Knight Therapeutics Q1 2023 Earnings Call Transcript

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May 11, 2023

There are 7 speakers on the call.

Operator

Good morning, and welcome to the Knight Therapeutics First Quarter 2023 Results Conference Call. All participants will be in listen only mode. By pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

Operator

I would now like to turn the conference over to Samira Sakia. Please go ahead.

Speaker 1

Thank you, Debbie. Good morning, everyone, and welcome to Knight Therapeutics' Q1 2023 conference call. I'm joined on today's call with Amal Khouri, our Chief Business Officer Arvind Duchana, our Chief Financial Officer and Jeff Martins, our Global VP of Commercial. I'm excited to report an impressive first quarter results with revenues of over $82,000,000 and a 29% growth compared to the same period last year and record adjusted EBITDA of over $18,000,000 representing growth of 37% compared to the same period last year. This strong performance is a testament to the hard work and dedication of our team and the We launched palbociclib in Argentina and obtained the regulatory approval in Chile.

Speaker 1

Palbociclib is an internally developed branded generic product indicated for the treatment of locally advanced or metastatic breast cancer and is being marketed as balplacil or pablacil in our region. We also submitted tafasitamab or MINJUVY for regulatory approval in Argentina for the treatment of DLBCL. CL. Turning now to the NCIB. During the quarter, we purchased approximately 2,200,000 common shares for an aggregate cash consideration of over $10,800,000 Subsequent to the quarter, Knight purchased an additional 1 point 1,000,000 common shares for aggregate cash consideration of $5,400,000 With this additional purchase, Knight has completed approximately 73% of the July 22 NCIB at an average purchase price of $5.04 per share.

Speaker 1

I will now turn the call over to Jeff to provide more details on our product results.

Speaker 2

Thank you, Samira. In the Q1 of 2023, as Samira mentioned, we have delivered strong revenues of over $82,000,000 an increase of more than $16,000,000 on a constant currency basis or 25% versus prior year. We grew across all of our therapeutic areas, mainly due to our innovative and promoted portfolio. Let me start with the performance of our oncology hematology portfolio. During the quarter, revenues excluding hyperinflation were $29,100,000 a growth of $5,300,000 or 22% versus the same period last year.

Speaker 2

Our key promoted brands included Halaven, LENVIMA and Trellstar as well as the addition of Akenzio contributing $7,600,000 of incremental revenues, which was partially offset by reduction in sales of certain mature and branded generic products due to their lifecycle and the entrance of new competitors. As for our infectious disease portfolio, we delivered revenues of $30,800,000 excluding hyperinflation. This portfolio grew by approximately $7,800,000 excluding the impact of the plant transition and termination of our Gilead agreement effective July 1, 2022. This growth is due to our key promoted brands, the buying patterns of certain customers as well as deliveries we made in relation to previously announced Amazon contract with the Brazilian Ministry of Health. Now moving to our other specialty portfolio.

Speaker 2

During the quarter, revenues excluding hyperinflation were $22,700,000 The portfolio grew by approximately $6,200,000 excluding the change in accounting treatment for Exelon. This growth is mainly due to advanced purchases of in certain countries due to the commercial transition from Novartis tonight and the purchasing patterns of certain customers. I will now turn the call over to Arvind to provide an update on our financial results.

Speaker 3

Thank you, Jeff. In the course of this conference call, I will refer to EBITDA and adjusted EBITDA, which are non IFRS measures, as well as adjusted EBITDA per share, which 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 and non recurring expenses. Knight defines adjusted EBITDA per share to the one time contract on AmbuSom with the Ministry of Health in Brazil.

Speaker 3

In December 2022, We signed the contract for a total value of $18,400,000 of which $7,000,000 was delivered in 2022, $2,400,000 in Q1 2023 $9,000,000 in April 2023. In addition to the full amount of the 2022 contract of $18,400,000 subsequent to the Q1 of 2023, Knight received an order for an additional $9,000,000 from the Ministry of Health, which was also delivered in April 2023. In summary, in Q1, Knight recorded $2,400,000 of Ambison revenues for the mWage contract and in Q2 we expect to record $18,000,000 in relation to the MOH contracts. We do not expect further purchases from the MOH for Amelisome. Now moving to gross margin.

Speaker 3

For the Q1 of 2023, excluding the impact of hyperinflation, we reported a gross margin of $41,400,000 or 50 percent of revenue compared to $33,800,000 or 53 percent of revenue in the same period last year. The decrease in gross margin as a percentage of revenues is due to the change in product mix, including the change in accounting treatment of Exelon. Now moving on to our operating expenses excluding hyperinflation. For the Q1, our operating expenses were 34 point $8,000,000 an increase of $2,900,000 compared to the same prior year period. The increase is mainly due to our And we'll now turn the call over to our financial results.

Speaker 3

I also want to remind everyone that Q1 2022 in Q1 2022, we had limited infill activities due to the COVID environment, mostly specifically Omicron. Moving on to adjusted EBITDA. For the Q1 of 2023, we reported $18,200,000 an increase of $5,000,000 or 37% compared to the same period in prior year. In addition, Knight's adjusted EBITDA per share was $0.17 an increase of $0.05 per share or 45% over the same period in prior year. Now moving on to gains to our all losses on our financial assets, which are not reflected in our adjusted EBITDA.

Speaker 3

In the Q1 of 2023, we recorded $11,800,000 of net unrealized losses on financial assets measured at fair value through profit or loss. This loss is driven by mark to market adjustment of underlying assets mainly as a result of a decrease in the During the Q1 of 2023, Knight generated cash inflows from operation of $3,700,000 decrease of $9,200,000 compared to the same period in prior year. The decrease in operating cash flow is a result of an increase in working capital. Investment in working capital is due to an increase in inventory, primarily for AmbiSOM in anticipation of the deliveries under the Ministry of Health contract, as well as timing from payments from certain customers, which were settled in April. I will now turn the call back to Samra for concluding remarks.

Speaker 1

Thank you, Aravind. I will now discuss our financial outlook for fiscal 2023. I would like to remind everyone that this guidance is provided on a non GAAP basis due to the difficulty in predicting Argentinian inflation rates. We have revised our forecast and now expect to generate Revenues of $300,000,000 to $320,000,000 an increase of $20,000,000 on the lower and upper range. In addition, we expect adjusted EBITDA to be between 14% to 15% of revenues.

Speaker 1

The increase in financial outlook is primarily due to an improvement in the forecasted LatAm currencies against the Canadian dollar, primarily the Brazilian reais and the 2nd MOH order for Ambosome in Brazil. The guidance is also based on a number of assumptions, which are described in our press Should any of the assumptions differ, the financial outlook and the actual results may vary materially. Considering the recent volatility in certain of our currencies, we We will continue to monitor and revise our foreign exchange assumptions, which may materially impact our results and forecast. Looking ahead, we remain committed to building a leading Pan American ex U. S.

Speaker 1

Specialty pharmaceutical company. We have over $160,000,000 in cash, cash equivalents and marketable securities and we generate cash from operations, which positions Thank you for your support and confidence in our 'nineteen. This concludes our formal remarks. I would now like to open up the call for Debbie?

Operator

We will now begin the question and answer session. The first question comes from Doug Mime with RBC Capital Markets. Please go ahead.

Speaker 4

Good morning, everyone. First question has to do with Exelon. And you do describe that There is buy in, I'd say, a little bit associated with the quarter. And I'm just curious, as you think about Q2, would you expect some headwinds in Q2 and then things to normalize As we look out to the second half of the year?

Speaker 1

So there's a lot going on in Exelon. First, The change in accounting, the transition is a little bit of phasing and it will normalize. The third thing that we are obviously and we've discussed this before is we do face generic competition in certain of our countries. So we do know that ageneric has now launched in Brazil. We're not changing our like our as we explained in our guidance, We're changing really because of currency and the MOH order and the phasing and we don't really try We don't manage to quarters, we're managing to the year, and we expect to continue to retain the brand.

Speaker 4

Okay. That is fair. Then, as you think about, the political landscape, and I know there's been chatter about this over the last several months. But in specifically in Brazil and Colombia, have there been any Changes relative to, I guess, a couple of months ago when you last discussed this point?

Speaker 1

It's similar status in Brazil. There really hasn't been any updates. In Colombia, the reform has been published, but how the reform will be implemented is not clear and there is a significant amount of debate in Congress about this and The entire country is watching as are we.

Speaker 3

Excellent. Okay. Thanks, Sameer.

Operator

The next question is from David Martin with Bloom Burton. Please go ahead.

Speaker 5

Hi, there. This is Antonia on the line for Dave. Just wanted to Elaborate a bit more on the earlier commentary. So are you thinking given the strong quarter, are you thinking that the generic impact of your Branded generic business might be less than expected when you reported 4th quarter results? And also when do you expect additional compensatory launches of your own branded generic pipeline?

Speaker 5

Sure.

Speaker 1

So the only reason we're really Revising guidance is because of the MOH order and the change in currency FX rates. It's really not When we look at local currencies, the portfolio is performing as expected. Whether it's a little bit of lumpiness, we always expect that. We don't manage 2 quarters as much. And that's where it is.

Speaker 1

When it comes to the branded generic portfolio, it's really a bit of lifecycle issues that we are dealing with. And if you look at our pipeline, we've expanded our pipeline dramatically, not just in the innovative portfolio with tafasizumab, ekynzeo, pemmy and fosamatinib, we've also done a lot of work to in license as well as continue the development of our own branded generics. The issue is really life cycle management, and it's a bit of a lumpy year because where the declines are going the mature brands are declining faster than we are able to launch. And this is again why we are spending a lot of ED effort on each of our 2 portfolios to make sure we strengthen the pipeline going forward.

Speaker 5

Okay. And if I can just add an additional quick question. Are there any strategies you have to help mitigate the hyperinflation impact?

Speaker 1

So this is the revision of the forecast that we're talking about This is really the majority of the change here that we're seeing is we went from an expectation that there would be a slight decline in the Brazilian real to a slight appreciation in the Brazilian real. So that's not hyperinflation, that's just currency. And that's a macro issue between Canada, U. S, Brazil, then of how is To reiterate, we don't include it in our forecast. And how we manage Argentina is to make Sure that Argentina is able to we kind of ring fenced that business.

Speaker 1

And please remember that what we manufacture Sure. In Argentina, we sell in Spanish speaking South America. So it's exported out and the revenues go to Colombia, Peru, Ecuador, Chile, Uruguay, Paraguay. So it's not all in Argentina. Okay.

Speaker 1

Thank

Operator

Next is Andre Leno with National Bank. Please go ahead.

Speaker 6

Hi, good morning. It's Andrey Bodo sitting in for Endri. With respect to Palvacil, I was hoping that we could get some insight on progress and performance of that early signs that you're seeing there?

Speaker 1

Sure. So Palvacil was launched kind of a little bit later in the quarter. But if you look at On our financial on the press release, what we do provide is the launches of The branded generics in the queue, the performance you see is about, I think it's less than $500,000 in change versus last year. And that's Publicil is part of that contributor. So it's a nice brand, but it's not going to be and as we've said, The issue that we have is that the launches that we're having are not making up for some of the declines that we expect this year.

Speaker 6

Okay. And maybe some color on the timeline and the next steps for BAPASIL?

Speaker 1

It's probably closer to so that the sale may launch in Chile, it's going to be in the back half of 2023, because there's more work to be done to produce for Chile. And then after that, it will be Columbia, but that will be a

Speaker 5

couple of years away.

Speaker 6

Okay. How would you characterize margins on the MSTONE contract with The MOH in Brazil with respect relative to the rest of the portfolio?

Speaker 1

We don't The margins that we've had historically is the margins that we will continue to have.

Speaker 6

Okay. And then lastly, with respect to what you're seeing in competition, are you seeing that elevated? Or is that something that you're Expecting in the later in the year with respect to branded generics?

Speaker 1

We are expecting them a little bit later in the year. It's a little bit hard to predict depending on the Country and the region depending on the country and the product, some of the agencies are moving faster, some of the agencies are moving slower, But we did expect we do expect kind of starting in the back half of Q2. And as I said earlier, We do have the generic the branded generic has launched versus Exelon in Brazil.

Speaker 6

Are there any As a follow-up, are there any like particular countries which are moving faster than others?

Speaker 1

Not really. Like it's Again, we see that there is branded generics in the review pipeline. It's hard to predict when they will come out.

Speaker 6

Okay, great. Thank you so much.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Samari Sakhia for closing remarks.

Speaker 1

Thank you, Debbie, and thank you for your confidence in the Knight team and

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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