Medexus Pharmaceuticals Q2 2024 Earnings Call Transcript

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November 9, 2023

There are 8 speakers on the call.

Operator

Greetings, and welcome to the Medexus Fiscal Second Quarter 2024 Earnings Call. At this time, all participants are in a listen only mode and a question and answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Magda Gardner of Investor Relations. Ma'am, you may begin.

Speaker 1

Thank you, and good morning, everyone. Welcome to the Medexus Pharmaceuticals 2nd fiscal quarter 2024 earnings call. On the call this morning are Ken D'Entremont, Chief Executive Officer and Marcel Conrad, Chief Financial Officer. If you have any questions after the conference call or would like more information about the company, please contact Adelaide Capital at 416 2068,869. I would like to remind everyone that this discussion will include forward looking information as defined in securities laws.

Speaker 1

Actual results may differ materially from historical results or results anticipated by the forward looking information. In addition, this discussion will also include non GAAP measures such as adjusted net income and loss and adjusted EBITDA, which do not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other company. For more information about forward looking information and non GAAP measures, including reconciliations to net income and loss, Please refer to the company's MD and A, which along with the financial statements is available on the company's website at www.medaxas.com And on SEDAR Plus at www.sedarplus. Ca. As a reminder, Medexus reports on a March 31st fiscal year basis, Medexus reports financial results in U.

Speaker 1

S. Dollars. I would now like to turn the call over to Ken Ducharmeault.

Speaker 2

Thank you very much, and welcome everyone to the call today. We're very pleased to report another great quarter with solid performance in our product portfolio, Continued strong demand growth for RUPAL. This has translated into a positive operating profit for the quarter and meant that we met our targeted The quarter end cash position ahead of the October 16 maturity date for our convertible debentures, which we repaid fully in cash. Our fiscal Q2 twenty twenty four revenue of $30,300,000 compares favorably to $27,700,000 for the same period last year or 9.4 percent growth year over year. The $2,600,000 increase is mainly due to recognizing 100 Percent of GLEOLAND net sales and total revenue and continuing strong RUPEL demand growth.

Speaker 2

Adjusted EBITDA increased to $5,300,000 for the quarter compared to $4,200,000 for the same period last year. The $1,100,000 year over year increase is mainly due to increases in revenue and a reduction in operating expenses. We produced a net loss of $1,100,000 for the quarter, An improvement compared to a net loss of $2,700,000 for the same period last year. Overall, we are pleased to be reporting this quarter financial results with Positive key metrics in year over year revenue growth. I'll let Marcel comment on the details later in this call, But I also want to highlight our success in securing the accordion feature of our credit agreement with BMO, which we applied towards the convertible debentures And our success in completing our October 2023 bought deal public offering, which we intend to use for working capital and general corporate purposes, including our ongoing business development activities and initiatives.

Speaker 2

I also want to highlight our success in executing the 3rd amendment Of our U. S. Triosulfan agreement, which we think responds well to the current status of the FDA regulatory review Processed by 1, further extending the agreed outside date for FDA approval and 2, outlining a process Potentially agreeing to adjust the value of unpaid milestone payments in light of future circumstances around Trio Sulfides prospects in the U. S. Market.

Speaker 2

Turning to our specific products. Xfinity unit demand in the United States decreased during the quarter And over the trailing 12 month period ending September 30, 2023, demand continues to reflect the effects of lower observed Average quantities of product consumed by an increasing number of newer patients. We intend to continue monitoring these trends And assessing their potential impact on product level revenue, we are optimistic about the prospects for a favorable FDA decision on for the treatment of pediatric patients, which the FDA accepted for review in June 2023. If approved, we think the new pediatric indication would, in addition to expanding the current market potential for the product, Provide us with an opportunity to reinforce brand awareness and messaging for Xfinity in relevant markets. Our optimism here is partially due to our familiarity with the data presented at the National Hemophilia Foundation Bleeding Disorders Conference Earlier this year in National Harbor, Maryland, where researchers reported that prophylaxis with Xfinity was associated with low annualized bleeding rates, effective control of bleeding episodes, consistent pH and a consistent safety profile.

Speaker 2

On RASUVO, we've maintained a market leading position during the quarter as unit demand remains strong in the moderately growing U. S. Branded methotrexate Safe market. We continue to deploy a highly efficient allocation of sales field resources and our position remains strong Despite sustained competition in the market. RuPaul unit demand in Canada remained strong during the quarter, which is reflected in the unit demand growth of 22% over the trailing 12 month period ended September 30, 2023.

Speaker 2

This strong performance reflects successful execution of our sales and marketing initiatives as well as the timing of certain orders during the quarter relative to planned price increases. This was partially offset by the effects of increased competition on relatively smaller unit demand in the pediatric segment. We see tropical terbinafine, which we licensed in March as a strategic fit with RUPEL And we expect that if and when approved by Health Canada, that new product will both contribute to our Canadian revenues And engage our in place commercial infrastructure currently supporting RUPAL. On glialand in the United States, We continue to execute our post transition commercial plan, including new sales and marketing initiatives. This has included continued application of existing sales force resources to expand and deepen market coverage, Improved distribution of relevant product information content in relevant forms and increasing application of our broad range of commercial expertise to the relevant market.

Speaker 2

We expect to continue developing insights regarding market dynamics and the potential Through these initiatives to inform our continued commercialization efforts as we seek to maximize product level revenue. Metal Jacket unit demand in Canada increased by 14% in the trailing 12 month period ended September 30, 2023, In spite of direct generic competition, product level performance continues to experience disruption from the launch of a generic product the Canadian methotrexate market in calendar 2020, we continue to seek to defend the product's strong market position As we await the federal court's decision following the January 2023 trial in the patent litigation we initiated against Metalgex generic competitor In 2020. We continue to remain optimistic about triosulfan, an agent for the use in conditioning regimens as part of allogeneic Hematopoietic stem cell transplantation protocols or ALLO HFCT. We have fully launched the product in the Canadian market Under the trade name Treconduff, in the U. S, Treosulfan remains under an ongoing regulatory review process with the FDA.

Speaker 2

Medak, our licensor and the party responsible for the regulatory matters continues to work towards responding to the FDA. As most of you are aware, the process for obtaining FDA approval has been delayed beyond the outside date for FDA approval previously agreed to with MEDDAC. As such, as I mentioned earlier, in September, we entered into a 3rd amendment to our U. S. Triosulfan agreement with MEDAC to address this ongoing delay.

Speaker 2

We continue to expect that it will take Medac a period extending into the first half of Calendar year 2024 to collect and submit the information requested by the FDA and obtain FDA acceptance of MEDAC's Triosulfan NDA resubmission. We and MEDAC will then have a specific negotiation period to agree to a further amendment On any adjustments to unpaid milestone payments, we have no obligation to make any milestone payments before the effective date of the further amendment, If any. We expect that the commercial experience we are gaining in Canada and the positive data regarding the product Will serve us well if and when the FDA approved Triosulfan in the United States, where Triosulfan is an important pipeline product for us. If and when approved in the U. S, we expect that triosulfan will become a leading agent for the use in conditioning regimens As part of Allo HSCT and continue to benefit from the orphan drug exclusivity period that would begin to run from the FDA approval.

Speaker 2

While we continue to focus on maintaining stability of our base business and generating cash from operations, We also look to for near term transaction opportunities to augment our product portfolio, Increase the scale of our operations and deliver long term growth. A key component of our growth strategy will be To continue to lever our infrastructure through business development by executing new product acquisitions and partnerships. In the meantime, we continue working to increase revenue, develop and leverage our commercial infrastructure across existing products and maintain strict financial discipline. I will now turn the call over to Marcel, who will discuss our financial results in more detail. Marcel?

Speaker 3

Yes. Thank you, Ken. We're pleased to report our 6th consecutive quarter of positive operating income An 8th consecutive quarter of positive adjusted EBITDA. In addition, our convertible debentures have now been fully repaid in cash. It has simplified our balance sheet and leaves our $56,500,000 BMO credit facilities, which continue to benefit from an attractive interest Great.

Speaker 3

As our only remaining debt, we were also able to bolster our balance sheet by completing a CAD11,500,000 Bought the public offering of units in October. Turning to the quarterly results. Total revenue for fiscal Q2 was $30,300,000 This quarterly revenue number compares favorably to revenue of 27.7 $1,000,000 for the 3 months period ended September 30, 2022. As Ken mentioned, the $2,600,000 increase in 2nd fiscal quarter 2024 Revenues versus the prior year's Q2 is primarily due to recognizing 100% of Clearland net sales In total revenue and continuing strong group hall demand growth. Gross profit was $16,300,000 for the 3 months period ended September 30, 2023, compared to gross profit of $16,100,000 for the same period last year.

Speaker 3

The gross margin was 53.8% For the 3 months period ended September 30, 2023 compared to 58.1% for the 3 months period ended September 30, 2022. As we mentioned on last quarter's call, we continue to monitor this metric and the factors that contributed to gross margin. The year over year decrease in gross margin primarily reflects changes in product mix, including changes in how we accounted for clear line sales in the United Under IFRS over the course of fiscal year 2023, selling and administrative expenses were $11,900,000 for the 3 months period ended September 30, 2023 compared to $12,900,000 for the 3 months period ended September 30, 2022. Research and Development was 0 point 7 $1,000,000 was $700,000 for the 3 months period ended September 30, 2023. This compares to 900,000 for the 3 months period ended September 30, 2022.

Speaker 3

Adjusted EBITDA for the 3 months period ended September 30, 2023 was positive 5,300,000 compared to $4,200,000 for the 3 months period ended September 30, 2022. As Ken mentioned, The $1,100,000 year over year increase was primarily due to the increases in revenue and the reduction in operating expenses. The net loss for the 3 months period ended September 30, 2023, was $1,100,000 compared to a net loss of $2,700,000 for the same period last year. Net income or loss includes a non cash unrealized gain or loss on fair value of the embedded derivatives in our now repaid convertible debentures, which was sensitive to, among other things, fluctuations in our share price. As such, we believe that adjusted net income or loss provides a better representation of performance of our operations because it excludes these non cash fair value adjustments on liabilities.

Speaker 3

Subsequent to quarter end, on October 16, we fully repaid these debentures in cash and maturity. Our adjusted net loss for the 3 months period ended September 30, 2023, was $1,200,000 compared to an adjusted net loss of $2,800,000 for the same period last year. Our cash position continued to improve throughout the quarter With cash and cash equivalents of $19,500,000 at September 30, 2023, increasing from $15,800,000 at June 30, 2020 We ultimately ended fiscal 2nd quarter with $37,500,000 of available liquidity As we had $18,000,000 available, but then undrawn under the accordion feature of the term facility Under the senior secured credit agreement with BMO, subsequent to quarter end, in October, we used the full 18,000,000 Together with cash on hand to repay our convertible debentures, we made the final maturity payment of CAD51.1 million approximately CAD37.5 million In cash, as we had guided previously. As mentioned earlier, in October 2023, we also completed a bulk deal public offering, including full exercise of the overall option and issued an aggregate of 3,900,000 units at a price of CAD 2.95 per unit. This yielded into a Canadian $11,500,000 aggregate gross proceeds or Canadian $10,800,000 aggregate Net proceeds before expenses.

Speaker 3

Each unit issued in the offering consisted of 1 common share and 1 half of warrant And one half of one warrant described in greater detail in this quarter's M and A. Adjusting our quarter end cash balance For the series of subsequent October transactions, we had approximately $8,500,000 in cash Or $8,000,000 after underwriting commissions and before expenses of the public offering, putting us on solid footing To continue maintaining our growth continue to maintaining our growing our business over the coming quarters. We've been consistent in executing our plan, quarter over quarter, which has put the company in a strong financial position With strong quarterly revenue and improved profitability, as always, there can be variability in quarter to quarter results, but we look forward And are energized to continuing to build the company and its portfolio in the coming quarters and beyond.

Speaker 2

We're now open for questions, operator.

Operator

Thank you. At this time, we will be conducting a question and answer session. Thank you. Our first question is coming from Andre O'Dea with Research Capital. Your line is live.

Speaker 4

Hi, Ken and Marcel. Nice to see the converts out of the way. And now that your converts are taken care of, Where do you see the best opportunities right now for business development? Is it in the U. S.

Speaker 4

Or Canada? And is there any particular therapeutic area that you're looking at right now?

Speaker 2

Thanks, Andre. Good question. Yes, clearly, we're looking to build the company through business development. We've been consistent and doing so in the past. I wouldn't say we're looking at any particular market.

Speaker 2

Obviously, we can get bigger hits In the U. S, we very much would like to find some more business in the U. S, but we're certainly not In Canada, we've got a very strong portfolio in Canada, excellent performance. And so we're looking to do both. So we've got A full pipeline of BD lined up and we're assessing all of those products.

Speaker 2

So we hope to start closing some of those deals.

Speaker 4

That's great. And so just looking ahead, in terms of the decision on the Canadian Meadowjack The lawsuit, is that still expected by calendar year end?

Speaker 2

Yes. There's no defined Timeline, unfortunately. So there's no means for us to put any pressure towards a decision. It's totally up to the court. We typically decisions come within 12 months of the trial.

Speaker 2

So yes, we would Expect and hope that it would happen this calendar quarter, but there's no guarantee that, that will happen.

Operator

Thank you. Our next question is coming from Rahul Sarajaser with Raymond James. Your line is live.

Speaker 5

Hey, Ken and Marcel. This is Mike on for Rahul this morning. Congrats on the solid quarter and on executing the hard work of polishing up your balance sheet. Congrats. Yes, first question here.

Speaker 5

There's a note in the press release this morning or I guess last night Indicating a focus on maintaining visibility of your base business. And I wonder, where are some of Medexus' Priority areas for resource allocation during the next 12 months or so.

Speaker 2

Thanks, Mike. Good question. Clearly, the top 4 or 5 products are generating a fair bit of revenue and growth is strongly coming out of a RUPEL. Xfinity for sure, it's a key focus for us. We've got the pediatric indication coming soon, we hope, Which will give us a chance to more or less relaunch the product, which we think will drive some additional revenue out of that brand.

Speaker 2

Clearly, the glioblan relaunch, which we're about a year into, we're starting to see some traction, not yet Seeing the sort of sales revenue growth that we expect to happen, but we're seeing some good things happen in the marketplace. And then RUPAL continues to perform extremely well, 22% growth in the quarter versus the previous year. Yes, 6 years after launch is tremendous. So we've got those 3 that really we're focusing on And then we have the whole rest of the specialty portfolio, receivables Metal Jet continued to perform well even with competition. So We're really focusing in those areas.

Speaker 5

Okay, that's great. Thank you. Now price increases on RUPEL were noted in the press release. I wonder if you could describe

Speaker 2

sort of the portion of

Speaker 5

size of these price increases and also if there are any price increases anticipated For other of your products?

Speaker 2

Yes. The price increase with RUPEL is in line with CPI. So we're allowed to take small price increases from time to time and so that was the reference made in the press release. Other products In the U. S.

Speaker 2

From time to time, we're able to take small price increases. So it's nothing of significance. But when allowed, we do take the price increase.

Speaker 5

Okay. Okay, that's great. And now if I could chew one more. The pediatric opportunity for Xfinity, We have a relatively near term outcome coming there, we hope. How would you describe The incremental opportunity bound up in that pediatric population.

Speaker 2

Yes, it's difficult to quantify being a rare These, there aren't a lot of newly diagnosed patients per year, but it does put us on equal footing with our competitors. We've been at somewhat of a disadvantage not having the pediatric indication to this point where all of our competitors have the pediatric indication already and had it Since launch. So it's been somewhat of a disadvantage, which causes us to go after product and patient switches, which obviously are more difficult than new patient Starts. So I would say there obviously is an opportunity to start to get some new patient starts, but it also Gives us an opportunity to re launch the product. And then I have something new to say to clinicians, which obviously There are more interest in talking to our sales force when there's something new to say.

Speaker 2

Got you.

Speaker 5

Okay, thanks very much. I'll pass it on.

Operator

Thank Our next question is coming from Scott Henry with ROTH Capital. Your line is live.

Speaker 6

Thank you. Good morning And congratulations on the progress on the balance sheet, tremendous Progress over the past year. A couple of questions. First, Xfinity, Can you talk about a little bit about why the quantities are going down? And I don't know if you can give any color on the revenues in the quarter for Xfinity in the U.

Speaker 6

S.

Speaker 2

Sure. I'll speak to demand, which ultimately drives revenue. So Demand, we're noticing that we continue to get good patient initiation. So we're getting the switches. But the switches that we're finding are at lower volume than what we've seen historically when we've gotten those switches, meaning Those patients are tending to use less than our historical patients.

Speaker 2

And so we see that trend. The other trend that we see and this is not anything new is that quarter to quarter there can be a fair bit of variability, A low small group of patients, which we have, a few of those patients don't fill in a particular quarter, It can have an effect on the quarter. And so that dynamic is at play as well. We haven't given any guidance on Xfinity revenue, but Yes. It continues to be our number one product.

Speaker 6

So is revenue without giving a point estimate, Is it still increasing with price or is it flat or a modest decline? How should we think of it In the big picture as far as the trend?

Speaker 2

Yes. On the quarter, it's a slight decline, slight to moderate decline. Yes. That is the trend that we're seeing. Demand is more or less flat, slight decline.

Speaker 2

So we think that Quarter to quarter, you can see this variability in the quarter and a half or two quarters. We do expect to re launch with the pediatric indication, which will give us something new to say. So That's kind of how we're looking at it. So we're really pleased with the revenue number that we've had this quarter, 2nd quarter of $30 plus 1,000,000 in revenue. So that's really good.

Speaker 2

So the whole portfolio is performing well. We've got our ionicinity to make sure that it continues to deliver what we expect.

Speaker 6

Okay, great. And then just On the balance sheet, now that you're in the new stable phase, how should we think about the interest expense? Is this 4,200,000 I see on the add back, is that representative of the number we should see going forward?

Speaker 2

I'll let Marcel take that one.

Speaker 3

Yes. Hi, Scott. Yes, good question on the interest expense we see This quarter and as you've noticed that it hasn't really changed a lot versus last quarter, for example, it may have gone up a little bit and we had this There were several components that is interest expense this quarter with the debenture with the accretion of the debenture still coming to its And then coming to its peak towards the end. So now going forward with the debentures gone And the facility kicking in, as I mentioned, this is now quite a clean balance sheet with the $56,500,000 of credit facility That includes $60,500,000 revolver in there, which we now basically amortize And with the very attractive interest rates moving forward, so the expense there, you will see coming through according to amortization schedule we have published In our disclosures. So the interest expense per se will be staying Probably roughly about at that level, maybe a little bit lower and then getting a little bit higher Towards the end since the amortization schedule is structured that way, but we're certainly very pleased with PIMO, Specifically with the $18,000,000 that we've been granted from our partner towards the debentures, which leaves us with a very clean balance sheet at the end.

Speaker 6

Okay, great. Thank you, Marcel. And when with regards because I don't believe all the documents or all the quarterly Documents are available yet, at least not when I look for them. With regards to the BMO credit facility, How much of that is outstanding? And is there a due date on that?

Speaker 6

Just trying to get a sense of the up to date Capital structure.

Speaker 3

Yes. So the way book it is, what's outstanding now is, As I mentioned, the $56,500,000 minus a bit of an amortization, we've already done Since the beginning of the facility, so it's a bit less. That's what's outstanding. There's nothing more to come. And this is we essentially It's a 3 year agreement.

Speaker 3

We amortized the facility over 5 years. And so that gives you a rough idea of what's To expect over the next few years, yes.

Speaker 6

Okay, great. Thank you for taking the questions.

Operator

Thank you. Our next question is coming from Stephan Camviel with Echelon Capital Markets. Your line is live.

Speaker 7

Hi, guys. Thanks for taking the question and congrats on all the hard work in the last couple of months. You've been very busy taking care of things. I wanted to ask a bit about the Triosulfan and your the potential to renegotiate once the submission is accepted by the FDA. Are you I guess, it's like a big picture.

Speaker 7

When you look at the opportunity in the U. S, You've seen how the drug is sort of performing in markets where it's approved or it's largely the standard of care. Do you feel that the opportunity may be sort of a similar size as what it was or was it initially envisioned? It's question 1. And then question 2, in terms of your renegotiation with MEDAC, a potential renegotiation, Is it about the absolute numbers or maybe just a, I wish, the shuffling of The when those payments are due or how are you thinking about that renegotiation, I guess is the ultimate question?

Speaker 2

Thanks, Stephane. So great questions. I think the way we're thinking about it, Triosulfan continues to be an excellent opportunity. We see the performance of the drug in Canada where we've launched it over the last, I guess 18 months and we're seeing the uptake. We're seeing how people are using it.

Speaker 2

So we feel good that there continues to be a All plays for the drug in the market and we believe same thing for the U. S. Obviously, there's been a 2 year delay, so that is significant. So we obviously will be positioning that things have changed. And so when we get into negotiation with MEDAC, We'll want to negotiate terms that we're obviously comfortable with and recognize the value of the drug At this stage.

Speaker 2

And so we're obviously getting prepared for those discussions, assuming that MEDAC completes the resubmission on the timeline that has been previously stated, and then we'll initiate that discussion And then have that period between resubmission and decision to renegotiate those milestone payments. And so everything is on the table At this stage. And so we'll be looking to negotiate a deal that works for us.

Speaker 7

Great. And just finally, you guys have generated some nice data in Canada. None of that data there's no Consideration of trying to get any of that on the label. That's really not part of what Meditech is doing at all. Is that correct?

Speaker 2

Correct. There's as far as we understand, there's no mechanism by which we Can use what's been generated in the Canadian market, particularly at Purchase Margaret Hospital to influence the label in U. S. Clearly, it will be part of a resubmission. The safety update would include all new markets, including Canada.

Speaker 2

And so that information will become available to the FDA and obviously bodes well. If anybody's looked at it, That data suggests a 30% improvement in overall survival for certain leukemia patients in a real world setting At a top notch institution like Princess Margaret. So the information bodes very well for the drug. It won't affect the label though.

Speaker 7

Okay, great. And I'm just going to re ask a question because I hope I'll get a little more Clarity, RC, if you can let something slip. Just in terms of your business development sort of activities, I mean, it sounds like you've got Quite a few irons in the fire, if I'm hearing correctly. Is this more a question of you just prioritizing one that makes the most Sense for you or we could see you do a couple of things in the next reasonable timeframe if you can Actually, transact, are both possibilities or is it we should expect 1 the best deal to come to the surface Or maybe if I can get a little more clarity on that.

Speaker 2

Yes. I think you can expect a mix of deals. The Canadian deals tend to be smaller, require less capital upfront, so easier for us to execute. The U. S.

Speaker 2

Deals tend to be bigger, require some capital upfront in most cases. And so those are More challenging to do, take longer to do. So I think you'll see a mix of those 2.

Speaker 7

Wonderful. That's all for me. Thanks guys.

Operator

Thank you. Okay. As we have no further questions in queue, I will hand it back to Mr. Dontramont for his closing remarks.

Speaker 2

I just want to thank everyone for joining the call today. We are proud of the financial results for fiscal Q2 2024 And the performance of our core portfolio. We look forward to building upon this and advancing our product portfolio and continue to deliver strong performance for the rest of the year and beyond. Thanks very much for your interest.

Operator

I do apologize, sir, Just as you started to speak, it's okay. The gentleman left the queue. Thank you, ladies and gentlemen. Thank you. This concludes today's conference.

Operator

You may disconnect your lines at this time and we thank you for your participation.

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