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MEDICURE INC. —MCU
CLOSE TO THE HEART
Overweight AMEX: $1.42 as of 7/31/07
Initiation Report
Key Data FY 2006 2007 2008
52-Week Range: $1 - 2 EPS
Market Cap. (mn): $165.1 1Q $(0.05)A $(0.03)A $(0.06)E
Shares Outstanding (mn): 116.3 2Q $(0.04)A $(0.06)A $(0.03)E
Average Daily Volume: 95,410 3Q $(0.03)A $(0.06)A $(0.02)E
Free Float (mn) 105.4 4Q $(0.03)A $(0.08)E $(0.02)E
Short Int. (% Free Float) 0.0 Year $(0.15)A $(0.23)E $(0.13)E
Fiscal Year End: 5/31 P/E NM NM NM
Revenue (mn)
Total Debt/Equity 34% 1Q $0.03A $0.25A $4.04E
TEV/TTM Sales: 41.0x 2Q $0.03A $1.26A $4.93E
Net Cash/Share: $0.13 3Q $0.05A $2.16A $5.72E
Book Value/Share: $0.27 4Q $0.15A $3.12E $6.29E
Price/Book Value: 5.4x Year $0.26A $6.79E $20.98E
Price Target $3.00 TEV/Sales NM 23.1x 7.5x
Source: Company reports, Thomson Financial and Thomas Weisel International estimates
Note: Medicure Inc. reports in CN$ we have used convenience translation into US$ equivalents. Price is as of the close on the date
indicated. Any price target displayed in the data box above represents either a specific price target or the midpoint of a range. EPS are pro
forma for stock-based compensation expense and one-time items.
• We are initiating research coverage of Medicure Inc. (MCU) with an Overweight rating and
a 12-month price target of $3.
• Growing Aggrastat sales; near-term phase III data on MC-1: Medicure is a cardiovascular drug
company. It has acquired and started marketing Aggrastat, a GPIIb/IIIa inhibitor. Lead pipeline
drug MC-1 is currently in a pivotal phase III study in coronary artery bypass graft (CABG) patients.
• Aggrastat set to recover; peak sales to cross $100mn: We believe that Aggrastat will recapture
significant market share in light of focused marketing efforts and an active salesforce. We estimate
peak sales to cross $100mn by 2015.
• MC-1 phase II data indicative of efficacy; likely to meet phase III endpoints: MEND-1 and
MEND-CABG phase II study results were clearly indicative of the cardio-protective properties of
MC-1. Based on that, we believe that the endpoints in the MEND-CABG II phase III studies are
likely to be met. We expect a mid-2009 launch of the drug and estimate that peak sales will reach
$700mn if additional indications of angioplasty and acute coronary syndrome are approved.
• Valuation: We obtained our 12-month price target of $3 by applying a 30x P/E multiple to our
2012 pro forma EPS estimate of $0.20 and discounting it back at 20%. There are always risks that
the price target for any security will not be realized. In addition to general market and
macroeconomic risks, for Medicure, Inc., these risks include, among other things, clinical trial
failure of its ongoing MC-1 development programs and competition from bigger pharmaceutical
companies.
August 1, 2007
HEALTHCARE
Biopharmaceuticals
Bino Pathiparampil
415.262.6365
Bpathiparampil@tweisel.com
August 1, 2007 Thomas Weisel International
2 Bino Pathiparampil 415.262.6365
CARDIOVASCULAR DRUG DEVELOPER WITH IMPRESSIVE PORTFOLIO
One product in market; high potential product in phase III; rich pipeline:
Medicure, Inc, located in Winnipeg, Manitoba, focuses on developing therapeutics for
the treatment of cardiovascular diseases. Aggrastat, Medicure’s sole product on the
market, was acquired from MGI Pharma in August 2006 and is used in patients
undergoing invasive cardiac procedures such as angioplasty. The company has one drug
currently in phase III studies to prevent ischemic injury in coronary artery bypass graft
(CABG) patients and two other clinical stage drugs—one in phase II for treatment of
hypertension in diabetics and another in phase I to treat hypertension in patients with
metabolic syndrome.
Aggrastat set to recover; peak sales could cross $100mn: Aggrastat (tirofiban
hydrochloride), a GPIIb/IIIa inhibitor, is used for the treatment of acute coronary
syndrome (ACS) and as an adjuvant to percutaneous transluminal coronary angioplasty
(PTCA) or atherectomy. After several years of languishing sales as a result of inadequate
marketing efforts, Aggrastat was acquired in the United States by Medicure. Its newly
formed, 25-person-strong salesforce is working actively and turning around the product.
We believe that Aggrastat can improve its market share significantly and we estimate that
peak annual sales will cross $100mn by 2015. Total U.S. sales for GPIIb/IIIa inhibitors,
including Reopro (abciximab) marketed by J&J and Integrilin (eptifibatide) marketed by
Schering Plough, totaled $430mn in 2006 (a 0.1% increase y/y), with Aggrastat
accounting for only $8.6mn. In the EU, however, where Merck actively markets the
product, Aggrastat has a significant market share and commands sales comparable to
those of Integrilin. Available data comparing the three GPIIb/IIIa inhibitors suggest that
Aggrastat is as efficacious as Reopro and Integrilin, with some added advantages.
Aggrastat is currently being evaluated in several clinical studies by Merck. Data from an
Italian study comparing Aggrastat with Reopro is expected in the spring of 2008. We
estimate Aggrastat FY07 U.S. sales of $6.79mn.
MC-1—fast-track status and SPA agreement with the FDA: MC-1, a vitamin B6
metabolite, has significant cardio-protective effects that can mitigate the effects of
reperfusion injury. Reperfusion injury occurs when blood flow to the heart muscle cells is
restored after a period of ischemia, leading to a flurry of cell-damaging immune
mediators. This typically happens in the setting of a coronary artery bypass graft
(CABG), PCTA and thrombolysis in ACS. MC-1 was granted fast-track status with the
FDA as a treatment to reduce cardiovascular and cerebrovascular events associated with
ischemic and/or ischemic reperfusion injury in patients undergoing angioplasty, CABG
surgery and in ACS.
$1bn potential opportunity; serving an unmet medical need: According to the
American Heart Association (AHA), approximately 400,000 CABG and 1.4mn
angioplasty procedures were conducted in the United States in 2006. There is currently
no cardio-protective drug available against reperfusion injury resulting from these
procedures. Assuming a per-patient cost of $600 for MC-1, this could represent a $1bn
opportunity, should the drug receive FDA approval.
August 1, 2007 Thomas Weisel International
3 Bino Pathiparampil 415.262.6365
MC-1 Phase II data suggestive of efficacy: In the 60-patient, MEND-1 phase II
study, MC-1 reduced the median area under the periprocedural CK-MB curve (AUK)
from 32.9ng/ml to 18.6ng/ml (a 43.5% reduction; p=0.038) on post-operative day 30
(POD30). It also showed a good safety profile. In the 900-patient, placebo controlled,
multi-dose MEND-CABG study, MC-1 achieved a 37.2% reduction in the composite
endpoint, with myocardial infarction (MI) defined as peak CK-MB ≥100ng/ml, in the
250mg arm versus placebo (p=0.028). The composite endpoint consisted of death, non-fatal
MI and non-fatal stroke. In addition, there was also a 46.9% reduction in the
incidence of non-fatal MI (peak CK-MB band ≥100ng/ml) in the 250mg MC-1 group.
MC-1 also achieved a 31.7% reduction in the composite end, with MI defined as peak
CK-MB ≥70ng/ml, in the 250mg arm versus placebo (p=0.035). The POD30 findings
of significant reduction in the composite endpoint continued to POD90; however, MC-1
could not establish significant improvement in the composite endpoint versus placebo
when MI was defined as peak CK-MB ≥50ng/ml. Also, the 750mg arm performed
worse than the 250mg arm; the company explains this as a result of the peaking of
plasma levels of MC-1 followed by accelerated excretion from the body. The compound
exhibited a good safety profile in the study.
MEND-CABGII phase III study ongoing; expect results in 1H08: MC-1 is
currently being studied in a 3,000-patient, double-blind, randomized, placebo-controlled
phase III trial, the MEND-CABG II study. This trial is being conducted in 120 centers
across the United States, Canada and Germany, and results are expected in 1H08. The
primary endpoint is a reduction in a composite of death and nonfatal MI (peak CK-MB
band ≥100ng/ml) up to POD30 compared to placebo. We believe that the trial has a
good chance of meeting its endpoint and expect a mid-2009 launch. We estimate that
peak annual sales could exceed $700mn if the other indications (PTCA and ACS) are also
approved. The company intends to conduct future label expansion studies in ACS and
stroke patients
RICH PIPELINE ADDS TO THE PROMISE
Satisfactory MC-4232 phase II data: phase III study pending: According to the
Centers for Disease Control and Prevention (CDC), more than 14mn Americans are
currently living with diabetes with another 6.2mn undiagnosed with the disease. Of those
diagnosed with diabetes, around 73% suffer from hypertension. MC-4232 is a
combination of MC-1 and lisinopril, an ACE inhibitor, and was recently evaluated in a
phase II trial, the MC-1 and ACE Therapeutic Combination for Hypertensive Diabetics
(MATCHED) study. Results from this study showed that MC-4232 reduced mean
daytime ambulatory systolic blood pressure (MDASBP) by 4.5mm Hg more when
compared with the use of lisinopril alone and reduced fasting serum glucose by
1.45mmol/L. No statistically significant decrease in HbA1c levels was seen, however.
The company intends to conduct a 1,500-patient phase III study, but further
development is currently on hold until results are available from the MEND-CABG II
study.
Good early stage drugs in MC-4262 and MC-4538: Other drugs in the pipeline
include MC-4262 (a combination of MC-1 and an angiotensin II receptor blocker (ARB))
currently in phase I for treatment of hypertension in individuals with metabolic
August 1, 2007 Thomas Weisel International
4 Bino Pathiparampil 415.262.6365
syndrome. Medicure is also developing a novel compound, MC-4538 which is currently
in preclinical evaluation for use as an anti-thrombotic agent.
MCU Pipeline
Products
Aggrastat ®
Acute Coronary Syndrome (ACS)
MC-1
Coronary Artery Bypass Graft (CABG)
Acute Coronary Syndrome
Stroke
MC-4232
Diabetic Hypertension
MC-4262
Hypertension Complicated
with Metabolic Syndrome
MC-45308
Thrombosis
MC-5422
Ischemia DISCOVERY
Source: Company reports
Approval Market Preclinical Phase I Phase II Phase III
COMPANY INSIGHTS
Experienced management: Dr. Albert Friesen, Medicure’s founder and CEO, has
been with the company since its inception in 1997. Prior to that, he held senior
management positions in several companies such as Viventia Biotech and Genesys
Pharma. He also played a significant role in the founding and successful sale of
companies including Rh Pharmaceuticals (acquired by Cangene) and ABI Biotechnology
(acquired by Apotex). Other senior management includes personnel with several years of
significant industry experience.
Good cash position: Medicure ended 3Q07 with more than $37mn in cash. Based on
our estimates, the company will be able to make it through late 2008 with the current
drug development plans. Medicure raised approximately $25mn in December 2006 via a
private placement of common stock at a price of $1.30 per share, in addition to the
issuance of approximately 4mn warrants.
Key shareholders: Major shareholders of Medicure include Columbia Wanger Asset
Management, L.P. (7.94%) and Dr. Albert Friesen (6.59%).
ESTIMATES
Our 4Q07 and FY07 revenue and pro forma estimates are $3.12mn and $(0.08) and
$6.79mn and $(0.23), respectively. Our FY08 revenue and pro forma estimates are
$20.98mn and $(0.13), respectively.
August 1, 2007 Thomas Weisel International
5 Bino Pathiparampil 415.262.6365
POTENTIAL UPSIDES TO OUR ESTIMATES
MC-1 label expansion; off-label use: Our current estimates for MC-1 only include
revenue from its use in CABG procedures. There could be significant upside potential to
our estimates should the drug be used for patients undergoing angioplasty procedures
and in ACS patients.
FDA approval of MC-4232: Our current revenue estimates do not include sales of MC-4232,
since further development of the drug is currently on hold. If results from the
planned 1,500-patient trial turn out positive and the drug receives FDA approval, there
would be significant upside to our revenue estimates.
POTENTIAL DOWNSIDES TO OUR ESTIMATES
Failure of MC-1 phase III trial: All of Medicure’s resources are currently directed
toward the MC-1 MEND-CABGII trial. Failure of MC-1 to demonstrate significant
benefit in the phase III trial would result in significant downside to our estimates.
Inability of the sales force to deliver: Medicure competes in the cardiovascular space
currently dominated by large pharmaceutical companies. Should the salesforce be unable
to gain a foothold in the market, this could result in lower revenue and downside to our
estimates.
Medicure, Inc - Near-Term Milestones
Drug Indication Milestone Timing
Aggrastat ACS Data from four ongoing clinical studies 2Q08
MC-1 CABG Phase III data 2Q08
MC-4232 Hypertension in Diabetics Initiation of phase III study 2H08
Source: Company reports and Thomas Weisel International estimates
RISKS
Drug development risks: All drug development programs carry an inherent risk of
failure by virtue of the unpredictable nature of clinical trial results and could result in
significant financial loss in terms of resources spent on the program.
Market risk: Medicure’s drug serves an unmet medical but will cater to the
cardiovascular market, which is highly dominated by large pharmaceutical companies.
Medicure could face intense competition from these firms with bigger salesforces,
especially in relation to Aggrastat.
VALUATION
We obtained our 12-month price target of $3 by applying a 30x P/E multiple to our 2012
pro forma EPS estimate of $0.20 and discounting it back at 20%. There are always risks
that the price target for any security will not be realized. In addition to general market
and macroeconomic risks, for Medicure, Inc., these risks include, among other things,
clinical trial failure of its ongoing MC-1 development programs and competition from
bigger pharmaceutical companies.
