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Medicure: Buried Alive

|Includes:JNJ, The Medicines Company (MDCO), MRK, SGP
On Monday, Feb 25th 2008 Medicure, (TSX:MPH; OTC:MCUJ), a Canadian pharmaceutical company traded on TSX and OTC, had a heart attack. That day, its stock price dropped from about 90 cents to 25 cents after announcing negative results from its pivotal phase 3 trial of MC-1. Medicure had invested heavily in the MEND-CABG II clinical trial of 3,000 patients to demonstrate a benefit of MC-1 in the incidence of cardiovascular death or nonfatal myocardial infarction up to 30 days following coronary artery bypass graft (CABG) surgery. Because the trial did not meet its primary endpoints, the company did not submit an application for MC-1 marketing approval to the FDA. After this “heart attack”, Medicure was effectively pronounced dead: The stock price floundered into oblivion, it was delisted from AMEX to the OTC where it continued to whither on low volume. The funeral was planned for Medicure when its stock price eventually fell well to less than a penny during the market downturn last fall. Medicure seemed to buried and forgotten on the Pink Sheets. But don’t be fooled- despite the fact that its stock price is well below that of many bankrupt companies (“Q” stocks), Medicure is not dead, and was in fact buried alive and is digging itself out of the grave. Medicure is in fact generating significant revenue, continues to find new life for MC-1, and even is runing clinical trials for its main clinical candidate Tardoxal. Medicure is indeed quite alive and active, as a fully SEC reporting company, who has sufficient promise to turn into a profitable, growing pharmaceutical company in the near future.  
Medicure has a growing revenue base from its core commercial business of selling Aggrastat (tirofiban), a GP IIb/IIIa inhibitor (anti-coagulant). Aggrastat is sold by Merck (NYSE:MRK) outside of the US, and Medicure bought exclusive rights to sell Aggrastat in the US from MGI Pharmaceuticals in 2006. In this short time, Medicure has been quite successful in capturing a market share for this drug. US revenue from sales of Aggrastat grew for the fifth consecutive quarter, and year to date revenues are over triple the revenue seen in the previous year. Medicure shows continued improvements to their sales and marketing organization, and they are betting that the lower cost of Aggrastat compared to its competitors, Reopro [(abciximab); Johnson and Johnson (NYSE:JNJ)], Angiomax [(bivalirudin);The Medicines Co (NASDAQ:MDCO))], and Integrelin [(eptifibatide); Schering-Plough (SGP)] will drive sales. Aggrastat is half the price of these drugs, and has been shown repeatedly to be as effective as these drugs.  Medicure is betting (rightfully so, I believe) that healthcare reforms and the current economic downturn will increase Aggrastat sales.  This gives sufficient reason to believe that Aggrastat sales and its share of the US $450 million market for this drug will continue to grow at its current pace. This alone would turn Medicure profitable.
            However, beyond this, Medicure is seeking new indications for Aggrastat to increase its market share. In September 2008, Medicure announced the results of their “3T/2R Study” which demonstrated that Aggrastat significantly lowers the incidence of heart attack after elective coronary angioplasty in coronary artery disease patients who have shown poor response to standard oral antiplatelet agents, aspirin and clopidogrel.The study, which involved a high dose bolus administration of Aggrastat in patients undergoing angioplasty and/or Percutaneous Coronary Intervention (NYSE:PCI) in patients who do not properly respond to standard oral antiplatelet agents. Although the study's dosing and patient population is outside of the current indicated use of Aggrastat, the results supports the further investigation of the use of Aggrastat in this manner. I would expect to hear about a phase III trial investigating this use in the near future.
            In addition to their bread-and-butter sales of Aggrastat, Medicure is currently running phase II trials for Tardoxal to meet the unmet need of treating tardive dyskenisia (NYSE:TD), a common side effect of antipsychotic medications which are used to treat schizophrenia and schizoaffective disorders. Approximately 4 million people in the United States receive antipsychotic drugs of which approximately 5 to 20% have TD. Medicure received approval to run a Phase II clinical study of Tardoxal in Canada.
This 12-week study period will evaluate the safety and efficacy of Tardoxal and assess the beneficial effect of Tardoxal on the reduction of expressed symptoms of TD. The study will enroll approximately 140 patients. The trial began enrollment in March 2009 and has a planned interim analysis in early to mid 2010.
In addition to all this, Medicure continues to seek a partner for its cardiovascular franchise to support clinical trials and assist with the commercialization of a new indication for MC-1. Medicure is currently planning a phase II study for MC-1 in lipid lowering during metabolic syndrome. Metabolic syndrome is a name for a group of symptoms that occur together to promote the development of coronary artery disease, stroke, and type 2 diabetes. If you keep up with the news, you know that the represents an incredible potential multibillion dollar market in our aging population, where the incidence of all these diseases are increasing and is considered a major health care crisis. If Medicure could gain even a small percentage of this massive market with MC-1, it would be a boon to the company’s revenue. Finally, according to Medicure, they continue to hold discussions with potential partners with the intent to secure a formal partnership agreement for and its other pipeline compound, MC-45308, an anti-thrombotic.
There is no question that Medicure has a lot going for it. The big question is: Can Medicure meet their goals to sell enough Aggrastat to become profitable? Can Medicure gain FDA approval for new indications for Aggrastat, Tardoxal, MC-1, or MC-45308 in time before they run out of cash? With any biotech company, the key issues are always pipeline development and cash burn. Medicure is no different. However, a look at the balance sheet suggests that they can see these promising drugs through phase III to possibly gain FDA approval. As with most small pharmaceutical companies, Medicure has substantial debt, and they are currently operating at a loss.   But it is not all doom and gloom: According to the latest 10Q Medicure had over $4MM in cash, $1.5MM in accounts receivable from its Aggrastat sales. Even though this is not enough cash to keep them around for long at their current burn rate, they continue to generate significant cash flow from Aggrastat sales. They have revenue of about $6MM annually from Aggrastat sales, increasing nearly 300% since last year, including a 100% increase from last quarter. With the weaker dollar this quarter, Aggrastat revenues should get an added boost. Continued increases in Aggrastat sales as they have already shown would lead them to profitability in a very short amount of time.
So Medicure seems to show promise in obtaining a net positive cash flow in the near future. But how does it manage its debt load? During its “heart attack” in March 2008, the Company announced a corporate restructuring which included a significant reduction in number of staff and in resources allocated to certain programs. Since then, Medicure has been successful in reducing its ongoing cash requirements through implementation of a restructuring plan. Part of this plan was to defer principle payments on its $25MM of outstanding long term loan facility from Birmingham associates, which were related to the costs of Aggrastat licensing and MC-1 trials. Under the terms of the agreement, Birmingham will receive a payment based on a percentage of Aggrastat net sales until 2020. In November 2008 they also repaid $12MM of other outstanding debt from Merrill Lynch. Medicure continues to deal with its immediate debt burden by deferring payments with its lenders until the end of this year. To meet short term demands, Medicure announced a plan to raise up to $3.0 million to improve its financial position through a private placement of common shares. 
In contrast to last quarter, Medicure says that based on their current operating plan, they estimate its existing working capital is sufficient to meet the cash requirements to fund the Company’s currently planned operating expenses, capital requirements, working capital requirements and long-term debt this quarter.   With increasing Aggrastat revenues and continued competent management of their debt, there is good reason to believe that Medicure will continue on next quarter and well beyond; continuing long enough to become profitable. Although MCUJ share price is clearly beaten down to bankruptcy levels, any number of announcements would give the share price a healthy boost: A continued increased Aggrastat revenues, profitability, a partnership for MC-1 or MC-45308; clinical developments in Tardoxal, or even a capital raise, to name a few. Given the absurdly low price per share and unjustifiably low market capitalization of $5MM for MCUJ, I think it is worth the risk to see them through it. There are many biotech companies, in worse financial shape with less promise than MCUJ, that have market capitalizations 20 times that of MCUJ. In contrast to other biotech companies, Medicure generates significant revenue, shows the promise of profitability in the short term, with clinical expansion in the medium term.  I give MCUJ a very strong (but very speculative) buy. MCUJ has tremendous potential to pay off in many multiples of ten over the current share price in the coming months and years.  If you are comfortable with this level of risk, I think you will be repaid in more than sufficient reward. Visit www.medicure.com/ yourself and see the extremely strong signs of recovery now, and the brightness on the horizon for Medicure.

NOVEMBER UPDATE:

Medicure's third quarter results showed relatively flat sales of Aggrastat.  The loss for the quarter decreased their cash position to below $1 million.  With their inability to pay interest on their debt to Birmingham Associates, I fear forebearance is in the near future followed by bankruptcy.  With no shareholder equity, I would not anticipate shareholders to receive any benefit from bankruptcy.  As such, I have eliminated my position in MCUJ. 


Disclosure: I do not hold a position in MCUJ.  I do not have positions in any other of the companies mentioned.

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Stocks: MDCO, SGP, JNJ, MRK