Biosyent Inc

XTSX:RX

Earnings Call Transcript 2018-Q3

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

Hello, and welcome to the Q3 Results Presentation for BioSyent. My name is René Goehrum, and I'm the President and CEO of the company. Wanted to start today's presentation with a look at our sales results, EBITDA and net income after tax for the quarter ended September 30. So this quarter represented our 33rd consecutive profitable quarter. We had some mixed results on the top line, with Canadian Pharmaceutical business growing 11%; our International Pharma business down 51%; and our Legacy Business down 56%. All of that added up to a sales result of 3% below year ago at $5.26 million. Our EBITDA was $1.73 million, just 1% below year ago and our net income after tax, $1.27 million, down 2% versus a year ago. I'll speak a little bit more in detail about what drove those results in a couple of minutes. Through 9 months, our sales were up 5% versus year ago, once again led by the Canadian Pharmaceutical business at plus 13%; International Pharma down 15%; and legacy, down 44%. So couple of comments there. So you see, versus the quarter performance, the 9-month performance is down 15%. So we did have a strong start to the year, and we do see from time to time business come from 1 quarter into the next. We certainly were expecting some more shipments into international customers in Q3. We had orders, and we had some issues with our customers receiving import permits. So I'll go into a little bit more detail on that. That has caused some choppiness to our Q3 results, and also quite frankly to the results year-to-date. And we see that likely continuing for the short term, but not the long term as we are still confident that we can grow that business. Our Legacy Business was working against a couple of strong years. As you know, we don't invest against that business. It is a business that has not proven to be promotionally sensitive. So we essentially have our maintenance strategy for a couple of years. We've had strong performance this year, some environmental conditions in key markets has led to the business coming down significantly. Though this was not a result of competitive activity. It's the -- some of the ebbs and flows in the commodity markets and agriculture. Our EBITDA was up 7% through 9 months at $5.3 million and our net income after tax, up 8%, just over $4 million. So taking a closer look at the pharmaceutical business. This is a look at the last 20 quarters, so the last 5 years of our Pharma business. I've used this slide for quite some time in the past. You see, represented by the blue tips are International Pharmaceutical business. So looking back, say, as far as Q3 of 2016, you see the Pharma business outside of Canada represented up to 13% of total revenue in the quarter. And that number has bounced around somewhere between 8% and 15% over that period of time. So as I've spoken out about before, there is some lumpiness in this business. We get large orders, sometimes, the shipment of those orders is delayed. Sometimes, there are other factors that will cause delay. What we're experiencing recently are some new phenomena that include issues around import permits and access to -- for our customers to have sufficient foreign currency to purchase product from us. So the net result is that in Q3 2018, the International Pharma business represented just 6% of our total sales for the quarter and obviously, on a year ago basis was significant shortfall. So let's look a little bit deeper at some of the upsides and downsides for the quarter. So overall, the pharmaceutical business was just a shade under $5 million. It was up 4% versus Q3 of 2017. In Canada, that was $4.71 million, up 11% versus last year. And measured in units that was represented growth by FeraMAX of 9%; FeraMAX Powder of 5%; RepaGyn, by 29% growth; Cathejell, 32%; and the Aguettant System, 216% in the quarter. So that was offset by the shortfall in the international business for FeraMAX which delivered $282,000 in sales, approximately half of what it was a year ago. So I wanted to give one example. We had one shipment, fairly significant shipment that would have had about a 4%, 5% impact on the quarter itself in total sales. We had that order ready to ship in June as it had been requested by our customer. They had a challenge getting the permit. That permit did not arrive until the fourth quarter, and we have now finally shipped that order. So you can see that we had a 5-month delay for that one order. So what's happened now, is the business is backed up somewhat as our customer has to kind of process that inventory and get it into the supply chain. They've been very effective in building demand, but these restrictions on import permits and currencies have had an impact on their business. Additionally, in Q3, the Legacy Business sales of $268,000 once again, was about half of what it was in the year ago period. We had some significant climatic effects in Western Canada where most of the cereal crop is grown and that resulted in conditions that had a severe dampening effect on our sales for the quarter. If we look on a 9-month basis, pharmaceutical sales were $14.87 million, up 10% versus 2017. In Canada, that was $13.5 million in sales, up 13%. And measured in units once again, FeraMAX 150 and Powder, both up 8%; RepaGyn, up 24%; Cathejell up 17%; and the Aguettant System, up 107%. So overall, the Canadian business continuing to grow, gaining share. On a number of those products, we took pricing in 2018 and still continuing to gain share in the marketplace. But the YTD sales in FeraMAX through 9 months at $1.4 -- $1.36 million, down 15%, doesn't look as stark as a 50% drop, but nevertheless, not satisfactory to us. We expect this instability to persist or to be in place for a couple of quarters. Not to persist over the long term. Our partner has been very effective in building demand in the marketplace and subsequent to some of these issues, they have received permissions to import, and we have been paid for orders. And so we think that it's short-term choppiness, but it clearly has had an impact on the business so far this year and it might persist for a quarter or 2 more. Wanted to talk a little bit about the CYSVIEW business. I have spoken in the past about how the sales cycle on this product has been longer than we had anticipated. We have been making progress on the brand through this year, the thing that we have noticed as well though is the long implementation cycle. We've gone in some cases, in the most extreme where a hospital, a neurology group has made the decision and had hospital executive aligned to moving ahead with implementation, and that implementation taking up to 12 months. Now that is extreme, but we see it running anywhere from 3 to 4 months after a positive decision to 12 months. So that has backed us up a little bit with our expected volumes for this year. So despite the significant progress in number of sites that are operational, we have not seen the unit volume keep pace with the new sites. So we started the year with 2 hospital sites operational. We're now at 7 and subsequent to the end of the quarter, we had an 8 site purchase CYSVIEW and is in the process of installing their Blue Light Cystoscopy equipment, and we expect that site to be live before the end of the year. So that will bring us to 8 live sites. That is all in Ontario and British Columbia. Now, we do have an additional 9 hospital sites that have either completed a successful evaluation or have made a decision to proceed to implementation without an evaluation. So overall, the sales volume growth looks impressive at 220%. But it's off a very low base, but it gives us a foundation to continue to move this business forward. I think it would be remiss for me to not include a comment about what our expectations are for this business long term. We think it's going to continue to grow. It's going to continue to progress. We've got very strong support from health care professionals. But we have moderated somewhat our expectations for the volume and revenue that this brand can contribute as we go out into the future. Want to comment a little bit on activity during the year. From a governance perspective, Larry Andrews and Sara Elford joined our Board of Directors in January, replacing 2 long-serving directors who retired. In May at our annual meeting, Joseph Arcuri joined our board to replace another retiring director. And Joseph is now the chair of our Audit Committee. Also in May, FeraMAX was named the #1 recommended iron supplement brand in Canada for the third consecutive year. And what's impressive here, is that the percentage of physicians and pharmacists surveyed has grown in each of those 3 years to the point where we've now got 43% of physicians recommending FeraMAX as their #1 choice and 35% of pharmacists. Also in 2018, in September specifically, Alfred D’Souza, our long-serving Vice President of Finance and CFO, retired from the company. And in the same month, Robert March joined us as Vice President Finance and CFO. Also in September, Joost van der Mark joined BioSyent as our Vice President of Corporate Development. And finally, BioSyent was named to the Growth 500 ranking of the fastest-growing companies for the sixth consecutive year. Wanted to take a couple of minutes and comment on our product portfolio and our product life cycle. This is a graphic that you will have seen in our MD&A. It's featured in our MD&A for quite a number of years. So this is how we look at the life cycle of products. Now you can see here that in the launch and growth phase, we've got a number of assets that are launched in the Canadian market and also internationally. And we really see those as the foundation of growth for 2019. We have 3 assets that will be 2 cardiovascular products and a women's health product that are in the Health Canada approval process, where the launch of those products is conditioned on approval by Health Canada. So it's now moving into the second half of November. We don't have approval, and we've got to look at the likelihood of launching those products next year. And I think it's at this point unlikely that they would fuel growth for 2019. We're looking at those more for 2020 and beyond. Quick look at our balance sheet. So our working capital of $24.3 million, over 90% of that is cash, a cash of $22.6 million. That cash position obviously has been growing. It's up 17% from this December 31 year-end of 2017, and we continue to carry no debt in the business. So want to dig a little bit deeper into the cash, both our cash generation and cash needs for the business. So with $22.6 million in cash available, that's up 37% from the year ago September 30 level of $16.5 million, and almost double what it was 2 years ago, 24 months ago, September 30. You see there the actual amount of cash generation for the period. So $3.267 million through 9 months. The amount of cash that we actually need to operate our business above noncash working capital is somewhere between $2 million and $3 million. So essentially, we have that difference available to us to deploy and invest in opportunities to either expand our portfolio through inlicensing or acquisition. And we've spoken in the past of quite a number of inlicensing discussions and/or acquisition of end market assets. So the reality is that we have not seen anything on the acquisition side that kind of meets our financial criteria and portfolio-fit criteria. And the likelihood of us making acquisitions, I'd say in the short term, let's define that in the kind of 6 to 12 months is less than certainly our expectation around inlicensing activities. And we're really talking about deployment of capital. So the amount of capital that we need for inlicensing is relatively a fraction of what we would need to make acquisitions. We have been observing both activity in the market and in discussion about some potential opportunities. And our point of view is that the market and the pricing in the market doesn't meet our financial criteria. So we think the growth -- the path to growth, the likelihood for us to kind of continue to grow the business in addition to the existing portfolio and the assets that we have already inlicensed that are going through Health Canada approval process are going to be further inlicensing deals with kind of some choppiness in the markets and the equity markets rising interest rates, I think there may be some opportunities that present themselves to us as we progress. And we're just going to have to continue to be patient. You can see the impact that our patience has had on our return on equity. On this chart, as shown to you in the thick blue line, going from a 48% ROE in 2014 full year to a trailing 12 months on September 30 of this year of 24%. That's really been a function of the cash in the business. As that cash position has grown, measured over the time that you see on this chart has gone from just under $8 million to $22.6 million and that obviously, has had an impact on our ROE. So we're obviously paying attention to that, keeping an eye on it and continue to work on deployment opportunities. And we'll see what that looks like over the next short while. Want to take a quick look at our earnings per share. So on the right-hand side of this chart, you see our EPS in full year segments. So 2013 through 2017, where it was $0.36. On the left, you see our last 8 quarters. So both the trailing 12-month EPS of $0.38 versus $0.34 in the previous 12, it's up 12%. But on a Q3 to Q3, we're flat and Q2 versus Q2 a year ago, we're flat as well. So this is a quick snapshot of our position in the market, with the number of shares issued and options for a total of just over 14,675,000. So wanted to conclude today's presentation with a couple of thoughts about how our business is progressing and again what we see as our priorities as we move into 2019. We're intensely focused on receiving Health Canada product approval so that we can launch new products into the marketplace. We are also working on several portfolio expansion opportunities, either in the agreement finalization or term sheet finalization stage. Some of these have taken some longer time for diligence and some other factors. We're also continuing to grow our brands in the Canadian market. We see continued growth opportunity for those, and some of it we're working on may leverage off of the presence that we've already built with some of our brands in the market. And finally, we're working on removing roadblocks for the continued growth of our FeraMAX business internationally, in the key market where we've had some hurdles to overcome. Our partner has been very strong in building demand in the marketplace. So we just need to kind of work together with them on some workaround so that we can get product to market to fill that demand. So our business is fundamentally strong and profitable. Our team is engaged on a daily basis on continuing to grow that base that we've built. We've recently completed our 2019 budget process and based on that, we expect further growth from the current portfolio and as we prepare for a launch activity in the future. Thank you for your continued interest in BioSyent, and I look forward to reporting on our progress in the future quarters. Thank you.