Knight Therapeutics Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 9, 2023

There are 7 speakers on the call.

Operator

Morning, ladies and gentlemen. My name is Mark, and I will be your operator today. Welcome to the Knight Therapeutics Second Quarter 2023 Results Conference Call. Before turning the call over to Samira Sakia, President and CEO of Knight, Listeners are reminded that portions of today's discussion may, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward looking statements. The company considers the assumptions on which these forward looking statements based to be reasonable at the time they were prepared, but cautions that these assumptions regarding the future statements, many of which are beyond the control of the company and its subsidiaries, may ultimately prove to be incorrect.

Operator

The company disclaims Any intention or obligation to update or revise any forward looking statements whether as a result of new information, further events, except as required by law. We would also like to remind you questions during today's call will be taken from analysts only. Should there be any further questions, please contact Knight's Investor Relations department via email to infonighttx.com or via phone at 514-484 4,483. I would like to remind everyone that this call is being recorded today, November 9, 2023. And I would now like to turn the meeting over to your host for today's call, Samira Saguir.

Operator

Please go ahead, Ms. Saguir.

Speaker 1

Thank you, Mark. Good morning, everyone, and welcome to Knight Therapeutics' Q3 2023 conference call. I'm joined on today's call with Amal Khouri, our Chief Business Officer and Arvind Duchana, our Chief Financial Officer. I'm pleased to announce that Knight achieved record results for the 9 months ended September 30, 2023. We delivered revenues of over 2.50 $4,000,000 and adjusted EBITDA of over $48,000,000 a growth of 20% and 19%, respectively, over the same period last year.

Speaker 1

Moving on to an update of our product portfolio. We received the regulatory approval for VINJUVY in Brazil as well as the pricing approval from CMed, the regulatory body that As a result, we expect to launch MINJUVY in Brazil in the Q2 of 2024. I'm extremely proud of our team's achievement in getting the product approval faster than our expectations using the rare disease Regulatory pathway available in Brazil as well as getting optimal pricing much faster than expected. In addition, we advanced our product pipeline with the regulatory approval regulatory submissions of fostamatinib, also marketed as TAVALISSE in the U. S, in Colombia and Mexico and pemigatinib marketed as Pemazyr in U.

Speaker 1

S. And Europe and Brazil. With these submissions, we now have 3 innovative products awaiting regulatory approval in multiple territories, more specifically pacitumab or RINJUVY in Argentina, Colombia and Mexico fostamatinib in Colombia and Mexico and pemigatinib in Brazil, In addition, we have 4 branded generic products pending regulatory approval in Colombia. As we're continuing to build our pipeline, during the Q2 of 2023, we strengthened our oncology and hematology portfolio with the in licensing of a branded generic product for Ryza. I will now turn the call over to Arvind to update to provide an update on our financial results.

Speaker 2

Thank you, Samira. While speaking of our financial results, I will refer to EBITDA and adjusted EBITDA, which are non IFRS Smart measures as well as adjusted EBITDA per share, which is a non IFRS ratio. NICE defines EBITDA as operating income or loss, Excluding amortization and impairment of non current assets, depreciation, purchase price accounting adjustments and the impact of accounting under higher inflation, but to include costs related to leases. Adjusted EBITDA excludes acquisition costs

Speaker 3

And on the recurring

Speaker 2

expenses, I define adjusted EBITDA per share as adjusted EBITDA over the number of common shares out standing at the end of the respective period. Furthermore, my discussion on the operating results will refer to figures that exclude hypertension. In the Q3 of 2023, we delivered revenues of over $81,000,000 representing an increase of more than $12,000,000 or 18% and on a constant currency basis by more than $8,000,000 or 11% versus prior year. This growth is driven by our oncology and hematology disease portfolio, which delivered over $31,000,000 of revenues, an increase of approximately $5,000,000 or 19% compared to the same period last year. Our key promoted brands, including LENVIMA, Foster, AlgoSil and Akimzio contributed approximately $7,000,000 of incremental revenues.

Speaker 2

This increase was offset by a reduction in sales of approximately $2,000,000 on certain mature and branded generic products due to the life cycle and the entrance of new competitors. As for our infectious diseases portfolio, Our revenues were $29,200,000 a growth of approximately $2,000,000 or 7% compared to the same period last year. This growth is driven by our key promoted products, including Cresemba and higher demand of Vimprovedo, partially offset by the purchasing patterns for certain products. With respect to our other specialty portfolio, During the quarter, revenues were $21,100,000 an increase of $5,500,000 or 36% compared to the same period last year. The increase is primarily driven by the transition of commercial operations of Exelon from Novartis to Knight.

Speaker 2

More specifically, in Q3 'twenty two, Knight recorded lower revenues of Exelon due to the advanced customer purchases of $3,000,000 in Brazil and Colombia in Q222. The remainder of the variance is explained by the change in accounting treatment of Exelon From net profit transfer to revenues related cost of sales as well as timing of purchases from certain customers. Now moving on to gross margin. We reported $42,100,000 or a gross margin of 2 percent of revenues in the Q3 of 2023 compared to $33,800,000 or 49 percent of revenues in the same period last year. The increase in gross margin as a percentage of revenue is driven by the change in the product mix.

Speaker 2

I will now turn to our operating expenses. For the Q1 of 2023, our operating expenses were Excluding the impairment of intangible assets recorded in Q3 'twenty two, The operating expenses increased by $2,200,000 which is mainly due to an increase in Compensation costs related to Knight's long term incentive plan, higher spending on professional and consulting fees and Our product development and medical initiatives. Moving on to adjusted EBITDA. For the Q3 of 2023, we reported $15,500,000 of adjusted EBITDA, an increase of $6,500,000 or 72 percent compared to the same period last year. In addition, Knight's adjusted EBITDA per share was $0.15 an increase of $0.07 per share or 88% over the same period last year.

Speaker 2

With respect to gains or losses on our financial assets, which are not reflected in our adjusted EBITDA, In the Q3 of 2023, we recorded $5,600,000 of net unrealized gain on financial Assets measured at fair value through profit or loss. This gain is made up of an unrealized gain of $12,900,000 driven by the increase in the The value of our Moxta 8 warrants and the conversion of our strategic 60P loan into shares, offset by a loss of $7,300,000 due to the decrease in the share prices of the publicly traded equities of our strategic fund investments. Moving on to our cash flows. During the Q3 of 2023, Knight generated cash inflows from operation of $18,200,000 including a net working capital investment of $7,200,000 The increase in the working capital is mainly due an increase in inventory related to our key promoted products and the settlement of the corresponding accounts payable, offset by a decrease in accounts receivable. I will now turn the call back to Samra for concluding remarks.

Speaker 1

Before discussing our 2023 guidance, I'd like to provide an update on our NCIB. During the Q3 of 2023, we purchased approximately 2,200,000 common shares for $9,800,000 which represents an average purchase price of $4.55 Subsequent to the quarter, we purchased an additional 676,000 common shares for $3,100,000 Now on to our financial outlook for fiscal 2023. I'd like to remind everyone that this guidance is provided on a non GAAP basis due to the difficulty in projecting Argentinian inflation rates. Once again, we have raised Financial guidance on revenue and adjusted EBITDA. We now expect to generate revenues between $325,000,000 to $335,000,000 an increase of $15,000,000 on the lower end and $5,000,000 on the upper end of the range.

Speaker 1

Our adjusted EBITDA is now expected to be approximately 18% of revenues. The increase in financial outlook is primarily due to the improvement of the LATAM currencies against the Canadian dollar and an additional ambasome order we received from the Ministry of Health of Brazil for $4,900,000 which we expect to deliver in Q4 of 2023. The guidance is also based on a number of assumptions, which are described in our press release. Should any of the assumptions differ, the financial outlook and the actual results may vary Considering the recent volatility in certain of our currencies, we will continue to monitor and revise foreign exchange assumptions, which may materially impact our results and forecasts. We remain on track to deliver record results in 2023, while continuing to advance our product portfolio and build our pipeline for long term growth.

Speaker 1

Furthermore, we ended the quarter with $153,000,000 in cash, cash equivalents and marketable securities. This positions us well to continue to execute on our mission to build a leading Pan American ex U. S. Specialty pharmaceutical company by bringing innovative products and generic branded products to our markets. Thank you for your support and confidence in the 'nineteen.

Speaker 1

This concludes our formal remarks. I'd like to open up the call for questions. Over to you, Mark.

Operator

Thank you. Before we begin, may I please remind you questions During today's call, we'll be taking from analysts only. Should there be any further questions, please contact Knight's Investor Relations department via email to infonighttx.com or via phone at 514 184 Our first question comes from the line of Andre Uddin of Research Capital.

Speaker 4

Samir, if we're just looking at Brazil, Can you please discuss the market potential of MINJUVY and Pemazir? I'm not sure if I got those pronunciations right. Thanks.

Speaker 1

Sure. So let me start first with MINJUVY. What I can tell we don't really provide guidance or revenue by product. But what I can tell you is MINJUVY is doing about $100,000,000 today, just a couple in the U. S, $100,000,000 in US100 $1,000,000 So let's say around CAD130 1,000,000.

Speaker 1

They're just a Couple of years into the launch, given that and if you know like Our markets are about 5%, like the LATAM market is about 5%. We are launching at optimal price. This is where the brand is whether it's in the U. S. Or the market, there is a lot of interest in this Category, it is a medically necessary product.

Speaker 1

And that This is to help you kind of come up to the number. In the case of Pemazir, it's Even more rare disease. The second thing is that and it's really genetically based. Given that, we expect that to be a much smaller product. We do we are working with Our specialists in the market to see where and how the testing will work.

Speaker 4

That's great. Thanks. That's useful. And just looking ahead, I know you haven't provided guidance yet for 2024, but Where would you say your growth is primarily going to come from in 2024?

Speaker 1

It's coming from a whole bunch of different places. So we have In our oncology product portfolio, I look at products like LENVIMA, AKINZIO, TRELSTAR, they all continue to grow. We will be launching MINJUVY, which is coming earlier than we originally expected. We are launching IMVEXXY Also in Canada next year, and all of those products are going to continue to provide growth. We also have Cresemba in our infectious disease portfolio, which is continuing to grow in all of our markets.

Speaker 1

And We're going to continue to build a pipeline and advance the pipeline that we have.

Speaker 4

And so in terms of growth, is that Would you say that would be single digit growth or is it going to be double digit growth? Can you provide that color a little bit? Thanks.

Speaker 1

Not yet. We'll be providing guidance kind of earlier in the next year when we announce Q4.

Speaker 4

Okay. That's great. Thank you, Sumer.

Speaker 1

Thank you.

Operator

Thank you. Our next question comes from the line of Dave Martin at Bloom Burton. Please go ahead. Your line is

Speaker 5

Hi, this is Girish on behalf of Dave. Congrats on the great quarter and increased guidance. We do have a few questions. The first one surrounding the oncology hematology portfolio. Has the full impact of the generic competition Launch been felt in the 3rd quarter and if not fully in this quarter, how much erosion do you anticipate going forward?

Speaker 1

So sorry, just to clarify, if you're talking about generic competition on our OTGXs, Yes, on our own branded generics. It has that competition has been delayed Because the Colombian agency has been behind in their approvals. So it hasn't fully impacted in Q3. We do expect to what we are seeing from the agency See with some changes and updates to their regulations that they're going to start approving faster now. We do expect it to come next year.

Speaker 1

That being said, like I said earlier to Andre, Trell Star, LENVIMA, Akincio are continuing to show great growth.

Speaker 5

Okay. Thank you. And one last question. In the Assumptions for your revised guidance. You mentioned discontinuation of certain distribution agreements.

Speaker 5

Does this refer to agreements that Already been discontinued or agreements you expect to be discontinued going forward? And if it's allowed, can you provide your own comments?

Speaker 1

Sure. No, this is really the impact of the Gilead termination that we had last year, and that's fully impacted like this 3rd quarter, there is if you look at kind of the discontinuation impact, it's immaterial. So that's already all washed out of our results.

Speaker 5

Thank you very much,

Operator

Our next question comes from the line of Doug Meim of RBC Capital Markets. Please go ahead. Your line is open.

Speaker 6

Good morning. First question just has To do with Exelon, we did see an almost $6,000,000 increase in the quarter, but that was more because of the switch to you holding the revenues. But what I'm curious about are the unit sales trends. Are they starting to drop because of the increased competition on the generic side yet? Just curious about the unit trends.

Speaker 1

Sure. That's a great question. We are actually The objective when it comes to Exelon was really to maintain flattish, and we're not see Whether it's in dollars or units, we are retaining our share and the unit volumes are straight.

Speaker 6

Okay. That's really good to hear. Do you expect that to change though, Samira, based on any change in the competitive environment?

Speaker 1

Well, yes and no in the sense that as there are more competitors in the market, there is more share of Voice on this one molecule, so we may hear, we may start to lose share, but actually gain volume And really maintain the brand. And that is really what each of our teams are working towards.

Speaker 6

Ambozome, another order. Can you give us an idea as to why? Because I know that you indicated that we're not likely to see that again, but what's happening in that market that has the government continued to come back to you?

Speaker 1

Sure. So one of the reasons that this really started with hard work on our team's part, there is the competitor product Has been on back order, and has remained on back order. We have continued To strengthen our relation with the Ministry of Health, what they are seeing from our team is a quality product and reliable supply. And as long as we continue to deliver on that, I believe that we can extend Their replenishment, we'll see what happens when the competitor is on back returns back in supply.

Speaker 6

Excellent. Thanks very much.

Operator

Thank you. And there seems to be no further questions Actually, just as I said that, there has Come forward one third question, that's from the line of Justin Keywood at Stifel. Please go ahead. Your line is

Speaker 3

Good morning. Thanks for fitting me in. So just on the financial assets, there's a few movements In the quarter, you had the repayment for MOSHKA 8 and then also a mark to market adjustment. Just wondering if you can explain the mark To market adjustment and then also the state of the remaining financial assets and if there is any near term further expected liquidity events.

Speaker 1

So I'm going to clarify a couple of things there. On the financial assets, there is Three different things that are happening. There the Moksha8 loan has not been fully repaid.

Speaker 3

It will be repaid in Q4.

Speaker 1

Moksha was recently it was paid in Q4. Moksha was recently it was recently announced that Moksha is has been acquired. So our loan will be repaid. And there was a because we own warrants, we had warrants of that company, we will we recognize a gain on the warrants because we had to mark them to market. And all of the loan and the warrants will be both paid out, we expect, in Q4.

Speaker 1

The second thing that we had is we converted our loan to synergy to equity and that Actually had a gain all there that was about a couple of $1,000,000 The rest is a write down of our financial assets It's really coming from the public securities held in our funds. And those as we've seen in the Capital Markets and the Biotech Index, there has been A significant downturn on those investments and we continue to mark to market. So we have about 100 and some $1,000,000 Financial assets and we mark them to market. And that's really been the history for the last Almost 10 years in Knight where that's the initial fund investments and the markups and markdowns that we see.

Speaker 3

Thank you. And is there another expected liquidity event aside from Moshka

Speaker 1

Not really. At the end of this quarter, in the loans, we really only have at the end of this We will only have synergy left. Synergy is a loan that is expected to be paid back during 2024, But we may depending on how their results are doing, we may continue to extend that out a little bit longer. And as you know, with the funds on the funds, we have about $11,000,000 that is pending capital calls. But over the last few years, the funds have been cash flow positive and cash generating rather than And that outlook.

Speaker 3

Understood. Just a question of clarification. The 60 Pharma Loan, was that repaid or does that still remain outstanding?

Speaker 1

That was converted to equity.

Speaker 3

At the same value, I believe it was US6 $1,000,000 or around there?

Speaker 1

So we had written down given the financial situation of 60p, we had written that loan down To almost 0. So it's actually a gain of $2,000,000 in the quarter.

Speaker 3

Thank you for taking my questions.

Speaker 1

Thank you.

Operator

Okay. There seems to be no further questions at this time. So I'll hand the floor back to our speakers for the closing comments.

Speaker 1

Thank you, Mark. Once again, thank you for

Operator

This now concludes the conference. Thank you all very much for attending. You may now disconnect your lines.

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