Medicure – Uncovering Value in a Hidden Asset

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Medicure Inc (MPH), a company that we have held across multiple funds for over two years, is a specialty pharma company focused on cardiovascular solutions based in Winnipeg, MB. Medicure is “our kind of bio-tech company”. Our investment thesis was based on Medicure having a R&D-light business model, limited regulatory risk and an owner-operator with significant skin in the game. 

Medicure had two main assets:

  • The North American distribution rights to a drug named Aggrastat, an anti-coagulant (blood thinner) primarily used in emergency rooms directly after a patient has experienced a cardiac arrest.
  • An investment in a generic drug manufacturer named Apicore, based in India.

On Tuesday (October 3, 2017), Medicure sold its entire interest in Apicore for US$105 million, representing nearly a 100% return on its investment in under one year. However extraordinary that return may seem, we are left scratching our heads as the stock is down over 5% after the announcement. It seems the market does not like 100% IRR’s. And it is precisely this kind of investor behavior that makes investing such a peculiar activity.

In particular, short term market reaction is seldom tied to reality but is more often tied to a change in expectations. This subtle but important difference is the same reason many of us find that the movie is never as good as the book. A book lets the mind wonder, enabling the reader to create her own details of reality, whereas a movie’s reality is set in stone – there is nothing left for the imagination. Medicure set in stone the valuation of a hidden asset leaving no ability for the investor to conjure up his own perfect ending.

Sure, one could argue that Medicure gave up some future growth potential in the Apicore business, but the reduction in leverage and cash optionality the company has today is what makes us excited. Even better, a CEO that is driven by value creation and deems that everything is for sale, at the right price, is what makes our collective hearts sing. We happily hold on to our position with increased confidence in an owner-operator that just made a 100% IRR capital allocation decision and a company that now has money in the bank to both protect on the downside and smartly deploy for the upside.  

David Barr & Kenndal McArdle
October 4, 2017

Pender Corporate Bond Fund – Manager’s Commentary – September 2017

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The Pender Corporate Bond Fund returned 0.8% in September, a decent result given that the bond market showed broad-based weakness. The Fund’s short duration and positioning in discounted credits allowed us to make money in an otherwise difficult environment.

Strong contributors in September included our holdings in Primero Mining Corp convertible notes as investors began to focus on possible credit upside related to indications of multiple potential bidders for the company. Our holdings of Novavax Inc convertibles also rose as a key competitor ended its own respiratory virus vaccine development and suggested it would be open to partnerships with other companies, such as Novavax.

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Manager’s Quarterly Commentary – Felix Narhi – Q2 2017

Written on . Posted in Commentaries, Pender Strategic Growth and Income Fund, Pender US All Cap Equity Fund

“The markets are moved by animal spirits, and not by reason.” – John Maynard Keynes

The year started in the midst of one of the greatest bull markets in history. It has only strengthened in 2017. The S&P500 bull market is now the second longest (trailing only the 1990-2000 cycle during the dot-com era) and the third strongest in history. In his 2016 year-end commentary, Pender President and Portfolio Manager, Dave Barr mused about the improving merger and acquisitions environment. Forecasting is often perilous, but given the backdrop, this was a relatively safe prediction. After all, M&A activity tends to pick up near the end of bull cycles, when confidence amongst executives tends to be highest, corporate coffers are gushing with cash after the good times and executives take their cues from other acquisitive peers. Times may change, but human nature does not. Pender certainly benefited from these improving animal spirits. Two of our largest holdings – Panera Bread and Whole Foods – became targets of takeout offers in the second quarter. In contrast to many investors, we only viewed one of the acquisition announcements as great news because of how we categorize our investment universe.

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Pender Corporate Bond Fund – Manager’s Commentary – August 2017

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The Pender Corporate Bond Fund had a flat result in August, neither losing nor gaining materially in overall net asset value. A group of bonds that declined in price offset the coupon income we received from our investments. Nevertheless, the month was an important period from the fund management point of view as we added several new positions that we believe will drive further gains going forward.

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