MERRIMAN CURHAN FORD MCU
.
600 California Street
9th Floor
San Francisco, CA 94108
(415) 248-5600 Main
(415) 248-5690 Fax
(800) 909-7897 Trading
www.mcfco.com
April 17, 2007
Medicure, Inc. (MCU) Buy
An Undervalued Late-Stage Cardiovascular Biotechnology Company;
Initiating Coverage at Buy
• Unmet need for a cardioprotectant. Ischemic reperfusion injury
(IRI) is associated with a high risk of death, MI, heart failure, arrhythmia,
renal insufficiency, and stroke. All of these can add up to
a 20% incidence of major vascular events following CABG surgery.
• MC-1, Medicure’s lead product, is currently in the midst of a pivotal
Phase III trial for the treatment of IRI. This trial is being conducted
under the auspices of an SPA agreement with the FDA, which
reduces the regulatory risk of the product. We believe that this
product has a high probability of being partnered within the next
three years. Final Phase III data may be presented at next year’s
ACC in March 2008.
• AGGRASTAT is an undervalued asset, in our view. We believe
Medicure’s re-growth of this brand can generate solid revenues and
provide a commercial platform for the eventual launch of MC-1.
• Initiating coverage at Buy. We are valuing the company on a
modified sum-of-the-parts basis. We are projecting that the company
will re-grow the AGGRASTAT brand to C$23M in three years.
For MC-1, we are assuming a 2009 launch, under a co-promote
model in the United States. Based on these assumptions, we believe
the stock can trade towards the US$2.00-2.20 level in 12 months.
target is too low
Jose J Haresco, Ph.D.
Senior Vice President
(415) 248-5629
jharesco@mcfco.com
Medicure engages in the R&D and
commercialization of therapeutics
for cardiovascular needs. It develops
products for the treatment
of acute cardiovascular events,
such as acute coronary syndrome,
coronary artery bypass,
and graft surgery, as well as
heart attacks to chronic conditions,
including hypertension and
metabolic syndrome.
Market Cap (M): $139.4
Shares Out. (M): 111.0
Float (M): 106.2
10-Day Avg. Volume: 167,600
Institutional Ownership: 24.2%
Enterprise Value (M): $107.2
MCF Estimates
Market Data
Stock Performance
Company Description
Valuation (FY07E)
Key Metrics
Price: $1.20
Rating: Buy
52-Week Range: $0.91-1.91
Book Value/Share: 0.256
Debt/Capital: 21.7%
Debt (M): C$13.4
Cash (M): C$47
EV/Sales: NM
EV/EBITDA: NM
PEG Ratio: NM
Summary
Medicure is, in our view, an undervalued late-stage biotechnology
company in the cardiovascular sector. We believe that Medicure can
re-grow the AGGRASTAT brand to a conservative C$23M in three
years. The company’s lead product, MC-1, is currently in pivotal
Phase III for the treatment of ischemic reperfusion injury following
CABG surgery; the trial is being conducted under the auspices of the
SPA agreement with the FDA, which reduces regulatory risk, in our
view.
Investment Conclusion
April 17, 2007 2
Cardiology
Medicure, Inc. Buy
Company Description
Medicure is, in our view, an undervalued biotechnology company in the cardiovascular sector. The company
recently acquired AGGRASTAT, an injectible anti-platelet therapy for the treatment of acute coronary syndrome
(ACS). AGGRASTAT offers superior efficacy in diabetics at a much lower cost relative to its competitors,
ReoPro and Integrilin, but has for several years not been aggressively marketed. We believe that Medicure
can re-grow the product to a conservative C$23 million in three years. The AGGRASTAT franchise also
provides a platform upon which to launch future cardiovascular products. The company’s lead development
candidate, MC-1, is currently in pivotal Phase III for the treatment of ischemic reperfusion injury following
CABG surgery; the trial is being conducted under the auspices of SPA agreement with the FDA, which reduces
the regulatory risk, in our view. The company is headquartered in Manitoba, Canada. As of the publication
of this report, the company had approximately C$47 million in cash and equivalents.
Investment Highlights
Unmet need for a cardioprotectant. Ischemic reperfusion injury (IRI) is thought to be responsible for the
myocardial damage that can occur following a coronary artery bypass graft (CABG). IRI is associated with a
high risk of death, MI, heart failure, arrhythmia, renal insufficiency, and stroke after CABG surgery. All of
these can add up to a 20% incidence of major vascular events following CABG surgery.
Unique technology. We believe MC-1 blocks the signaling cascade that ultimately causes ischemic reperfusion
injury. It is has shown very promising results in multiple Phase II trials, and is currently in the midst of
a pivotal Phase III trial. This trial is being conducted under the auspices of an SPA agreement with the FDA,
which reduces the regulatory risk of the product, in our view. The upside to this product may be its eventual
use in percutaneous coronary intervention (PCI). We believe that this product has a high probability of being
partnered within the next three years.
AGGRASTAT is an undervalued asset, in our view. Medicure acquired AGGRASTAT in late 2006 from MGI
Pharma. Despite offering better efficacy in diabetics at a lower cost, AGGRASTAT sales have floundered due
to lack of a coherent commercialization effort. We believe Medicure’s re-growth of this brand can generate
solid revenues and provide a commercial platform for the eventual launch of MC-1.
Significant potential market opportunities. AGGRASTAT operates in the US$500 million U.S. platelet
inhibitor market. We believe that the market for MC-1 in the CABG setting is worth US$185 million in the
United States alone. The use of MC-1 in coronary artery stenting procedures provides another US$750 million
in market opportunities.
Initiating coverage at Buy. We are valuing the company on a modified sum-of-the-parts basis. We are
projecting that the company will re-grow the AGGRASTAT brand to C$23 million in three years. For MC-1, we
are using a risk-adjusted probability model of success. We are conservatively assuming a CY2009 launch using
a co-promotion model in which Medicure earns 40% of the revenue generated by the partnership/joint
venture in the United States. We are assuming 30% penetration of the market in the first year, which we
believe is reasonable given that there is no product in the market for use as a cardioprotectant. We are also
only assuming a probability of 60% success to the trial, despite the fact that it is a pivotal study being conducted
under an SPA. We believe the stock can trade toward US$2.00-2.20 in 12 months, and we are therefore
Pipeline Detail: AGGRASTAT
Medicure acquired AGGRASTAT (tirofiban hydrochloride) from MGI Pharma in August 2006. AGGRASTAT is a
glycoprotein (GP) IIb/IIIa inhibitor. AGGRASTAT inhibits platelet aggregation in a dose- and concentrationdependent
manner by preventing the binding of fibrinogen to the GP IIb/IIIa receptor, reducing the risk of
clot formation.
AGGRASTAT approved by the FDA for the treatment of acute coronary syndrome (ACS) including unstable
angina and non-Q-wave myocardial infarction. Acute coronary syndrome (ACS) is a broad set of symptoms
attributed to acute myocardial ischemia — chest pain due to a lack of blood flow to the heart resulting from
coronary artery disease (CAD). ACS covers a range of clinical conditions ranging from unstable angina to
non-Q-wave myocardial infarction and Q-wave myocardial infarction.
Originally developed by Merck, AGGRASTAT was launched in the United States in 1998, and is currently
available in 82 countries worldwide. Merck continues to market AGGRASTAT outside the United States, including
Europe where 2006 sales for AGGRASTAT were approximately US$95 million. Merck sold the U.S.
rights to AGGRASTAT to Guilford Pharmaceuticals Inc. in 2003, which was subsequently acquired by MGI in
2005. Total U.S. sales for the GP IIb/IIIa inhibitor class in 2006 were in excess of US$500 million, which included
US$8 million in AGGRASTAT sales.
Superior efficacy in diabetics. There are currently three GPIIb/IIIa compounds on the market. These include
Millennium Pharmaceuticals/Schering’s Integrilin (US$363 million in sales in 2006), Eli Lilly’s ReoPro
Product Clinical Indication Preclinical Phase I Phase II Phase III NDA Market
Aggrastat Acute Coronary Syndrome
MC-1 CABG Surgery
Acute Coronary Syndrome
Stroke
MC-4232 Diabetic Hypertension
MC-4262 Hypertension Complicated
w/ Metabolic Syndrome
MC-45308 Thrombosis
MC-5422 Ischemia Discovery
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
SPA Granted for MC-1
MC-1 Phase III Enrollment Completed
MC-1 Phase III Completed
MC-1 NDA Submitted
MC-1 Approval and Launch
(US$156.5 million in sales in 2006), and AGGRASTAT. Of these, Integrilin has the broadest indication; it is
approved for use both during and before PCI procedures, which largely accounts for its dominant market
share. All three drugs are intravenously delivered and have therefore been overshadowed by orally available
compounds like Bristol Myers Squibb’s Plavix (US$3.4 billion in sales in 2006).
AGGRASTAT is the most cost-effective of the three. It has superior efficacy in diabetic patients, is convenient
to use (Integrilin requires refrigeration), and part of the recommended treatment regime for Non ST-Elvated
ACS in the 2005 American Heart Association guidelines.
AGGRASTAT is More Effective in Diabetic Patients (Composite Endpoint)
Impact of AGGRASTAT on Mortality in Diabetic Patients
As effective and safe as ReoPro in PCI. The 2004 study by Danzi compared a high-dose bolus of AGGRASTAT
to Reopro in patients undergoing coronary stenting. The study compared two cohorts of patients
who underwent coronary stent placement between January 2000 and December 2002. In the first cohort,
ReoPro which was given to 280/802 (34.9%) of 802 stented patients; in the second cohort, AGGRASTAT was
administered to 274/716 (38.3%) stented patients.
The primary endpoints were the proportion of patients with major bleeding and the rate of site access complications.
The study also evaluated the 30-day incidence of major adverse cardiac events (MACE). After the
procedure, the patients were given Plavix for four weeks and aspirin on an ongoing basis. Major bleeding episodes
were observed in four patients receiving ReoPro and in none receiving AGGRASTAT (1.4% vs. 0%; P =
0.12); the rates of site access complications were similar (3.6% vs. 3.3%; P = 0.96). The 30-day incidence
of MACE was 7.1% in the ReoPro group and 5.8% in the AGGRASTAT group (P = 0.65). Thus, in patients
30-Day Death or MI in Diabetic Patients
TRIAL Compound IIb/IIIa Inhibitor Placebo p value
PRISM AGGRASTAT 8.1% 4.3% 0.04
PRISM-PLUS AGGRASTAT 15.5% 4.7% 0.00
PURSUIT Integrilin 18.8% 18.1% 0.70
GUSTO IV ReoPro 11.4% 10.3% 0.50
PARAGON A Lamafiban 16.2% 11.7% 0.21
PARAGON B Lamafiban 13.7% 13.0% 0.74
Source: Circulation 2001; 104; 2767-2771
30-Day Death in Diabetic Patients
TRIAL Compound IIb/IIIa Inhibitor Placebo p value
PRISM AGGRASTAT 4.2% 1.8% 0.07
PRISM-PLUS AGGRASTAT 6.7% 3.6% 0.17
PURSUIT Integrilin 6.1% 5.1% 0.33
GUSTO IV ReoPro 7.8% 5.0% 0.51
PARAGON A Lamafiban 6.2% 4.6% 0.93
PARAGON B Lamafiban 4.8% 4.9% 0.01
Source: Circulation 2001; 104; 2767-2771
undergoing coronary stenting, the high bolus dose of AGGRASTAT is as safe as ReoPro. Nevertheless, AGGRASTAT
is only approved for the treatment of ACS, and is not approved for use in PCI.
Market opportunity. The market for GP IIa/IIIb inhibitors should remain stable at the US$500 million level
until the end of the decade given its use in the PCI market, in our view. AGGRASTAT has previously suffered
from Merck and MGI’s lack of interest in driving AGGRASTAT product sales. Sales of AGGRASTAT under
Merck and then MGI fell from US$33.6 million in 2003 to US$12.3 million in 2005. By the time Medicure acquired
the product, virtually no sales and marketing dollars were being spent on the product. We believe that
Medicure’s investment of a proprietary 24 person sales force and marketing dollars can reinvigorate the
product. The product offers superior efficacy in diabetics at a 72% discount to ReoPro and a 43% discount to
Integrilin. The company is largely banking on off-label use to grow its franchise; for this reason we have kept
our estimates fairly conservative going forward. We believe that Medicure can re-grow the product to the
CAN$23 million level over the next 24 months.
MC-1
Background: vascular disease. Vascular disease (atherosclerosis) is a progressive and chronic condition
caused by the buildup of fatty cells in the inner lining of the vascular arteries, which turns into a localized,
patched, thickening, called a plaque or lesion. Expansion of the plaque into the interior of the artery (the lumen)
results in a narrowing of the artery (known as stenosis). The narrowing reduces blood flow to tissues
(such as the heart), which leads to tissue death (necrosis). Vascular disease can occur in arteries of any organ
of the body, and often leads to impaired organ function or death. Heart attacks, congestive heart failure,
kidney failure, or diabetes-related vascular diseases can all be caused by vascular disease.
Atherosclerosis in the coronary arteries is referred to as Coronary Artery Disease (CAD) or Coronary Heart
Disease (CHD). Coronary artery bypass graft surgery, or CABG, was the first treatment for CAD and involves
circumventing a blocked artery using a healthy vein or artery. Coronary artery bypass graft surgery is a surgery
in which one or more blocked coronary arteries are bypassed by a blood vessel graft to restore normal
blood flow to the heart. These grafts usually come from the patient's own arteries and veins located in the
chest, leg, or arm. The graft goes around the clogged artery to create new pathways for oxygen-rich blood to
flow to the heart. The goals of the bypass surgery are: 1) to relieve symptoms of coronary artery disease
(including angina), 2) Enable the patient to resume a normal lifestyle, and 3) lower the risk of a heart attack
or other heart problems.
This highly-invasive procedure is considered the standard care for CAD, but is associated with long hospital
stays and recovery times. In particular, it is associated with a high risk of death, MI, heart failure, arrhythmia,
renal insufficiency, and stroke. All these can add up to a 20% incidence of major vascular events following
CABG surgery.
Coronary Artery Bypass Graft Surgery
In coronary artery bypass graft surgery, a surgeon makes a vertical incision in the skin
and muscle in the middle of the chest and then cuts through the breastbone (sternum).
The surgeon spreads the rib cage to expose the heart and then cuts through the lining
that protects the heart (pericardium). To reroute blood flow around the diseased blood vessel,
surgeons typically use a portion of the saphenous vein in the leg or an internal mammary artery.
Source: health.yahoo.com
MC-1 Mechanism of Action
In order to perform CABG surgery, blood flow to the descending arteries is cut off for a short period of time.
A major source of vascular damage following CABG surgery is caused by the act of unblocking the blood flow
(reperfusion). During the earliest phases of reperfusion, cardiomyocytes (cells responsible for the heart’s
muscular contractions) undergo extreme contraction — sustained shortening and stiffening of the myocardium.
If this lasts for an extended period of time, cell death through apoptosis or necrosis can ensue. This
eventually aggravates the vascular problem and leads to immune-mediated vascular damage. This is known
as ischemic reperfusion injury, or IRI.
The core cause of ischemic reperfusion injury is thought to be the rapid release of extracellular ATP. At the
ischemic phase, ATP within the cell is depleted and cardiomyocytes accumulate Na+ via various pathways in
the membrane including the Na+ channel, the Na+/H+ exchanger, and the Na+/HCO3 symporter. Na+ cannot
exit the cell since the Na+/K-ATPase is rendered non-functional due to the lack of ATP. Na+ influx leads to
Ca2+ buildup since the Na+/Ca2+ exchanger (NCE) operates in reverse mode in a depolarized, Na+-overloaded
cell. Extracellular ATP from platelets and nerve endings further exacerbate the problem by binding to the P2
purnergic receptors, which also cause an influx of Ca2+ . Consequently, ischemic cells develop cytosolic Ca 2+
overload.
During reperfusion, the cell is re-supplied with ATP and it starts hoarding excess intracellular Ca2+. The overload
of intracellular Ca2+ has been implicated in several mechanisms that lead to irreversible cellular injury:
initiation of signaling cascades that lead to the activation of phospholipase A2 (PLA2), PLAC, endonucleases,
proteases, and several genes that control the cellular life cycle. These processes eventually lead to cell
death, which in turn causes further injury through activation of local, cytokine-mediated, immune responses.
Elevated Calcium Levels Contribute to Ischemic Reperfusion Injury
High intracellular concentrations of [Ca2+], have been implicated in several mechanisms
that lead to irreversible cell death, which in turn leads to local immune responses that aggravate vascular damage.
MC-1 can prevent this cascade by blocking Ca+ influx into the cell.
Source: FASEB Journal (1995) 9, 219-228; Cardiovascular Research (2004) 61, 365-371
MC-1 is a cardioprotectant. It prevents the cascade ischemic reperfusion cascade by stopping at one of its
core sources: it prevents extracellular ATP from binding to the P2 purinergic receptors and further increasing
the cytosolic [Ca2+ ] level. Blocking this cascade can prevent cell death, which in turn prevents further downstream
immune responses from aggravating the damage.
Multiple clinical studies demonstrate MC-1’s potential. MC-1 has been evaluated in several clinical
studies. Most recently, the MEND-CABG (Phase II/III) trial showed that MC-1 may mitigate adverse events
after CABG surgery.
MC-1 Trials
MEND-I. MEND-I was a double-blind, placebo-controlled study to evaluate MC-1’s ability to reduce cardiomyocyte
death as measured by changes in the MB fraction of the enzyme creatine kinase (CK-MB), which is
secreted from damaged cardiac muscles. CK-MB levels have been previously correlated with the risk of myocardial
infarctions.
Sixty patients were randomized in a 2:1 manner, receiving either MC-1 (10 mg/kg) or placebo prior to Percutaneous
Coronary Intervention (PCI) The primary endpoint was infarct size based on CK-MB measurements
24 hours after PCI. Secondary endpoints were the occurrence of major cardiac events (MACE) within 30 days
and occurrence of MI within 24 hours of PCI.
MC-1 showed a 43.5% reduction in infarct size (32.9 ng / ml, p=0.038). However, there no deaths in either
the placebo or experimental groups, so the occurrence of non-fatal MI was the same.
MEND-CABG I. MEND-CABG enrolled 901 patients in a placebo-controlled Phase II/III trial. Patients were
enrolled into three treatment arms: 250 mg MC-1, 750 mg MC-1, or placebo in a 1:1:1 manner. Patients received
treatment once a day for 30 days. The study enrolled high-risk patients that two of the following criteria: ACS within 28 hours, MI within seven days, TIMI 0-2 flow, angiographic evidence of thrombus, LVEF
<=30%, or saphenous vein graft lesion.
The primary composite endpoint included cardiovascular death, non-fatal MI defined by CK-MB levels >= 50
ng/ml and non-fatal cerebral infarction at post-operative day (POD) 30. The study was not powered to detect
significance, but merely show a trend towards significance. It was powered at 78% to detect a 37% reduction
in the primary endpoint. The trial failed to meet its primary endpoint under the definition of non-fatal MI
having CK-MB levels > 50 ng/ml, showing only a 14% reduction in MI under this definition. However, at a
definition of MI having CK-MB levels > 100 ng/ml, an alternative definition of MI, MC-1 showed remarkably
good results. MC-1 was well tolerated.
Exploratory Analysis of 100 ng/ml Definition of MI
Source: Medicure
MEND-CABG II (Pivotal Phase III). The company is in the midst of a pivotal Phase III trial that will enroll
3,000 high-risk CABG patients. In December 2006, Medicure announced that it had completed an SPA agreement
with the FDA. The study will be conducted in 120 sites across the United States and Europe, and uses a
composite endpoint and a definition of CK-MG >= 100 ng /ml as the definition of MI. The FDA had previously
allowed Alexion to use this definition in its ischemic reperfusion injury trials. Patients will be treated for 30
days and followed for an additional 90 days. Enrollment began in early 2007. As of April 12, 2007, over 90%
of sites were active; enrollment is on track to be completed in late 2007. Final Phase III data should be available
at next year’s Late Breaking ACC at the end of March 2008. We estimate that the company will file a
rolling NDA in 2007/2008 and launch the product in late 2008 or early 2009 at the latest.
Regulatory Pathway
We are optimistic about the outcome of this trial, particularly given that the SPA agreement lowers regulatory
risk, the trial’s similarity to MEND CABG-1, and the FDA’s agreement that an additional Phase III trial
will not be required. Furthermore, this product has been granted priority six-month review. The FDA has said
will allow MEND-CABG-1 data to be included in the submission.
The company has been in continuous contact with the EMEA regarding a European submission, and expects
to file for European approval shortly after an approval in the United States. What remains to be seen, however,
is whether the EMEA will require the company to perform an additional Phase III trial.
Timepoint Placebo
POD30 49 31 (37.2% difference, p=0.028) 34 (31.1% difference, p=0.071)
POD90 50 32 (36.5% difference, p=0.030) 35 (30.5% difference, p=0.071)
Incidence of MI Only
Timepoint Placebo
POD30 43 23 (47.2% difference, p=0.008) 23 (47.2% difference, p=0.008)
POD90 44 23 (48.3% difference, p=0.006) 23 (48.3% difference, p=0.006)
250 mg / day 750 mg / day
Composite Endpoint of Cardiovascular Death, MI, Stroke
250 mg / day 750 mg / day
There are approximately 370,000 CABG procedures performed in the United States every year, and there is
currently no product approved for use as a cardioprotectant during cardiovascular surgeries. The number of
CABG procedures, according to our channel checks with cardiovascular surgeons, has been increasing in recent
months given the controversies regarding drug eluting stents. We believe that the use of MC-1 in the
U.S. CABG setting, at a conservative price of US$750 per I believe the company will charge 1000 to 1500 not 750 dollars. Even if you use 750 times 370 thousand you get a market near 300 million not 185 milliontreatment, is worth US$185 million in the United
States alone.
An upside to this is MC-1’s potential use in Percutaneous Coronary Intervention (PCI). MC-1’s ability to prevent
local cellular damage during balloon catherization or stent deployment could be of significant clinical
value in the face of the recent debates surrounding long-term complications associated with drug eluting
stents. There were approximately 1 million PCI procedures performed in 2006 in the United States alone — a
potential additional market value of US$750 million for MC-1. It is unlikely that Medicure can pursue this indication
on its own. Rather, we believe that this indication is something a larger partner would have to fund.
We believe that solid results in Phase III for the PCI indication can lead to a strong commercialization partnership.
Procter & Gamble had previously signed a co-development partnership with Alexion Pharmaceuticals
prior to the initiation of Alexion’s Phase IIb trial for pexelizumab. The partnership was valued at US$95 million,
which included a US$10 million upfront payment, royalties, and milestones.
Competitive Landscape
There are two primary competitors in the injectible anti-platelet market: Millenium/Schering’s Integrilin and
Eli Lilly’s ReoPro. Integrilin was originally developed by Millenium Pharmaceuticals, but is co-marketed with
Schering Plough in the United States and licensed to GlaxoSmithKline overseas. Integrilin is approved for use
in both ACS and PCI — hence its dominant share; patients can be treated with Integrilin once they are admitted
to a hospital and can be kept on it until the PCI procedure. ReoPro is approved for use as an adjunct
therapy in addition to heparin and aspirin in percutaneous coronary intervention for the prevention of cardiac
ischemic complications, or in patients with unstable angina who are non-responsive to conventional medical
therapy if a PCI is planned within 24 hours. Integrillin is approved for the treatment of patients with acute
coronary syndrome (unstable angina/non-ST-segment elevation myocardial infarction), including patients
who are to be managed medically and those undergoing percutaneous coronary intervention (PCI), and for
the treatment of patients undergoing PCI, including those undergoing intracoronary stenting. In contrast,
Aggrastat is approved for use on in ACS and not PCI. We believe this narrow label, as well as the lack of
marketing effort, has contributed to the product’s lackluster performance prior to its acquisition by Medicure.
Despite the need for a cardioprotectant, there is little competition for MC-1. The two most notable products,
Aventis’ caroporide and Alexion’s pexelizumab, both failed in recent years to show any efficacy as a cardio-protectant. Frankly, we believe this is the primary reason for Medicure’s stock being undervalued relative to
its late-stage peers. We are not discouraged by these companies’ failures to develop a drug for use in preventing
ischemic reperfusion injury. We believe that both compounds failed because the mechanisms of action
were too specific to engender a broad reduction in the immunomodulatory response to ischemic reperfusion
injury. MC- 1 attempts to prevent injury at the beginning of the signaling cascade which leads to the
immune response, rather than trying to modulate the immune response itself.
There are a number of compounds in development, but most are being pursued by academic research institutions.
We highlight the competitive products being pursued by private and public companies in the table
below.
Competitive Landscape for Cardioprotectants
Source: MCF & Co.
MC-4232
MC-4232 combines MC-1 with lisonopril, an ACE inhibitor, and is targeted at the extremely competitive high
blood pressure market. Phase II (MATCHED) clinical trials demonstrated blood pressure and metabolic control.
The MATCHED trial enrolled 120 patients in a randomized, placebo-controlled, double-blind, crossover study.
100, 300, and 1000 mg of MC-4232 were combined with 20 mg of lisonopril (normal dosing range is 20-40
mg). The primary endpoint was mean daytime ambulatory systolic flow (MDASBP); the study was not powered
to detect significance. The 300 mg/20 mg combination of MC-1/lisonopril reduced MDASBP by 12 mmHg
compared to baseline (p=0.0001) and to 7.5 mmHg for lisonopril alone (p=0.13). The results were encouraging
enough for the company to decide to push the product into later stages of development.
We expect this therapeutic category to grow to US$32 billion by 2010, driven largely by demographic shifts
which highlight the increasing prevalence of metabolic diseases. Treatment options in this market include
angiotensin receptor blockers, diuretics and beta blockers. This is a highly competitive market with a multitude
of generic options; a product will have to show a significant benefit in terms of efficacy, safety, or convenience
to be successful. Hence, we remain cautiously optimistic about the prospect of this product. The
company will, in our view, have to push the product into later stages of clinical development before it can be
effectively partnered.
Compound Company Description Development Phase
Avandia(rosiglitazone) GSK Assessment of IRI following 8 weeks of rosiglitazone
treatment in patients with metabolic disease; Expected
completion in 2007
Phase II
Lipotor (atorvastatin) Merck Assessment of IRI following 3 day treatment with
atorvastating 80 mg daily; Expected completion in 2007
Phase IV
Angiomax (bivalirudin) Medicines Company Evaluate use of Angiomax in patients with ACS prior to PCI Phase III
Reprieve Radiant Medical Endovascular therapeutic cooling technology; 225 patient
trial in patients with PCI
Phase II/III
TP-10 Avant Immunotherapeutics Complement inhibitor Phase II completed
FX06 Fibrex Medical Fibrin derived peptide; 220 patient trial in PCI patients
KAI9803 Kai Pharma Delta-PKC inhibitor; Phase I
Discovery-Stage Compounds
MC5422 anti-ischemia program. This program revolves around modifying MC-1 and creating mimetics to
further address ischemic and reperfusion injury.
MC-45308 antithrombotics program. Preliminary results have shown significant potential for the lead
drug candidate in this program, MC-45308, in preventing blood clots. The compound has demonstrated both
anti-platelet and anti-coagulant effects, which could make MC-45308 a major player in the management
strategy of cardiovascular diseases such as Myocardial Infarction (MI), stroke, Pulmonary Emboli (PE) and
Peripheral Arterial Disease (PAD). A drug of this type currently is non-existent within the antithrombotic marketplace.
Management
According to the company:
Albert D. Friesen, Ph.D., president and CEO, holds a Ph.D. in Protein Chemistry from the University of
Manitoba. As the first full-time employee and president of the Winnipeg Rh Institute, he oversaw the development
and initial pharmaceutical approval of WinRho. Dr. Friesen has also been instrumental in founding
several health industry companies including Novopharm Biotech Inc. (now Viventia Biotech Inc.), Genesys
Pharma Inc., and KAM Scientific Inc.
Jan-Ake Westin, M.Sc., VP, clinical development, has worked as a managing director at two of Canada’s
leading CROs — i3 Research and Innovus. In this capacity he has overseen the management of numerous
large cardiovascular clinical trials. Mr. Westin spent more than 20 years with Astra Pharma Inc., holding such
positions as international clinical research manager and senior clinical research scientist. Following this, Mr.
Westin proceeded to senior leadership positions with Pharmacia & Upjohn Inc. and Pfizer/Pharmacia Corp.,
where he served as director of clinical operations and director of clinical outsourcing, respectively. Mr. Westin
received his M.Sc. (Social Pharmacy) from the University of Uppsala in Sweden.
Derek G. Reimer, CA, CFO, came to Medicure from Deloitte & Touche LLP where he served as a senior
manager in the Assurance and Advisory Services group. In this role, Mr. Reimer dealt mainly with major corporate
clients, including several TSX 100 companies, providing advice regarding complex accounting, regulatory,
and compliance issues. His previous experience includes several years providing international accounting
services to clients exclusively in the financial services industry. Mr. Reimer is a chartered accountant who
also holds a Bachelor of Commerce (Hons.) degree in accounting from the University of Manitoba. Mr. Reimer
is responsible for managing financial systems, programs, and processes to ensure the successful accomplishment
of Medicure's business objectives.
Valuation and Rating
We are valuing the company on a modified sum-of-the parts basis.
We are projecting that the company can re-grow the AGGRASTAT brand to C23 million in three years. We are
opting to stay on the conservative side of the estimates because the company is inherently relying on offlabel
use to drive AGGRASTAT’s growth. We value this franchise at a multiple of 3x sales. We assume a gross
margin of 90% for this product.
For MC-1, we are using a risk-adjusted probability model of success. We are conservatively assuming a
CY2009 launch using a co-promotion model in which Medicure earns 40% of the revenue generated by the
partnership/joint venture in the United States. We are assuming 30% market penetration in the first year,
which we believe is reasonable given that there is no product in the market for use as a cardioprotectant. We
are pricing MC-1 at US$750 per treatment, which seems comparable to other therapeutics used in a cardioMERRIMAN
CURHAN
FORD
GROW WITH US SM
April 17, 2007 12
Cardiology
Medicure, Inc. Buy
vascular surgery setting. We are also assuming a probability of 60% success to the trial, despite the fact that
it is a pivotal study being conducted under an SPA.
We believe that good Phase III results for MC-1 in IRI should lead to a partnership that targets the use of
MC-1 in PCI. Hence, we include in our valuation model the impact of milestone payments (US$15 million upfront,
US$35 million in development milestones, another US$40 million for commercialization milestones) as
well as a royalty-based revenue stream. In order to remain conservative, we model a 20% probability of success
since we view this aspect of the model rather dependent on MC-1’s performance in the IRI indication.
At the time of this report’s publication, the company had cash and equivalents of approximately C$47 million.
We believe this is enough to fund the company’s activities until the end of the pivotal U.S. Phase III trial. The
company may have to access the capital markets at least one time prior to commercializing the product.
Based on these assumptions, we believe the stock can trade toward the US$2.00-2.20 level in 12 months.
We are therefore we are initiating coverage with a Buy rating.
Medicure Valuation Model (in US$)
Source: MCF & Co.
Key Risks
Medicure may be unsuccessful in marketing AGGRASTAT. The company acquired AGGRASTAT on the
assumption that a lack of sales and marketing efforts are the primary reason that product sales faltered
since 2003. The lack of an effective and continuous marketing campaign for the product in the last few years
prior to the acquisition may have made the brand “stale” in the minds of interventional cardiologists. Despite
the product’s superior performance in diabetics, it may be difficult to overcome the product’s recent track
record.
MC-1 may fail its pivotal phase III trial. At least half of the company’s valuation rests on MC-1. While
the data from MEND-CABG 1 are encouraging, it was only through a retrospective analysis of the data that
led to the decision to redefine MI as CK-MB >=100. We are comforted that the company has reached an
agreement with the FDA regarding this issue, and that the agency had previously allowed Alexion to use the
same definition of MI in the company’s clinical trials for pexeluzimab.
Sales Roy. MCU Launch Year PV Sales Prob. Weighted Per Sh.
Product Indication Partner Ph. ($M) % Rev. ($M) Year Used Pds Rate ($M) Mult. (%) Value ($) Value ($)
AGGRASTAT ACS None Marketed 13 100% 13 2006 2008 0 10% 13 2 100% 26 0.23
MC-1 Cardioprotection None Phase III 185 40% 74 2009 2012 4 10% 51 4 60% 121 1.08
PCI-Upfront None 15 100% 15 2009 2009 1 10% 14 1 20% 3 0.02
PCI-Development None 35 100% 35 2010 2010 2 10% 29 1 20% 6 0.05
PC-Commcerial None 40 100% 40 2012 2012 4 10% 27 1 20% 5 0.05
PCI-Sales None 750 18% 135 2011 2016 8 10% 63 5 20% 63 0.56
MC-4232 Hypertension None Phase II
@ Yearend
Cash 22.3 19 0.17
112.0 $243 $2.17
Discount
Current 12-Mnt Burn
Not considered in valuation
40.8
Current shares outstanding (M) 12-18 Month Valuation
MERRIMAN
CURHAN
FORD
GROW WITH US SM
April 17, 2007 13
Cardiology
Medicure, Inc. Buy
Other Public Companies Mentioned in This Report
Avant Immunotherapeutics (AVNC, $2.33, Not Rated)
Alexion Pharmaceuticals Inc. (ALXN $44.46, Not Rated)
Bristol-Myers Squibb (BMY $27.99, Not Rated)
Eli Lilly & Co. (LLY $56.76, Not Rated)
GlaxoSmithKline plc (GSK $57.97, Not Rated)
Merck & Co., Inc. (MRK $49.86, Not Rated)
MGI Pharma Inc. (MOGN $23.69, Not Rated)
Millenium Pharmaceuticals Inc. (MLNM $11.44, Not Rated)
The Medicines Company (MDCO, $26.11, Not Rated)
Sanofi Aventis SA (SNY $45.56, Not Rated)
MERRIMAN
CURHAN
FORD
GROW WITH US SM
April 17, 2007 14
Cardiology
Medicure, Inc. Buy
Jose J Haresco, Ph.D.
Senior Vice President
(415) 248-5629
jharesco@mcfco.com
Source: MCF & Co.; company filings
Medicure, Inc.
Quarterly Income Statement
(In CAN$)
2008 2009 2010
8/31/2005 11/30/2005 2/28/2006 5/31/2006 FY 8/31/2006 11/30/2006 2/28/2007 5/31/2007 FY 5/31/2008 5/31/2009 5/31/2010
Revenue
AGGRASTAT $ - $ - $ - $ - $ - $ 2 80 $ 1 ,419.0 $ 2 ,552 $ 3 ,500 $ 7 ,751 $ 1 3,000 $ 1 8,000 $ 2 3,000
MC-1 $ 1 7,000 $ 4 0,000
MC-1 Milestones
Cost of Goods - - - - - 2 8 5 4.3 1 77 3 50 6 09 1 ,300 1 ,800 2 ,300
Gross Profit - - - - - 2 52 1 ,364.7 2 ,375 3 ,150 7 ,142 1 1,700 3 3,200 6 0,700
Operating Expenses
R&D 3 ,297 3 ,010 1 ,881 2 ,031 1 0,219 2 ,783 3 ,816.0 6 ,518 7 ,000 2 0,117 2 5,000 1 2,500 1 3,000
Amortization 5 82.9 7 74 7 80 2 ,909 1 ,800 1 ,800 1 ,800
Investments Tax
SG&A 5 37 6 36 8 61 8 24 2 ,858 1 ,160 2 ,658.0 3 ,425 3 ,700 1 0,943 1 5,000 2 5,000 2 7,000
Total Operating Expenses 3 ,834 3 ,646 2 ,742 2 ,855 1 3,077 3 ,943 7 ,056.9 1 0,717 1 1,480 3 3,196 4 1,800 3 9,300 4 1,800
Operating Income (3,834) (3,646) (2,742) (2,855) (13,077) (3,691) (5,692.2) (8,342) (8,330) (26,055) (30,100) (6,100) 1 8,900
EBITDA (3,834) (3,646) (2,742) (2,855) (13,077) (3,691) (5,692.2) (8,342) (8,330) (26,055) (30,100) (6,100) 1 8,900
Interest & Other Expense (790.0) (462) (600) (1,852) 1 ,600 1 ,400
Interest Income 2 5 3 5 6 1 1 79 3 00 2 90 3 90.0 4 67 4 40 1 ,587 1 ,400 2 ,000 2 ,100
Pretax Income (3,809) (3,611) (2,681) (2,676) (12,777) (3,401) (6,092.2) (8,365) (8,490) (26,349) (27,100) (2,700) 2 1,000
Taxes - - - - - - - - - - - -
Net Income $ (3,809) $ (3,611) $ (2,681) $ (2,676) $ (12,777) $ (3,401) $ (6,092) $ (8,365) $ (8,490) $ (26,349) $ (27,100) $ (2,700) $ 21,000
EPS $ (0.05) $ (0.05) $ (0.03) $ (0.03) $ (0.16) $ (0.04) $ (0.06) $ (0.08) $ (0.08) $ (0.24) $ (0.24) $ (0.02) 0.17
Weighted Average 8 0,000 8 0,000 8 0,000 8 0,000 8 0,000 9 2,200 9 6,200 1 11,000 1 12,000 1 12,000 1 13,000 1 25,000 1 26,000
Margins
Cost of Goods Sold NA NA NA NA NA NA NA NA NA NA 10.0% 10.0% 10.0%
Gross Margin NA NA NA NA NA NA NA NA NA NA 90.0% 184.4% 263.9%
SG&A NA NA NA NA NA NA NA NA NA NA 192.3% 69.4% 56.5%
Research & Development NA NA NA NA NA NA NA NA NA NA 115.4% 138.9% 37.1%
Operating Expenses NA NA NA NA NA NA NA NA NA NA 321.5% 218.3% 181.7%
Operating Income NA NA NA NA NA NA NA NA NA NA -231.5% -33.9% 82.2%
Net Income, net of taxes NA NA NA NA NA NA NA NA NA NA -208.5% -15.0% 91.3%
2006 FY2007
MERRIMAN
CURHAN
FORD
GROW WITH US SM
April 17, 2007 15
Cardiology
Medicure, Inc. Buy
Jose J Haresco, Ph.D.
Senior Vice President
(415) 248-5629
jharesco@mcfco.com
Medicure, Inc.
Balance Sheet
(In CAN$)
Source: MCF & Co.; company filings
2/28/2007 5/31/2006
Assets
Current assets
Cash and cash equivalents C$ 43,423 C$ 3 4,920
Accounts recievable 3,287 4 58
Inventories 706
Research advance 200 2 00
Prepaid expense 1,282 2 63
48,898 3 5,842
Property and equipment 133 5 1
Intangible assets 23,922 2 ,922
Defered debt issue expenses
72,953 3 8,814
Liabilities and Shareholders Equity
Current liabilities
Accounts payable and accrued liabilities C$ 6,882 C$ 1 ,644
Current portion of long-term debt 5,054
11,936 1 ,644
Long-term debt 13,476
Shareholder's equity
Capital stock 109,035 8 1,227
Contributed surplus 2,754 2 ,071
Deficit (63,831) (46,128)
47,957 3 7,170
C$ 73,368 C$ 3 8,814
MERRIMAN
CURHAN
FORD
GROW WITH US SM
April 17, 2007 16
Cardiology
Medicure, Inc. Buy
This research has been prepared by Merriman Curhan Ford & Co, a wholly owned subsidiary of MCF Corp. Some companies
Merriman Curhan Ford & Co. follows are emerging growth companies whose securities typically involve a higher degree of risk and
more volatility than the securities of more established companies.
The securities discussed in Merriman Curhan Ford & Co. research reports may be unsuitable for some investors depending on their
specific investment objectives, financial status, risk profile, or particular needs. Investors should consider this report as only a single
factor in making their investment decisions and should not rely solely on this report in evaluating whether or not to buy or sell the securities
of the subject company.
Regulation Analyst Certification (“Reg. AC”)
All of the views expressed in this research report accurately reflect the research analyst’s personal views about any and all of the
subject securities or issuers. No part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the
specific recommendations or views expressed by the research analyst in the subject company of this research report. Research analysts
are not compensated for revenue generated by the firm’s investment banking activities.
Specific Disclosures
- MCF & Co. has not received compensation for investment banking services within the last 12 months, and does not expect to receive or
intend to seek compensation for investment banking services in the next three months, from Millennium Pharmaceuticals Inc. or Medicure
Inc.
- Within the last 12 months MCF & Co. has not managed or co-managed a public offering for Millennium Pharmaceuticals Inc., or Medicure
Inc.
- MCF & Co. makes a market in MLNM and as such buys and sells from customers on a principal basis. MCF & Co. does not make a market
in MCU.
- Neither Jose Haresco nor a member of his household owns shares of MCU.
- Neither MCF & Co. nor its officers, principals, employees, or owners own options, rights, or warrants to purchase MLNM or MCU.
- No MCF & Co. employee serves on the board of directors of Millennium Pharmaceuticals Inc. or Medicure Inc.
- Neither Jose Haresco nor a member of his household serves on the board of directors of Medicure Inc.
- Neither MCF & Co. nor its affiliates beneficially owns 1% or more of an equity security of Millennium Pharmaceuticals Inc. or Medicure Inc.
Key to Investment Rankings (expected total share price return inclusive of dividend reinvestment, if applicable)
MCF & Co. archives and reviews outgoing and incoming email. Such may be produced at the request of regulators. Sender accepts
no liability for any errors or omissions arising as a result of transmission. Use by other than intended recipients is prohibited.
The information contained herein is based on information obtained from sources believed to be reliable but is neither all-inclusive nor
guaranteed by Merriman Curhan Ford & Co. No independent verification has been made as to the accuracy or completeness of the
information. Opinions, if any, reflect our judgment at the time the report is first published and are subject to change without notice.
Merriman Curhan Ford & Co. does not undertake to advise you of changes in its opinion or information.
Member NASD / SIPC. Copyright © 2007. All rights reserved. Additional information supporting the statements in this report is available
upon request.
Rating Percent of
Universe
No. of
Stocks Description
Percent of companies under research
coverage from which MCF & Co. received
compensation for investment banking
services provided in the previous 12 months
or expects to receive or intends to seek in
the next three months
Buy 73% 131 MCF & Co. expects the stock price to appreciate 10% or
more over the next 12 months. Initiate or increase position. 15%
Neutral 25% 46 MCF & Co believes the stock price is fairly valued at current
levels. Maintain position or take no action. 2%
Sell 2% 4 MCF & Co. expects the stock price to depreciate over the
next 12 months. Sell or decrease position. 0%
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Medicure, Inc., is a Canadian based development stage biopharmaceutical company, who engages in the research, development, and commercialization of therapeutics for cardiovascular needs.
***RUMOR MILL SPOTLIGHT ***2008***
???
*******************
Medicure Inc. Management
Dr. Albert D. Friesen Ph.D.,
Founder, Chairman, Chief Exec. Officer and Pres
About Mr. Friesen.. http://www.medicure.com/friesen_bio.html
Naranjan S. Dhalla, Ph.D.
Co-founder and Chief Scientific Officer
About Mr. Dhalla.. http://www.medicure.com/dhalla_bio.html
Derek Reimer
Chief Financial Officer
About Mr. Reimer.. http://www.medicure.com/reimer_bio.html
(888) 435-2220
Fax: (204) 488-9823
OR
Medicure Inc.
Hogan Mullally
Manager of Investor & Public Relations
(888) 435-2220
Fax: (204) 488-9823
info@medicure.com
www.medicure.com
^^^^^^^^^^^^^^^^^^^^^^^^
Medicure Inc. *SHARE STRUCTURE*
»»»AMEX:MCU«««
>>>*O/S = 116.26M
>>>Float = 105.35M
//||*>>>Chart//||*>>>
