Ask an investor to talk about life sciences stocks and it won’t be long before the word “risk” comes up. The popular conception of biotech is that every company is a swing-for-the-fences slugger burning through cash in a furious attempt at scoring the next home run drug.
But modern business models are emerging that allow those looking to profit from the sector to participate in the upside of new treatments with management teams who have derisked their business models, to a large degree. Milton Ontario-based Tribute Pharmaceuticals (TSXV:TRX) is one such story.
Fouded in 2006, Tribute went public in 2011 and has since raised significant cash on its way to becoming an emerging power in Canadian specialty pharma. Specialty pharmaceuticals, drugs that treat rarer conditions with smaller patient populations, are on the rise. One estimate says they will account for almost half of the top-selling medications by 2018.
Tribute reduces risk for investors by focusing on mature products, maintaining a keen understanding of Health Canada and FDA regulations, and employing a sales force that promotes its products directly to Canadian physicians and pharmacists.
Cantech Letter talked to CEO Rob Harris about the past, present and future of Tribute Pharmaceuticals.
Rob, can you tell us how Tribute Pharmaceuticals got started?
Tribute was founded in January 2006 and was a private company until December 2011 when Tribute merged with then publicly traded Stellar Pharmaceuticals Inc.
How would you characterize your business model?
Our primary focus is on the Canadian market and we look to acquire mature, immediately accretive products and development or licensed products. The latter are late stage products, often approved in other countries but not yet available in Canada. Tribute seeks approval for these products and then introduces them to physicians and other health care providers in Canada.
How is Tribute unique within the Specialty Pharma sector in Canada?
Tribute has a 24 person sales force and promotes its products directly to Canadian physicians and pharmacists. We also have regulatory capabilities and file products for marketing approval with Health Canada (and the FDA in the US). Tribute has internal business development capabilities and is always looking for new products to sell in Canada. We also have our own packaging/warehousing facility in London, Ontario.
Can you talk a bit about your product offerings, beginning with the most mature treatments?
Tribute now markets 10 products in Canada including; NeoVisc, Uracyst, Collatamp G, Soriatane, Bezalip SR, Cambia, Fiorinal, Fiorinal C, Visken and Viskazide and has recently licensed the exclusive rights to bilastine for the Canadian market, which should be approved in 2016. Tribute’s two proprietary products NeoVisc and Uracyst are also sold throughout many global markets and Tribute has the exclusive license rights to Bezalip SR in the United States.
The specialty pharma model has been around for a long time and companies like Ayerst, Biovail and Paladin Labs have proven the model successful. I believe with the traction Tribute is now gaining in the marketplace that someday, we will enjoy similar success.
What is the status of filing Bezalip SR in the US with the FDA?
Tribute filed an Investigational New Drug (“IND”) application in September 2013, which was subsequently cleared in November 2013. The Company is planning to complete one phase 3 clinical trial in hypertriglyceridemia prior to filing a New Drug Application (“NDA”). In February 2014 Tribute announced that the Company engaged JSB Partners to look for a partner to complete the development and commercialize Bezalip SR in the US. The Company is in discussions with multiple parties and continues to pursue this strategy. In parallel, Tribute is developing a Special Protocol Assessment (“SPA”) and will consider filing the SPA with the FDA once completed.
Your Q2 revenues, which you reported August 11th, were up by more than 21%, year over year. What contributed to this?
The growth is coming from all of our products and our international business. The introduction of Cambia in February 2013 saw total prescription growth up 27% in Q2 as compared to Q1 – 2014 and sales of our main promoted products Bezalip SR, Soriatane and NeoVisc also showed positive growth in Q2 – 2014.
On July 15th, you raised more than $30-million. Do you think this cash provides the runway to take you to profitability, or will you need to go back to market at some point in the future?
Tribute completed the acquisition of Fiorinal, Fiorinal C, Visken and Viskazide from Novartis on October 2, 2014 for $32 million. The trailing twelve month sales were around $10 million with gross margins in the 90% range. The addition of the Novartis products in conjunction with the solid organic growth of our other products will lead us to positive EBITDA beginning as early as Q4 – 2014. Our business is now cash flow positive and 2015 will post positive EBITDA as well.
I expect to see revenues grow by as much as 50% in 2015 compared to 2014. We will report positive EBITDA for both 2015 and 2016 and we will continue to expand our product portfolio through our business development initiatives.
Can you tell us a bit about bilastine?
Bilastine in a world class product and approved in more than 40 countries globally. It is a second generation anti-histamine with an excellent safety record and solid clinical profile in both allergic rhinitis and chronic idiopathic urticaria or hives. Bilastine captured over 10 % market share in the anti-histamine market in both Spain and France after just 3 years. Tribute will file bilastine with Health Canada in Q1 – 2015 and expects to launch the product in Canada in 2016.
Rob, you have experience through the entire scale of Canadian corporate life, from your time with Biovail (which was acquired by Valeant Pharma) and now with Tribute. How would you characterize the business landscape here?
Specialty pharma is thriving here in Canada. When I began my career with Ayerst Laboratories, Ayerst was the largest pharmaceutical company in Canada and by definition was a specialty pharma company. Ayerst licensed products from companies with no presence in Canada and so does Tribute, so the potential and future is very encouraging. The specialty pharma model has been around for a long time and companies like Ayerst, Biovail and Paladin Labs have proven the model successful. I believe with the traction Tribute is now gaining in the marketplace that someday, we will enjoy similar success.
Is the specialty pharma industry getting more competitive in Canada? Is the price of product acquisitions going up?
There are certainly more players today than there were several years ago. We are finding that there are more opportunities today than we have seen in a long time and there are no signs that this will change anytime soon. It is more competitive to acquire mature products and we have definitely seen some higher prices paid for mature products. However, we are unique to compared to some other specialty pharma companies and having our own a salesforce allows us the ability to promote and grow these products, therefore creating additional value which positions us well. This is especially true with licensed or development products where you need sales, marketing and regulatory expertise. I also believe we will see some consolidation in Canada much like we’ve seen in the US of recent times.
What milestones should investors be looking for from Tribute Pharmaceuticals over the next 18-24 months?
I expect to see revenues grow by as much as 50% in 2015 compared to 2014. We will report positive EBITDA for both 2015 and 2016 and we will continue to expand our product portfolio through our business development initiatives. Cambia will continue to show strong quarter-over-quarter growth and bilastine should be approved and launch during this timeframe. Additionally, we are looking for positive developments with our US initiatives with Bezalip SR and Uracyst and expect to establish our footprint in the US within the next 12 months.
Disclosure: Tribute is an annual sponsor of Cantech Letter.