BioSyent Inc. (OTCPK:BIOYF) Q3 2020 Earnings Conference Call November 26, 2020 7:00 AM ET
René Goehrum – President & CEO
Hello, and welcome to the BioSyent Q3 2020 Results Presentation. My name is René Goehrum, and I’m the President and CEO of the company. I’m going to start today’s presentation with a look at our sales, EBITDA and net income after tax for the quarter ended September 30th.
So as you can see, our sales were just short of $5.8 million, and that was 7% below the year ago quarter. So that’s made up of a couple of different elements that I just want to walk you through.
So our Canadian pharmaceutical business performed well, it was up 14% versus the year ago quarter. Our international pharmaceutical business, which is essentially selling FeraMAX oral iron supplement to customers outside of Canada, was down dramatically, down 99%. So there’s a couple things that work there. One is that we’re having some challenges in our largest market with that product, COVID-related, and I’ll speak to that in a couple of slides. The other is that, in that quarter, the year ago quarter, our comp quarter was an extraordinary large international shipment, I believe represented over a $1 million in that quarter, a couple of shipments in that quarter. So the year ago comp is challenging for the international pharma business, and it did not have a good quarter.
Our legacy business was also down 29% and that’s made up of primarily some challenges in the Canadian market, COVID-related and also trade with China related. The net effect of that is that with a sales decrease of 7%, our EBITDA was down 29% and our net income after tax was down 38% in the quarter. A couple of things to call out there. One is that we are preparing to launch or have launched several products. That’ll be a recurring theme in this presentation. And we launched late in July Tibella women’s product, a hormone replacement therapy. And we’ve been investing to launch that product.
We’re preparing Combogesic for launch and we’ve launched the new FeraMAX Pd platform. So in the quarter, we would have attracted new operating expenses that were related to that promotion of those products. So that would have one effect. The other is that with the dramatic reduction in our international FeraMAX sales, essentially reduction to essentially zero for the quarter, it would have an impact on our tax rates. Our income is earned primarily in Canada and attracts a higher tax rate.
That all said, we delivered our 41st consecutive profitable quarter. So how does this look on a YTD basis, so nine months ended September 30th. Once again Canadian pharma sales performing well, 14% ahead of year ago. The international business obviously on a YTD basis is working against a higher comp, but not concentrated in the one quarter, so down 83% to the year ago and the legacy business also struggling on a year ago comparison. However, overall Canadian pharma business drove the company sales to plus 5% versus year ago.
So this being done in a challenging COVID environment but really the impacts in terms of the drawdown or pulling down our results are really kind of non-Canada related. But the engine that drives the bus is our Canadian pharmaceutical business. And you’ll see that as we roll forward with our new product introductions.
So we’ve been investing in Tibella, Combogesic, FeraMAX and in the activities to in-licensing new women’s health product. And we’ve been investing over the course of the year and not just obviously in the third quarter. So these investments in some have taken our OpEx up and promotion expenses that we need to put against launching these products. And despite that, we’re up 10% on EBITDA and essentially flat on our net income after tax.
One thing that I want to point out there is that in this case, the comp works in our favor, when we’re comparing our net income after tax in the year ago period. We had some write-downs of intangibles primarily related to an asset or a couple of assets that we were unable to get approved with Health Canada. So that makes our comp number a little bit more favorable this year. Nevertheless, we’re feeling good about the state of the business with respect to our launch activity in Canada, that we’re engaged in now and that is coming shortly.
So what’s the detail behind, primarily behind the Canadian results? So, see total pharma business, about $5.5 million for the quarter, down 6% versus year ago. So we’ve absorbed essentially a $1 million shortfall in international FeraMAX sales, with the Canadian pharmaceutical business to be just down 6%. So that’s an increase of 14% for the Canadian pharma business and that’s driven by several brands. FeraMAX, our largest business, still driving unit and dollar growth, RepaGyn, solid. Cathejell, an eye popping plus 70%, this is a somewhat COVID related and somewhat change in wholesale and distribution mode. So that occurred last year and somewhat depressed a year ago comps. We’ve also had essentially some pent-up demand for Cathejell as elective procedures that were halted or dramatically reduced during the first wave of COVID opened up again in the third quarter. So that is a strong performance for Cathejell. Aguettant System up as well, and once again, the pent-up demand also had a positive impact on Cysview. So there were a number of procedures that would have involved Cysview and management of non-muscle invasive bladder cancer that did not occur in the first and second quarter of the year, things opened up again for those elective procedures in the third quarter and we saw that roll through the Cysview business. It is a low base of business, but nevertheless, good to see a quarter with some green numbers on that product.
And I think I’ve already spoken about the international pharmaceutical business. And the legacy business has been impacted, there’s three sub-segments to that business. We have sales internationally outside of Canada in the U.S. and then in Canada. The Canadian business has been impacted by COVID and also the depressive effect of some trade challenges, primarily with China. And so this has all kind of conspired to push our business down 29% in the quarter.
On a YTD basis, you’ll see some similar numbers, the total pharma business, up 7%. So you see now the full nine month effect of the strong performance of the Canadian pharmaceutical business, basically outweighing drag of the international pharmaceutical business. Canadian pharma sales at $15.8 million, up 14%. Double-digit growth on FeraMAX, units and dollars. RepaGyn is up but not as much as it was in the quarter. And that’s simply there was some business that we did not get in the first wave of COVID, that is not a business where there’s pent-up demand. So you either have consumption or you don’t, you see the Cathejell, although positive at 15% on a YTD basis, not as eye popping as the Q3 performance and the Aguettant System fairly consistent with the quarter.
And you see here that the Cysview down 11% and that those procedures that didn’t occur in the first and second quarter, they are just missed procedures, we can’t make that back. So overall, the international business delivered $168,000 in sales of FeraMAX outside of Canada, down dramatically. There are some steps being taken by our customer, our largest customer in our largest export market. And that there’s been a lot of work, although kind of the business performance measured in revenue and profit isn’t — has not been good year-to-date or in the third quarter. There’s been some steps taken, and we see that business having a rebound as we move forward over the next several quarters.
And once again, our legacy business, down significantly. And though our Canadian pharmaceutical business is really the key driver for the company, the impacts of the international pharma business and the legacy business certainly pulled down our results.
So, I’ve mentioned COVID. I want to just talk a little bit — it’s on the tip of everybody’s tongue. We’re now well into the second wave in Canada, in our home market. We are in our province where we’re located, where head office is located. It has shutdown. Kind of some of the largest segments of the province have been shut down. And BioSyent operates an essential business, defined-essential. And so, we continue to operate and will continue to operate. We don’t see that changing. That’s one of the benefits of being in the healthcare business. We’ve seen continued growth in our pharma business. We’ve seen launch activity. I’ll speak a little bit more about that launch activity. We’re preparing new products for launch Combogesic. So, all of those activities continue at pace.
There have been some impacts. It’s slowed us down. No question. We’ve not had any significant interruption on supply chain. We certainly had a delay from what we expected our Tibella launch timing to be. So we’re a few months behind the curve of where we expect it to be there.
There’s no liquidity issues either obtaining credit or having large customers or customers pay their bills. Certainly, a challenge has been keeping our people connected and keeping workflows connected. So, we’ve maintained that through a combination of working in the office and a modified version of in-the-office and at-home. It’s gone now recently back to more at-home. And so it does slow us down. Productivity is not what it normally would be, but we’ve managed to continue to operate.
Clearly, our export markets are most affected by COVID-19. And another thing is, we just — we don’t have the same access to our customers, whether they be doctors, hospitals or pharmacies. And that certainly when you’re in a launch mode has an impact on the business. We’re finding ways to work around it and work through it, but it continues to be a challenge.
So let’s talk a little bit about what’s going to be driving our business as we move forward. So, we recently announced some very exciting news in October. We launched a new product formulation platform for FeraMAX, new FeraMAX Pd is a patented delivery system of delivering iron, and it will then roll into being a foundation for future product development. So, on the next slide, I’ll talk to you a little bit about kind of the start of that process. So it’s a platform that’s built on a really strong foundation. Five consecutive years of being the number one recommended oral iron supplement amongst doctors and pharmacists in Canada is really a validated platform by healthcare professionals and consumers and patients. And we think that this new patented FeraMAX Pd delivery system widens and deepens the moat with respect to competitive activity. It also gives us now the confidence for this future innovation on this product. So that’s something you should look for now as we move forward and it’s not a single innovation or single product, that we’ve got several initiatives in mind over the next 24 to 36 months that we think are going to drive some significant growth for the FeraMAX brand.
So what else is driving growth? So we launched Tibella at the very end of July. So the quarter that you’ve seen reported today has had not much top-line positive impact, but plenty of investment in launch and promotion. And so this is — this product is really early days. It’s essentially too early to say where we stand, as I mentioned, for some supply chain COVID related delays where we’re in the market a few months later than we expected. And essentially July and August shipments are pipelining. We started to see uptake in September. And so in this data here, it shows several hundred women have now been initiated on the medication. So the early signs are in line with our expectation. And so there’ll be more to report on this product as we move forward.
So our first product launched on the FeraMAX Pd platform is FeraMAX Therapeutic 150. It’s a slightly modified nomenclature for FeraMAX 150, which has been the core of our growth as a company for several years, for many years. This product was launched in November, and will replace FeraMAX 150 at the pharmacy. So once inventory of existing FeraMAX has been depleted, the only FeraMAX that will be available, FeraMAX 150 will be FeraMAX Therapeutic 150. So that process has started. We started shipping at the beginning of November. The product has already made its way through the wholesale distribution network and is showing up on shelves. There’ll be a mix of products that you see in pharmacies I believe for the next couple of months.
About a year ago we in-licensed Combogesic, a unique combination of acetaminophen and ibuprofen for pain relief, very excited about that product. We’ve been getting some positive feedback from pharmacy chains that we’ve been talking to about it and wholesalers. And we’re getting ready to launch that. So that is fairly imminent. And at the beginning of October, we in-licensed a new women’s health product, that is already approved for Canada. It’s been launched in a number of other countries around the world and fits really well with our roster of women’s health-focused products. So Tibella and FeraMAX are obviously primarily focused to women, Tibella exclusively, FeraMAX primarily. So this new women’s health product is a really good fit with that portfolio of products.
So I wanted to talk about what does having all these products coming to market mean. So we’ve got a very ambitious product launch schedule. So essentially starting with our news on Tibella in July and you’ll be seeing new product news now over the course of 2020 and 2021, and obviously, that has — it’ll have quite a dramatic impact on our business, both on the top-line and diversification of our portfolio. So that’s a really positive news. We will have to invest in these products. So I’ve already mentioned about the effect that that’s getting ready to launch and starting the launch of these products has had on our operating expenses. We need to spend on marketing and selling. So, these are impacts on the 2020 and the 2021 P&L that you should expect to see. And I would say as we kind of talk about the second half of 2020, and maybe into the beginning of 2022, you’ll see a higher ratio of selling and marketing expenses to revenue than maybe we’ve witnessed in the past on the BioSyent business. Over time, this will normalize.
So, we’ve kind of — we’re really bound and determined and have demonstrated that we can operate a profitable business and that we do operate a profitable business. And so, we will continue to do so. But we will invest in growth. And so, that is just a capital allocation decision that we’ve taken to drive growth in the company, and we will invest in promoting these new products. So, you should expect to see some impact on our operating expenses as we move forward.
So the platform on which we do this, we have got $23.7 million in the bank as of September 30th. We generated in the first nine months of this year $4.9 million of cash from operations. We’ve invested $2.7 million of that back into buying back shares in the market. We continue to operate the business with zero debt and a strong balance sheet. So, that’s the platform in which we intend to kind of launch what I think you should expect to see is very solid double-digit growth. And it will — it won’t be a few quarters that we’re talking about. We expect to see that over time, defined in years.
So, on the NCIB, just to give you a quick recap. We initiated our first NCIB in December of 2018. This slide here shows you all purchases as of November 26th. So, we’ve purchased just under 1.6 million shares and reduced the fully-diluted shares outstanding since we commenced NCIB activities by 11%. So, we’ve seen good value in buying back our shares. Our cash position, as you can see, not necessarily adversely affected by that activity, and we think that’s creating good value for shareholders. I think as we’ve got the capital, we need to grow our business at double-digit and we like the attractiveness of the investment in our shares.
So, all these results then rolled forward into earnings per share performance of $0.07 in the quarter. It looks better than our Q2 2020 at $0.06, but that was a somewhat depressed quarter coming out of kind of an eye-popping Q1. Recall that we had wholesalers, pharmacy chains and hospitals doing forward buying and consumers pulling it through. And so, we had an extraordinary first quarter, really we had an extraordinary March and a strong January and February. And so, those $0.11 kind of make a strong comp for the next year quarter, the 2021. But $0.07, given the fact that we’ve made all of the investments we had in launch activities, feeling the business is in good shape and strong at generating cash. On a TTM basis, that’s $0.32 a share compared to $0.34 a year ago.
So, I’m going to wrap up the presentation with just a quick look at our stock information. The one thing that I want to point out to you is that our fully diluted common shares now stand at 13.1 million, 13.114 million. And in there we’ve got some shares held in treasury. These are RSU shares held in trust that we’ve purchased to backup commitments we’ve got under restricted share options. As you know, we did not issue any — sorry, those are restricted share units, not options. We did not issue any options in as part of our compensation system 2020 and we have no intention of doing so next year. And so we’ve kind of gone to using RSUs and we think that’s quite shareholder-friendly.
So I want to thank you very much for your continued interest in the company. We’re feeling good about our business and how we’re positioned for growth and thinking long-term and thinking in terms of total shareholder returns for you.
End of Q&A