Biosyent Inc

XTSX:RX

Earnings Call Transcript 2020-Q2

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

Hello, and welcome to the BioSyent Inc. Q2 and First Half 2020 Results Presentation. My name is René Goehrum , and I'm the President and CEO of the company. After drawing your attention to our forward-looking statements disclaimer, I want to start the presentation with a look at our revenue, EBITDA and net income after tax. We'll start with a look at the quarter. As you can see, our sales were just below $4.8 million. That was a decline of 7% versus year ago, and this was impacted by a fair amount of trade loading and forward purchasing by our pharmaceutical customers in Canada, pharmacies and, in fact, patients. So the effect was strong accumulation and sales for us in first quarter, and it had a down effect on our revenue in April. We've seen -- subsequent to that, our business has smoothed out and the impact of a big March and a lower April has evened out, and we'll walk through that in a couple of slides. So this represented our 40th consecutive profitable quarter, 10 years of continuous profitability. We were investing in prelaunch activities for Tibella, and that would have had an impact on our second quarter operating expenses and EBITDA. Nevertheless, our EBITDA margin for the quarter was 22%. So taking the puts and takes of a high revenue March and a lower revenue April and smoothing that out to a 6-month look at our business, you can see that overall company sales were up 12% versus 6 months a year ago. That worked down to 14% in the Canadian pharmaceutical business. So we saw -- after a down April, we saw our May, June volumes normalize. They, in fact, built. They came back stronger in May, stronger yet again in June. And if we compare the business on a 2-month basis, pre-COVID, we were up in dollars in our Canadian pharma business approximately 12%. If we looked at the March, April period together, we were up 35%. And if we looked at the May, June period together, we were down 2% versus a year ago. However, if we look at June on its own, it was up, and in fact, that trend continued into July, where we see sales up double digit for our Canadian pharmaceutical business. So with that normalization and rebalancing of inventory from high purchases in March, lower purchases in April, that worked out to an EBITDA margin for the quarter of 28%. I would like to point out that despite a soft April, relatively speaking, the month itself was profitable. And we were, in fact, profitable in every month of the quarter, and obviously, that all aggregated into a profitable quarter for us. So a little bit of a deeper dive on a business unit or a business segment basis. So total pharma sales were down 7% versus the year ago. Our Canadian pharma sales were down 9% versus the year ago quarter. So in Canada, this is on a quarterly basis. In Canada, our FeraMAX business was down 11% versus a year ago; RepaGyn, down 11%; Cathejell down 29%; and the Aguettant System was up 17%; and Cysview down 57%. So what we saw was that strong impact of the decline in April sales after trade load in March. Cysview was less impacted by that. Cysview was, quite frankly, just impacted by elective procedures being minimized in Canadian hospitals through the COVID crisis. In the second quarter, we recorded sales of FeraMAX internationally of $94,000. Though below expectation, it was ahead of a year ago comparable of 0 sales. And you'll recall, on that business, we have had issues with it coming in larger quantities, larger waves. And last year, we had some delays. So it's not been a smooth business in terms of how we build our order book and how we fulfill those orders, and in this case, it was reflected with modest sales in the quarter. In the quarter, our legacy business was down 16% versus a year ago. So once again, same impacts taking COVID into account, it's probably more important than ever to look at the business over a longer period of time. And you can see that overall, our pharma business came in at $10.5 million, up 16% to the year ago. In Canada, this was a little under $10.4 million, up 14% versus a year ago. So the same fluctuations that you saw on a quarter basis, you see them kind of reversed with more green numbers than red.FeraMAX on a YTD June 30 basis is up 15% in units. RepaGyn is up 6%. Cathejell, down 5%. I can say that now that elective procedures have returned or started returning to Canadian hospitals, we've seen that business recover during the month of June into July. And as we're now recording this presentation later in August, we've seen that trend continue into August. So that number is in the process of turning green as well.You can see the Aguettant System on a YTD basis is up 28%. We saw a large demand in urgent care products that were driven by COVID-19. We've seen a normalization. So as more of these consumer-type products, FeraMAX and RepaGyn, have kind of swung back, it's taken a little while longer for the Aguettant System to do so. Cysview, on a 6-month basis, is down 60%. We literally went a couple of months in the quarter -- in the second quarter without any -- registering any sales of Cysview. That has shown signs of bouncing back as well. We've now recorded sales in 3 consecutive months, June, July, August, and the month of July was the best month that we'd ever had on that brand. But that takes into account, of course, kind of restart of elective procedures and the fact that hospitals had depleted inventory. So we see in the first half of 2020, international pharma sales of $162,000, once again, against a comp of 0. And clearly, for us, though the comp is good, COVID-19 has had a significant impact on that business overall for us outside of Canada, not in Canada. But outside of Canada, it's had a significant impact, and it's definitely impacted our largest export market.The legacy business continued to lag through for the full 6-month period. So that was both Q1, Q2, cumulatively down 42% versus the first half of '19. We've had some shifting in orders that we've seen in markets outside of Canada for that product that we expect to -- while we've got the order book filled, and we're fulfilling now in the third quarter into the fourth quarter of the year. So when I gave comments in May about the first quarter, I talked about business not as usual. I would say that, for us, as for many, business continues not to be usual. For the most part, we've worked through the challenges of COVID-19. As I've spoken about, we've seen continued growth in our Canadian pharmaceutical business. We announced late in July the launch of Tibella hormone replacement therapy. We continued our launch preparations for Combogesic, a new pain product, with our partners. We managed to minimize supply chain interruptions. Our customers continue to pay their bills. And so there's no issues with that or liquidity. And we've managed to keep our workflow going. Our people are working a combination of in-office and at home with a lighter complement of staff in the office on a rotating basis, and that seems to be working well in the organization. So the business is moving forward. Key projects are moving forward, and we're meeting our time lines and our internal expectations for our planning. A couple of areas that certainly are being -- continued to be challenged by COVID-19, our access to health care professionals here in the Canadian market. Our sales teams just are not getting nearly the same access to their customers, to doctors and pharmacists. And COVID-19 clearly has affected our export markets, and that's not been a positive for us. So I want to take a couple of minutes to talk about our growth projects. We've got 3 significant growth projects that are going to be contributing to revenue growth for quite some period of time. I'm not talking months and quarters. This is going to be an ongoing theme that you're going to hear from us now going forward, and it will be measured in years. So in the quarter, we announced that FeraMAX had been named the #1 pharmacist- and physician-recommended iron supplement in Canada for the fifth consecutive year, with a high proportion of both of those health care professionals recommending FeraMAX first. So of course, we're excited about that, about the trust that we've built with those health care professionals and indeed with patients and consumers across Canada over a decade of building this brand. But what's even more exciting for us is the platform that, that has built for us and the growth initiatives that we'll be announcing over the next -- well, it will be starting in the latter half of this year and it'll be rolling forward then for some number of years with product announcements and other announcements relative to FeraMAX. So on that one, I can't go into much more detail, but we'll be announcing later this year the next steps in the evolution of that brand. I mentioned that we've launched Tibella. This is a hormone replacement therapy product for postmenopausal women. The product started shipping in July. We don't have a lot to report. We really just started, but we do know that the first prescription showed up at pharmacies in July that all of the major wholesalers in Canada have ordered and stocked their distribution centers that some of the key locations have already reordered. So they've sold down their stocks to fulfill prescriptions at the pharmacy level and that, that, in fact, I think, with one of the key distribution centers, has already gone to a second reorder of products. So things are on track here. And as the year progresses, we'll be able to tell you a little bit more about how that's going. And then finally, our other major growth project for the company is the launch of Combogesic. It's a double-action pain relief product that contains both acetaminophen and ibuprofen. We've already talked about this in the past. So we're deep in launch preparations for that product. And so we're investing. We were -- started those investments in the first half of the year. There's some modest impact of those investments that are showing up in our financial results. There'll be some further investment here. And I think that your key takeaway is that we are going to have to make some promotional investments in Tibella and in Combogesic. And so over time, we expect to get very strong returns on those investments, but they will impact the ratios that investors have come -- shareholders have come to appreciate that we delivered in terms of our operating margin going forward into the future. We have been investing a lot of the cash generation over the last 1.5 years into buying back our shares. So under an NCIB first announced in December of 2018, we repurchased shares. We've kind of coined that NCIB 1. We announced NCIB 2 in December of 2019. And in the quarter just ended, we repurchased 332,400 shares. So all told, since we started the program, we've repurchased just under 1.6 million shares, representing an 11% reduction in our fully diluted share count since December of '18. We think that our cash balances are strong. They are strong for us to fund our growth initiatives. We expect to be cash-generating through the launch of these products. So we think this is a good use of capital at this stage. The market has given us some gifts in repurchasing at what we find to be very advantageous prices. And you can see here the effect of a program of buying back shares has had very minimal effect on our cash balance. We've spent about close to $10 million buying back shares since the second half of '18. You can see our cash balance is slightly stronger than it was, and this really speaks to the resiliency of our business, our brands, our relationships with customers. So our cash from operations in the first 6 months of the year was just over $2.8 million, and in the first half, we invested just under $2.67 million in buying back shares. So we continue to have no debt. And in fact, we have $1 -- about $1.64 in cash as of June 30 on a per share basis. And you can see that our return on equity took a bounce up in the 12 months ending June 30 from 18% to 20% ROE.Taking a look at our earnings per share. You can see, in the second quarter, we delivered $0.06 per share, and that is with the investments that we've been making to prepare products for launch, including impacts of COVID-19, and then on a trailing 12-month basis, that sums to $0.36 compared to $0.32 in the trailing 12 months of June 2019.So I want to just spend a moment again on this slide with the share buybacks. I think it's important to keep in mind kind of how our fully diluted share count has been going down. We've also temporarily, but maybe more than temporarily, discontinued use of share options in -- as part of our compensation system, and we've gone to restricted share units. So we -- in the first 6 months of the year, we also purchased 128,000 shares that are held in trust to -- basically to fund obligations that we've got under our RSU plan. So we have historically issued options outstanding of 177,000 and change. We have 129,000 RSUs outstanding. So that all nets to 13.1 million fully diluted shares outstanding as of today's date, August 24.So I think you can see a very cataclysmic economic and health event, COVID-19. Through that period of time, we've demonstrated that we've built a profitable business that's financially durable. We believe we're well positioned. We continue to see new products in the form of potential new partnerships, and that flow, deal flow has not abated. We've got some growth assets, and I've just talked to you about some that are already now in the market, some that are coming. And so all of that rolls up to an intense focus amongst our team to grow our business over the long term, and we're really excited to share with you, over the next number of years, our progress against that. So thank you very much, and we look forward to updating you in the future.