Medexus Pharmaceuticals Q3 2024 Earnings Call Transcript

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February 8, 2024

There are 8 speakers on the call.

Operator

Greetings, and welcome to the Medexus Third Fiscal Quarter 20 24 Conference Call. At this time, all participants have been placed on a listen only mode and the floor will be open Please note this conference is being recorded. I will now turn the conference over to your host, Victoria Rutherford, Investor Relations. Victoria, You may begin.

Speaker 1

Thank you, and good morning, everyone. Welcome to the Medexus Pharmaceuticals 3rd Fiscal Quarter 2024 Earnings Call. On the call this morning are Claire Duncan Mont, Chief Executive Officer and Marcel Conrad, Chief Financial Officer. If you have any questions after the conference call or would like further information about the company, Please contact Adelaide Capital at 480-625-5772. 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 companies. 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.medexis.com and on SEDARplus@www.sedarplus. Ca. As a reminder, Medexis reports on a March 31 fiscal year basis.

Speaker 1

Medexus reports all financial results in U. S. Dollars. I would now like to turn the call over to Ken Dontremont.

Speaker 2

Thank you, Victoria, and thank you everyone for joining us on the call today. I'm going to start with some general comments before I dive into the usual financial and product highlights. Our 3rd quarter results reflect yet another quarter of positive operating income and positive adjusted EBITDA. However, we believe the results also reflect certain changing business conditions affecting our operations, in particular, recent adverse trends in Xfinity demand and Versuvo product level performance. In response, we have moved quickly to reduce costs, including a reduction in allocation of sales force resources to the product.

Speaker 2

We estimate that these cost reductions will reduce our go forward operating expenses by approximately $4,000,000 to $6,000,000 on an annualized basis, which would help improve our results in fiscal Q4 and subsequent quarters. For Xfinity, we will seek to maintain existing demand, but reduce investments in XFINITY's growth. With the pediatric indication as a tailwind if and when approved For RASUVO, we will continue to defend RASUVO strong formulary status. We expect that our cost reduction initiative will establish a solid foundation to manage future needs of the business and generate cash flows from operations. We look forward to increasing our focus on GleeoLab as an institutionally based product that we believe will complement our commercialization activities for Triosulfan if and when that product is approved.

Speaker 2

On Triosulfan, we are pleased to report that the data collected data collection phase of MEDAC's effort to respond to the FDA's information request on Triosulfan is now complete. It will take time for MEDAC to process and submit the information as part of the NDA resubmission, The progress to date remains in line with our previous expectations for this to occur in the first half of calendar twenty twenty four. Now for our key financial highlights. Our fiscal Q3 twenty twenty four revenue of $25,200,000 decreased from $28,700,000 for the same period last year or a 12.3% decrease year over year. The $3,500,000 decrease is mainly due to a decline in sales of Xfinity over the 2nd and third fiscal quarters of 2024 and the accumulating effect of continued effective unit level price reductions for RSUVO.

Speaker 2

Adjusted EBITDA of $3,200,000 for the quarter was a decrease compared to $5,200,000 for the same period last year. The $2,000,000 year over year decrease is mainly due to the decrease in revenue I mentioned, offset in part by reductions in operating expenses in the Q3 of fiscal 2024. We also produced a net loss of $500,000 the quarter, an improvement compared to a net loss of $1,500,000 for the same period last year, and positive operating income of $1,600,000 a decrease compared to $2,900,000 for the same period last year. Turning to our specific products. Xfinity unit demand in the United States decreased by 5% over the 3 12 month periods ended December 31, 2023.

Speaker 2

Demand continues to reflect the effects of lower observed average of Xfinity consumed by newer patients together with lower apparent adherence by existing patients and other developments in broader hemophilia B treatment solutions market. We now believe that these emergent trends are likely to persist And as such, we'll seek to maintain existing demand, but reduce investments in Xfinity's growth with the pediatric indication as a tailwind if and when approved. We continue to engage in constructive dialogue with the FDA on that supplemental biological license application, which the FDA accepted for review in June of 2023. We remain optimistic and expect to hear from the FDA with a decision in the first half of calendar year twenty twenty four. On RSUVO, we maintained a market leading position during the quarter as unit demand remains strong.

Speaker 2

However, competition continues to adversely affect Persuvo product level revenue. We have also observed an increasing share of product level revenue attributable to government sponsored programs, which benefit from statutory discounts and rebates with adverse effects on total product level revenue. We also now expect that additional statutory discounts and rebates anticipated under the U. S. Inflation Reduction Act will have an increase incrementally adverse effect on product level revenue going forward.

Speaker 2

RUPAL unit demand in Canada remained strong during the quarter, which is reflected in the unit demand growth of 21% over the trailing 12 month period ended December 31, 2023. The strong performance reflects successful execution of our sales and marketing initiatives to sustain the product's strong performance over the 7 years since the product was launched in January 2017. We continue to see tropical terbinafine, which we licensed in March as a strategic fit with RUPEL. Tropical terpene has been widely used in other markets to treat nail fungus infections. We made a new drug submission in December of last year.

Speaker 2

And last month, we learned that Health Canada had accepted the NDS for review, which we view as consistent with our plans to target a commercial launch in the first half of calendar 2025. If and when approved, this product will enter a market that we estimate to be CAD88 1,000,000 on an annual basis. On GLEOAND in the United States, we continue to execute our post transition commercial plan. While it is too early to say for certain, We currently expect that product level revenue for fiscal years 2024 2025 would require additional royalty payments to the licensor in order to meet the minimum annual royalty obligations set out in our license agreement. Although Gluo ad performance has remained lower than expected, Unit demand has been growing moderately over the course of fiscal 2024 and we do intend to increase our focus on the product.

Speaker 2

As an institutionally based product that we believe will complement our commercialization activities for Triosulfide if and when that product is approved. Metal Jacket unit demand in Canada has increased by 17% in the trailing 12 month period ended December 31, 2023, in spite of direct generic competition. We continue seeking to defend the product's strong market position as we continue to await the federal court's decision following the January 2020 3 trial in the patent litigation we initiated against Menoget's generic competitor in 2020. In sum, we continue to focus on maintaining stability of our base business and generating cash from operations, And we are confident that our quick moves to formulate and implement our recent cost reduction initiative will set the company up for success in the quarters to come. I'm now going to turn the call over to Marcel, who will discuss our financial results in more detail.

Speaker 2

Marcel?

Speaker 3

All right. Thank you. Thank you, Ken. We are pleased to report our 7th consecutive quarter of positive operating income and 9th consecutive quarter of positive adjusted EBITDA. I'm also very happy with our accomplishments to settle the debentures in cash during the Q3 for fiscal year 2024.

Speaker 3

Turning to the full quarter results. Total revenue for the fiscal Q3 was $25,200,000 The quarterly revenue number represents a decrease of $3,500,000 compared to $28,700,000 for the 3 months period ended December 31, 2022. As Ken mentioned, the $3,500,000 decrease in the Q3 2024 revenues versus the prior year Q3 is primarily due to the decline in sales of Xfinity over the 2nd and third fiscal quarter of 2024 and the accumulating effect of continued effective unit level price reductions for Resubo. Gross profit was $12,500,000 for the 3 months period ended December 31, 2023, compared to gross profit of $15,900,000 for the same period last year. The gross margin was $50,400,000 for the 3 months period ended December 31, 2023, compared to 55.4% for the 3 months period ended December 31, 2022.

Speaker 3

As we mentioned on last quarter's call, We continue to monitor this metric closely. This quarter's 5% year over year decrease in gross margin primarily reflects changes in the relative product and the relative contribution of product level net sales, more specifically, the effect of glialand sales in the United States before September 2022, declining Xfinity sales over the 2nd and third quarters of 2024 and the accumulating effect of continued effective unit level price reductions for Osuo. Selling and administrative expenses were $10,700,000 for the 3 months period ended December 31, 2023, compared to $11,900,000 for the same period last year. The $1,200,000 year over year decrease in SG and A was primarily attributable to targeted reductions in operating expenses. At the period end, we reduced our allocation of sales force resources to Xfinity and Drosuva as part of the company's implementation of the cost reduction initiative, which we expect to improve the contributions of those products to overall financial results.

Speaker 3

Research and development was $400,000 for the 3 months period ended December 31, 2023. This compares to $700,000 for the 3 months period ended December 31, 2022. Adjusted EBITDA was $3,200,000 for the 3 months period ended December 31, 2023, a decrease of $2,000,000 compared to $5,200,000 for the 3 months period ended December 31, 2022. The decrease in adjusted EBITDA was primarily attributable to the year over year decrease in revenues in the quarter, offset by reductions in operating expenses in the 3rd fiscal quarter 2024. The net loss for the 3 months period ended December 31, 2023 was $500,000 compared to a net loss of $1,500,000 for the same period last year.

Speaker 3

Adjusted net loss of $500,000 for the 3 months period ended December 31, 2023, an improvement of $400,000 compared to an adjusted net loss of $900,000 for the same period last year. Our cash position remains solid, with cash and cash equivalents of $8,200,000 at December 31, 2023. That's the primary factor in the net decrease in cash comparing to March 31 and September 30, 2023, to December 31, 2023, was the use of cash to make the final maturity date payment in respect to our convertible debentures in October 2023, Offset, amongst other things, cash provided by operating activities of $5,500,000 $17,100,000 For the 3 9 months period ended December 31, 2023, we also completed a bulk deal popping offering in October for aggregate gross proceeds of CAD 11,500,000 or CAD 10,800,000 aggregate net proceeds before expenses. As always, there can be variability in our quarter to quarter results, but we look forward and are energized to continue to build the company and its portfolio in the coming quarters and beyond.

Speaker 1

Operator, we will now open the call to questions.

Operator

Thank you very much. At this time, we'll be conducting our question and answer session. Andre, your line is live.

Speaker 4

Okay. Thank you. Hi, Ken and Marcel. Just a bit of a long winded question here, but If we look at the balancing of your debt repayments using your cash flow from operations, with your ongoing business development, In terms of strategy, will you be more focused on in licensing or will you look at some asset acquisitions? And are you Seeing any interesting opportunities with either?

Speaker 4

Thanks.

Speaker 2

Yes. Thanks for the question, Andre. So I think in answering the question, obviously the biggest opportunities we have within our are already within our portfolio, it's clearly Triosulfan and terbinafine. In terms of additional business development, we're seeing lots of activity, smaller deals in Canada for smaller products that we could license and use little capital upfront. So certainly are doing those.

Speaker 2

We are seeing bigger deals, But our valuation, the way we're looking at it,

Speaker 3

we think

Speaker 2

we're pretty significantly undervalued, particularly with the Triosulfan asset coming along in the pipeline. So not sure whether we'd be able to execute those deals at this stage.

Speaker 4

Okay. That's fair enough. And just in terms of Zeniti, is it primarily being affected by the gene therapy products? Or is there some other factors that are impacting XENITY? Can you just talk about that a little bit?

Speaker 2

Yes, sure. No. So gene therapy really is having no effect thus far on us and not sure it's having much effect the hemophilia B market at all. I think the patient numbers are minuscule. So the broader trend continues to be extended half life and standard half Those two categories, there certainly has been a shift and it continues to a small degree from standard to extended half life products.

Speaker 2

So that continues. And then the trend that we were being observing in the last couple of quarters is just lesser adherence by our core base of patients and it's Probably more related to macroeconomic issues than anything and that we're seeing that some patients are losing insurance coverage because they're losing jobs and that obviously adversely affects us for a period of time. Now that may well come back and we Certainly hope it does, but we thought it more prudent to adjust our cost base now. And If that does happen, then obviously that would be a nice upside for us in the future.

Speaker 4

Okay. And just, you're talking a little bit about Triosulfan opportunity. Just one more question there. If everything is addressed with the CRL and let's say the FDA Is okay with everything that they see, and you are able to file it within the first half of this year. When would you foresee seeing that product on the market potentially?

Speaker 5

Thanks.

Speaker 2

Yes. So if Everything appears to be on the timeline that we had set out previously. So file in the first half of This calendar year. And so we're looking for a decision in the last quarter of this calendar year.

Speaker 4

Okay, that's great. Okay, thanks, Ken.

Operator

Thank you very much. Your next question is coming from Raul Saragheza from Raymond James. Raul, your line is live.

Speaker 6

Hi, Ken. Hi, Marcel. This is Mike on for Rahul today. Thanks for taking our question. I'd like to get into To Gleeolin, you indicate that you would like to make further investments in its sales I guess for a bunch of reasons.

Speaker 5

I'm curious what the if

Speaker 6

you could describe like what that capital deployment would might look like? And also related to Golarland, you indicated in the press release that it's looking unlikely that you'll meet the minimum royalty requirements for 2024 and 2025. And I'm curious what implications that has for your business? Thanks.

Speaker 2

Thanks, Mike. So I'll take the first part of that question and hand the royalty piece over to Marcel. So in terms of the execution commercial on Gluan, the costs associated with that are already built into our business. And so we've taken down expenses on Xfinity, but maintained those maintained most of those expenses on glialand because we do believe that there is a growth opportunity in glialand Plus the fact that being institutionally based that's where creosulfan would be launched if and when approved. So we think Strategically, it makes good sense to continue our institutional effort.

Speaker 2

And obviously, Glioland is the product that we have in that space. Marcel, do you want to manage the royalty question?

Speaker 3

Yes, sure, Michael. So the royalty Per se, as you may recall from previous calls, accrued already in our cost of goods sold. And Part of the prepared remarks, I've explained sort of the drivers there on a quarter over quarter and year over year decline on our gross margin, which is which had all the components in there. But essentially, that's all it is, which is going to approve for that and then obviously, we have to pay that royalty down the road, yes.

Speaker 6

Okay. All right. Thanks very much. Now a quick one on Exitidine. Should the pediatric BLA come through?

Speaker 6

Would you should we expect that that could materially change the dynamic, The sales dynamic of that drug, given you would now have the capacity to get children on drug early and not be needing to face the dynamic of having to change or shift adult patients from one drug to another?

Speaker 2

Yes, it's a great question. So, I think the way to think about it is that over Medium or long term, yes, it has an impact to affect the trajectory of the drug. In the short term, probably not very much. As new patients are diagnosed typically in childhood, they're quite small, so the dose they would take would be very small. So The financial benefit of adding those patients isn't very big.

Speaker 2

It's not until they get larger, use bigger doses over a longer period of time, then it makes an impact. So we wouldn't expect to see an immediate effect. But over media and longer term, certainly it should have a positive impact. There may be some positive halo effect of the fact that we've now or we would expect to get the pediatric indication added to our label. It puts us on equal footing with our competitors.

Speaker 2

So that may bring us some other business from adult patients, but We'll wait and see. We're obviously going to be promoting the fact that it has been approved if and when it does.

Speaker 6

All right. That's helpful. I'll pass it on.

Operator

Thank you very much. Your next question is coming from Justin Keywood of Stifel. Justin, your line is live.

Speaker 7

Good morning. Thanks for taking my call. A lot of moving parts as mentioned. Are you able to detail the run rate of the business expected on a revenue and adjusted EBITDA basis and if it's expected to be free cash flow generative? Thanks.

Speaker 2

Yes, I'll flip that over to Marcel.

Speaker 3

Yes. Thanks for that question. Yes, as you've seen from our quarter now versus previous quarter, we've seen a decline in sales. So we've generated positive adjusted EBITDA, specifically for the first and Q2. So we've seen a bit of a dip.

Speaker 3

We've taken immediate actions to that. I think what we've been What we've historically done is we've seen those changes in the business environment. We have reacted quickly. Now we've reacted on our costs and protect our bottom line on the EBITDA, which we should see the impact in the coming quarters. And then on the revenue side, as Ken mentioned, we have to observe some of those trends that are occurring now in our external business environment.

Speaker 3

And at this point, we're not giving any guidance, obviously, what's going to happen going forward. But as we talked a little bit earlier, some of these trends may be temporary, others may not. So this is a little bit of a hard estimate for us to say. But as we we took immediate action on the cost side to protect the bottom line there.

Speaker 7

Understood. Thanks. And just on the restructuring or one time costs, are you able to detail that?

Speaker 3

So what we've said is, what we basically took out sort of on an annualized basis $4,000,000 to $6,000,000 You actually see already that if you look at our total expenses for Q2 over Q3, it's already coming down. So we basically quantified that sort of on an annual basis and with a sign of an impact obviously going forward that will help us to protect our bottom line.

Speaker 7

Okay. And then just on Triosulfan, if there's been any change in strategy just as far as the organization for the next submission, given it's the 3rd attempt here and what gives you confidence of a successful outcome this time? Yes, it's still the this time?

Speaker 2

Yes, it's still the first attempt. So this is still the same ongoing submission. It was one CRL, one resubmission. So no change in the strategy In terms of how we would commercialize, the opportunity continues to be large. We obviously have 18 months of experience now in Canada, and we are seeing the trends in Canada in that market, What works in terms of commercialization?

Speaker 2

And so no, I think the key thing is get the resubmission completed and get the decision date and if positive, execute the commercialization plan that is probably only got better in the couple of years that we've been working on CRL.

Speaker 7

Thanks. And just on the first half of this year timing, So the I guess item to be to watch out for is the if the FDA accepts the resubmission for triosulfan, is that what we should be looking out for?

Speaker 2

Yes, correct. So we will clearly put that news out once the FDA has accepted the resubmission. So We would expect, as we said, that's sometime in the first half of this year, this calendar year.

Speaker 7

Thank you very much.

Operator

Thank you very much. Your next question is coming from Stephan Quenneville from Echelon Capital Markets. Stefan, your line is live.

Speaker 5

Hi, guys. Thanks for taking the question. Could we just drill down a bit more on the pricing pressure you're seeing in the U. S, the decline in the U. S.

Speaker 5

Business implies Teams pricing pressure on both, I guess, Versuvo and our Xfinity. Can you guys just delve a little deeper into What's going on there?

Speaker 2

Yes, sure. Happy to. So the pricing pressure It's primarily on RASUVO, being a reimbursed product and exposed to various payers. 2 dynamics happening there. 1, we've seen unit volume actually increase meaningfully as a result of a Methotrexate drug shortage, which has been a shortage kind of worldwide.

Speaker 2

We've seen that happen in many different markets. So We've benefited from additional units coming into our book of business. Unfortunately though, those units are coming from vials, which tend to be the lowest cost, which tend to be patients who've got the lowest level of coverage, which is our smallest profit book of business. So we're getting these additional units and it doesn't help that much. And then on the rest of the business, the rest of the commercial business continue to see Price pressure in order to defend our market share.

Speaker 2

Recall, we've got a better than 80% Market share, so we've made it very clear that we're going to defend our share in order to keep those units. And so in order to do so, At sometimes it's meant adjusting the price to protect our business.

Speaker 5

Okay. And just on to the, I guess, the path forward for Exinity, is it fair to say like the language you're talking about here seems to imply that you don't view it really as a growth franchise for you going forward. Is that a reasonable way to look at it and you're looking to just sort of maintain your profitability with that product? Like what's the franchise strategy there?

Speaker 2

Yes, it's a great question. We spent a lot of time analyzing exactly that issue. What is the growth potential out of this drug versus other products that we have in our portfolio or other products that we have in our pipeline. And so I think the way we're thinking about it is that we've Got a good stable base of business for Axiniti. And most of Our business is coming from a core group of patients and we clearly want to maintain those.

Speaker 2

The effort to get New patients is high, it's costly, and we're seeing those new patients coming in at a lower value. Obviously, the cost to obtain a new patient has been going up. And so I think we've shifted our strategy to say, Let's maintain our base. Let's take new products that might come along, but we're not going to spend heavily searching for those new patients. As the market changes and our position within the market improves, if and when the product is approved for pediatrics, then we may get more patients and that may come through more naturally.

Speaker 2

Obviously, we've got a group of patients who are using our product, a group of physicians who are familiar with our product and we would expect to get some share. So we're no longer going to invest in the growth of the product, more interested in maintaining the good base of business that we do have and then investing in institutionally based products, which is currently glioblastin. And in the future, we hope is triosulfan.

Speaker 5

Okay. And let's kind of move to Triosulfan as well. So the language in the press release, You talked about MEDAC having collected all the data required. Can you explain what that means? They had to go through patient records.

Speaker 5

It was a long process. Have they successfully got all the patient information? Are there gaps in that data? They were unable to some percentage of Patients, they were unable to collect the data that the FDA required? Or is it have they comprehensively Being able to collect what was being asked for, I guess, by the FDA.

Speaker 5

Can you characterize that to some degree?

Speaker 2

To some degree. I think what I can say at this stage is that the data collection phase is over. And so they have successfully collected 5 70 of 5 70 patients. So it's 100%. So I think that was a very thorough job.

Speaker 2

I can't really comment on the analysis of The data that's being collected because that's ongoing. But I can't say that the fact that we do expect to resubmit would suggest that we believe that the data is compelling enough to do the resubmission.

Speaker 5

Yes. And then just finally on Trio. Well, I guess 2 questions. Trio, you're expecting a Class II review if The resubmission is accepted by the FDA, so a 6 month review process?

Speaker 2

That's our assumption. But as you know, it could Could be a 2 month. The other class, which would be a 2 month. And so it's at the outside, it's Q4 of this calendar year for a decision if it's a 6 month review.

Speaker 5

Okay. And then just finally on Trio, in the markets where it's available. I understand it quickly becomes sort of standard of care. Can you characterize how quickly People, I guess, in more conservative markets, Canada and Europe, have switched to Trio. And how you expected that will occur in the U.

Speaker 5

S. If it is in fact launched Later this year.

Speaker 2

There's a lot in that question. So let me try. The European market obviously is far more mature than the North American market. It's been in that market for quite a long time, ovarian cancer before being indicated for stem cell transplantation. So familiarity was quite high.

Speaker 2

And it has become standard of care in Europe and there are physicians who have written that they're just not familiar with using the other drugs that they use Trio. The only market that we can really comment on that is a recent launch is our own market, which we launched it ourselves in Canada 18 months ago, and we're seeing very good uptake, uptake that would support the sales revenue that we've projected for the U. S, what we're seeing happen in Canada, if you translate that the U. S, it would be very supportive of what we think is going to happen in the U. S.

Speaker 2

But I'll also point out that In Canada, even though we have really good performance, we don't yet have reimbursement. So It's going to get better in Canada with reimbursement. And so we're really pleased with the trajectory that the product has in Canada. If and when it gets approved in the U. S, we think that our sales projections that we previously put out there would be Really simple.

Speaker 5

Okay. And just sorry, just to jump around a bit. On the cost cuts, Can you guys give a sense of what the amount the one time payment is going to be for those, I guess, the severance As well, do you expect the cost cuts to more than sort of make up the EBITDA loss from the weakness in your U. S. Portfolio over the next 12 months?

Speaker 2

I'll turn that one over to Marcel.

Speaker 3

Yes, I'll take one. Yes. No, we didn't disclose the we were asking for the termination benefits. But of course, we can assume, yes, we did We had to go through a very sort of a difficult exercise to reduce these costs, both On the headcount and on the variable costs. And you'll already see the impact here a little bit in Q3, as I said.

Speaker 3

And as I mentioned before, we're really trying to be agile and flexible to our business environment to be able to react to that and get sort of back towards sort of previous levels As we have seen, but at this stage, it's early to say how much these cost cuts will be fluctuating relative to our revenue

Speaker 5

Okay. And just I know I've been hogging the call here, but one last question. Can you remind us of Covenants maybe surrounding EBITDA levels on the BMO facility and debt That we should be aware of?

Speaker 3

Yes, we haven't disclosed in detail, but we're going to continue to service our debt. Obviously, you've seen with these cash flows we've been generating for this quarter, for example. So that is a continued focus to do so. And obviously, the cost cutting the protecting our bottom line will be help assuring that we continue to service our debt.

Speaker 5

Okay. That's it for me.

Operator

Thank you very much. We have now reached the end of our question and answer session. I will now hand back over to Ken for any closing comments.

Speaker 2

I just want to thank everybody for joining us on the call today. We look forward to building upon and advancing the products in our portfolio and the pipeline and continue to deliver a strong performance over the rest of 2024 and beyond. Thanks very much.

Operator

Thank you very much everyone. That does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.

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Earnings Conference Call
Medexus Pharmaceuticals Q3 2024
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