutive effect of share options and have made a move towards RSUs. This was announced in March and covered somewhat in our disclosures in March.We continue to have no debt on the balance sheet. Our working capital position, $23.4 million. In fact, all of the cash adds up on a fully diluted basis to $1.58 per share in cash on the balance sheet. And as we have illustrated in the past, if you took the cash out of the business, only a portion of which we actually need to operate, our ROE is an impressive 124% on a TTM basis.So a quick look at our earnings per share. You see that our Q1 delivered $0.11 per share on a diluted basis, and you see this chart is showing you -- illustrates the last 8 quarters. So on a TTM March 31 basis, you see $0.35 a share and that compares to $0.38 in the trailing 12 months ending last March 31, 2019. This next slide is taken on a little bit more kind of context through our activity under NCIB and now RSU. So I just thought I'd spend a few moments on this one. I'd say nothing about the 52-week high/low, which you can drive a Mack truck through that gap. So we now have 12 -- just under 12.9 million shares that are issued, I should say, that are issued. Then in treasury held in trust, we have RSU shares to support RSU grants, restricted share unit grants. So 128,000. We also made some very recent purchases under the NCIB. So they are sitting in treasury and not yet canceled. That's another 53,400. So backing those out of the issued common shares that brings you down to 12.8 million, add back options outstanding and then RSUs outstanding to get a fully diluted share count of just over 13.1 million. So we'll keep this one updated as we are active now with both NCIB and RSUs, so that you can see how we're single-mindedly focused in growing our business and creating value on a per share basis as we have been now for quite some time.I wanted to wrap up today's Q1 presentation with some closing thoughts. Clearly, both investing and managing a business in a COVID-19 environment is fraught with risk. We, at BioSyent, continue to manage our business to deliver a profit. We did it in the first quarter, and we've done it consistently now for the last 39 quarters. Over time, including in this COVID chaos, we've demonstrated the financial durability of both our business and our balance sheet and how we approach managing our business. We think we're well positioned with that balance sheet to take advantage of opportunities that may present themselves. We're going to maintain the discipline that we have all along in assessing opportunities for growth. We have assets now that are in-licensed and have been prepared for launch, and we intend to launch those assets. We have enough fuel in our business now with 2 launch products that I've discussed earlier in today's presentation that will be launched within approximately the next 8 months. We have further growth assets inside the existing portfolio that we've been working on for some time to get to market. That's something that you should look for, for later this year. And that's really the message I want to leave you with. Everyone in our team, our management team, all of our people are intensely focused on long-term growth in our business.So we look forward to reporting our results with you as we progress. And thank you very much for taking the time to listen in to today's presentation.