Knight Therapeutics Q4 2023 Earnings Call Transcript

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March 21, 2024

There are 7 speakers on the call.

Operator

Good morning, ladies and gentlemen. My name is Sylvie, and I will be your operator today. Welcome to Knight Therapeutics' 4th Quarter and Year End 2023 Results Conference Call. Before turning the call over to Samira Zakira, 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 those forward looking statements are based to be reasonable at the time they were prepared, but cautions that these assumptions regarding the future events many of which are beyond the control of the company and its subsidiaries may ultimately prove to be incorrect.

Operator

The company disclaims any intentions or obligations to update or revise any forward looking statements whether as a result of new information, future events, except as required by law. We would like to remind you that questions during today's call will be taken from analysts only. If there be any further questions, please contact Knight's Investor Relations department via email to infonighttx.com or via phone at 514-484-4483. I would now like to remind everyone that this call is being recorded today, March 21, 2024. And I would now like to turn the meeting over to your host for today's call, Samira Sakia.

Operator

Please go ahead.

Speaker 1

Thank you, Sylvie. Good morning, everyone, and welcome to Knight Therapeutics' Q4 year end 2023 conference call. I'm joined on today's call with Amal Khouri, our Chief Business Officer and Arvind Uchana, our Chief Financial Officer. Last month, we celebrated our 10 year anniversary, and I'm proud to say that we have delivered record revenues for each of those 10 years and record EBITDA since 2019. In 2023, we reported record revenues of $343,000,000 and record adjusted EBITDA of over $60,000,000 growth of 18% and 11%, respectively, versus last year.

Speaker 1

While delivering on these record results, we have made significant progress in advancing our product pipeline in Canada and Latin America. We submitted regulatory filings for 5 products: MINJUVY, PEMAZER, TAVALISSE, REMBRI and CARFET across multiple territories and received approval from MINJUVY in Brazil for Palvacil and Zetrain in Chile and CARFIB in Colombia. In addition to our regulatory submissions and approvals, we launched 2 products in Canada, Bijuvi as well as IMVEXXY, which competes in a growing market of over $9,000,000 Outside of Canada, we launched MINJUVY in Brazil and Palbocil in Argentina. Turning now to the NCIB. During the year, we purchased approximately 11,100,000 common shares for aggregate cash consideration of over $53,000,000 which represents an average purchase price of $4.82 I will now turn the call over to Arvind 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 measures, as well as adjusted EBITDA per share, which is a non IFRS ratio. Knight 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 hyperinflation, but to include costs related to leases. Adjusted EBITDA excludes acquisition costs and non recurring expenses. Knight defines adjusted EBITDA per share as adjusted EBITDA over the number of common outstanding shares at the end of the respective period.

Speaker 2

Furthermore, my discussion on the operating results will refer to figures that exclude hyperinflation. For the Q4 of 2023, we delivered revenues of over $88,000,000 representing an increase of $5,000,000 or 5 percent versus prior year. In 2023, as Sameera mentioned, we delivered record revenues of over $343,000,000 representing an increase of $51,000,000 or 18%. On a constant currency basis, revenues increased by approximately $38,000,000 or 12% versus prior year, driven by growth across all of our therapeutic areas. In 2023, our oncology and hematology disease portfolio delivered approximately $122,700,000 a growth of $17,000,000 or 16% compared to last year.

Speaker 2

Our key promoted brands, including LENVIMA, Toro, Calvo Sil and Hakim Zayo contributed approximately $27,000,000 of incremental revenues. The increase was offset by a reduction in sales of our mature and branded generic products of approximately $10,000,000 due to the life cycle and the entrance of new competitors. Our infectious disease portfolio delivered $141,000,000 an increase of over $24,000,000 or 21% compared to the same period last year. The portfolio grew by $32,000,000 excluding the impact of the planned transition and termination of our Killyad agreement effective July 2022. The increase was driven by the growth of our key promoted products, including AmbiSom and CRYSTEMBA as well as higher demand for INPOVITO.

Speaker 2

In 2023, we sold a total of $25,200,000 of Amiso under our sales contract with the Ministry of Health in Brazil or MoH, an incremental $18,200,000 compared to the MoH sales in the prior year. In December 2023, we have signed a new contract for Ambeso with the MOH in Brazil, and we expect to deliver approximately CAD16,500,000 in addition to the CAD2,500,000 already delivered in Q1 2024. Moving to our other specialty portfolio. The portfolio generated approximately $80,000,000 in 2023, an increase of $10,000,000 or 14% compared to last year. The increase is primarily driven by the transition of commercial activities of Exelon from Novartis to Knight, which resulted in the change in accounting treatment from net profit transfer to revenues related cost of sales.

Speaker 2

Now moving on to gross margin. We reported $42,400,000 for a gross margin of 48% of revenues in the Q4 of 2023 compared to CAD41.9 million or 50 percent of revenues in the same period last year. For 2023, we reported $166,000,000 or a gross margin of 48% of revenues compared to $150,000,000 or 52 percent of revenues last year. As a reminder, Exelon was recorded as a net profit transfer from Novartis for Brazil and Colombia in the first half of twenty twenty two. If Knight had reported revenues and related cost of sales for Exelon instead XLON instead of a net profit transfer, the adjusted gross margin in both 2023 and 2022 would have been 48% 50%, respectively.

Speaker 2

The decrease was due to the change in product mix. I will now turn to our operating expenses. Our operating expenses excluding amortization and impairment of non current assets for the Q4 were approximately CAD30.5 million an increase of CAD1.3 million or 4 percent compared to the same period last year. For 2023, our operating expenses, excluding amortization and impairment, were $108,600,000 an increase of $9,300,000 or 9% compared to last year. The increase in operating expenses was due to an increase in our compensation expenses, certain variable costs, which such as logistic fees, which increased as a function of higher revenues as well as an increased selling, marketing and medical activities related to our key promoted products.

Speaker 2

In addition, we accelerated our development activities related to our product pipeline. In 2023, Knight invested $2,500,000 on 9 pipeline products, an increase of $2,200,000 compared to the prior year. All costs related to development activities have been expensed. These costs include regulatory submission, analytical method transfers, stability studies and bioequivalence studies. Moving on to adjusted EBITDA.

Speaker 2

For the Q4 of 2020 3, we reported CAD12.1 million of adjusted EBITDA, a decrease of CAD1.8 million or 13% compared to the same period last year. For 2023, adjusted EBITDA increased by CAD6 1,000,000 or 11 18% of revenues. Our adjusted EBITDA per share was CAD0.59 an increase of 23% compared to the prior year. Moving to impairment of non current assets, which is not reflected in our adjusted EBITDA. For 2023, we recorded an impairment of $3,000,000 The net book value of the attachable asset of Exelon is accounted in U.

Speaker 2

S. Dollars and revalued from U. S. Dollar to Canadian dollar at the end of every reporting period. The appreciation of the U.

Speaker 2

S. Dollar versus the Canadian dollar from Evolong to the closing foreign exchange rate of 2023 has led to an increase in the value of the asset in Canadian dollars and the resulting impairment loss. Now moving on to gains or losses on our financial assets, which are not reflected in our adjusted EBITDA. In 2023, we reported a net loss of $10,000,000 driven by an unrealized loss of $22,000,000 mainly due to negative mark to market adjustment on our strategic adjustment on our strategic funds. This was partly offset by a realized gain of CAD12 1,000,000 due to the disposal of certain equity investments, including the Moksha 8 warrants.

Speaker 2

Moving on to our cash flows. During 2023, Knight generated cash inflow from operations of $36,000,000 including a net working capital investment of $28,000,000 driven by the onboarding of Exelon and Acinbrio as well as investment in inventory to support our new product launches and our growing promoted products. I will now turn the call over to Amal to provide more details on our product pipeline.

Speaker 3

Thank you, Arvind. In the past year, we have expanded our product pipeline with 3 additional products. We have in licensed the branded generic molecule in oncologyhematology for Brazil. This is a branded generic of an innovative drug that today is estimated to have sales in Brazil of over $170,000,000 according to IQPM. In addition, as of today, there are no generics or branded generics that have launched against this innovative drug in Brazil.

Speaker 3

In addition, Knighton licensed Calvary for Canada. Calgary is an extended release formulation of viloxazine, a multimodal, serotonergic and norepinephrine modulating agent, a non stimulant medication for the treatment of attention deficit hyperactivity disorder or ADHD. Calgary is commercially available in the United States as a prescription medicine to treat ADHD in patients 6 years of age and older. Calvary is the 1st new non stimulant to enter the market in over 10 years and will represent a new option in a segment that is valued at over $80,000,000 according to IQVIA and that continues to have a significant unmet medical need. Knight expects to submit Calgary for regulatory approval in the second half of 2024.

Speaker 3

Subsequent to year end, we unlicensed IPX203 for Canada and Latin America. IPX203 is a novel oral formulation of carbidopa levodopa extended release capsules designed for the treatment of Parkinson's disease. IPX203 was studied under RICE PD clinical study that showed that treatment with IPX203 demonstrated statistically significant improvement in daily good on time with fewer doses of IPX203 compared with immediate release carbidopalevodopa. In that study, IPX203 was dosed an average of 3 times per day versus 5 times per day for immediate release carbidopalevodopa. IPX203 is expected to compete in a market value that over $50,000,000 in Canada and over $120,000,000 in Brazil, all based on IQVIA data.

Speaker 3

These recent deals illustrate our focused approach to building on the strong platform and capabilities that we have, specifically in oncology and central nervous system, as well as our strategy to build a balanced portfolio that includes both innovative products as well as branded generics and therapies for acute conditions as well as chronic diseases. In the 4 years since the acquisition of bupropia test scanner, our team has added 13 new products to our portfolio and will continue to build on that momentum to further rejuvenate our portfolio and accelerate the growth of our business. I will now turn the call back to Samira for concluding remarks.

Speaker 1

Thank you, Amal. Now I'll cover our financial outlook for fiscal 2024. 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. This guidance is based on a number of assumptions, which are described in our press release, including foreign currency exchange rates, which with the exception of Argentina are currently forecasted to remain on average at similar levels as 2023. Considering the volatility of LatAm currencies, we will continue to monitor and revise our foreign exchange exemptions, which may materially impact our results and forecast.

Speaker 1

Should any of the other assumptions differ, the financial outlook and the actual results may vary materially. We expect revenues we expect to generate revenues between $335,000,000 to $350,000,000 and adjusted EBITDA of approximately 17 percent of revenues. On February 28, 2024, Knight celebrated its 10 year anniversary. In the past decade, we have made significant progress on our strategy of building a rest of world pharmaceutical company. Today, we are a profitable Pan American ex U.

Speaker 1

S. Company with a unique platform and footprint, commercializing both innovative and branded generic products. We have strengthened and built on our acquired platform by adding 17 new products, 13 of which came through partnering and 4 through our internal development capabilities. I'm incredibly proud of what we have accomplished to date, and I'm excited about the future achievements that we will deliver to all our stakeholders. None of this would be possible without the fantastic team that we have in place across all our countries.

Speaker 1

Their unwavering commitment and dedication to serving patients across all our territories have been instrumental in shaping Knight as the partner of choice for Canada and Latin America. This concludes our formal remarks. I'd now like to turn the call back to for questions. Sylvie, over to you.

Operator

Thank you. Before we begin, may I please remind you that 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 514-484-4484. And your first question will be from Doug Meheim at RBC Capital Markets. Please go ahead.

Speaker 4

Yes. Good morning, Sameer and Namal. First question for me just has to do with the pipeline of opportunities that you're looking at right now. You've been quite successful, I'd say, over the last year and then licensing some unique products. Could you tell us what things look like for 2024 at this point?

Speaker 3

Good morning, Doug. Yes, we are so in terms of what we're looking for, nothing has changed. We continue to look for to acquire products with existing sales. We look to license innovative and brand generic products in our TAs and we look also to identify additional internal development opportunities. The outlook is, again, we never had an issue in terms of deal flow.

Speaker 3

I think there is a lot of opportunities out there for all of our markets. So that continues to be we continue to look at a healthy pipeline of deals. It's just a question, as you know, of the regular frequency of BD is not something that could be scheduled, but the deal flow is very healthy and we're really looking to accelerate going

Speaker 4

forward. Okay. That's great. And then Samira, on the guidance, when you look at the potential headwinds that you may see, whether it be with Exelon or perhaps some other generics, is the strength in the outlook simply a function of delays in this competition? Or are you seeing, I'd say, stronger operations from the existing portfolio and new launches?

Speaker 3

Well, it's a bit of both.

Speaker 1

I mean the headwinds, we do continue to expect headwinds on our branded generic portfolio. As we had outlined during the beginning of 2023, we expected headwinds coming in Colombia. Some of that came, not all of it came and we expect it to come this year. The agency had been slower in approvals. We expect that to come.

Speaker 1

We when it comes to Exelon, we're expecting it to remain flattish. This was a base business type of acquisition. Yes, we know that there's other branded generic competition, but we continue to promote and have been holding. And then they're offsetting some of the branded generics and very mature product declines is really the new product launches. And the variance between the low end and the top end is when it comes to the decline of some of those generics is how fast or how slow is the erosion going to be.

Speaker 4

Okay. And can you I know it's very early days, but some of the most recent launches, perhaps in Brazil. Can you tell or give us any information on if you can't tell yet how they're going, if there's been anecdotal evidence in terms of how some of these may do in 2024? I'll leave it there.

Speaker 1

Thanks. For both IMVEXXY and BIJUVA as well as for MINJUVY, it really is too early to tell. What I can tell you going back to its anecdotal, in the case of MINJUVA, there is very few alternatives for patients who are ineligible for transplant. So there is anticipation. That being said, it's going to be a slow uptake.

Speaker 1

In the case of IMVEXXY, it's a simple product. It's easy to use in a market where there hasn't been innovation in over a decade. It's also publicly reimbursed across all Canada. So we have expectations that it will do well, but it's really too early to tell.

Speaker 2

Perfect. Thank you.

Operator

Thank you. Next question will be from David Martin of Bloom Burton. Please go ahead.

Speaker 5

Good morning. This is Girish on for David. We had a question about your specialty portfolio. Could you provide any clarity into what you guys claim or just differences in purchasing patterns of certain customers driving that slight decrease? And the Exelon start to have any impact on this portfolio given the generics in Brazil?

Speaker 1

What you have is some customers will place big purchase orders depending on the time of year. So that's really what is driving it. What we are seeing, for example, post couple of years post COVID, some normalization, I'm going to say seasonality and some buying patterns in Q4. We used to normally see that in Canada. It stopped during COVID.

Speaker 1

In Canada, it's come back. In Brazil, it's come back. In the case of Exelon, as I said earlier, it is a brand that we expect to stay flattish and it stayed flat between 2223.

Speaker 5

Okay. Thank you. And just turning to like the recent product launch is mainly IMVEXXY. Since the market is like largely controlled by one product, could you just give us any insight on like some advantages of IMVEXXY or how you're planning to take some of that market share?

Speaker 1

Sure. So IMVEXXY is a soft gel pill that is inserted in the vagina without any devices. The Vagifem, which is the large competing product is a tablet. It does need a device. In the case of IMVEXXY, there is never like there we don't have patient complaints in the studies related to any discharge or anything like that.

Speaker 1

In the case of Vagifem, there are some patient complaints about that. So we think it's a better product just from a patient comfort and ease of use. And on the second hand, it too is fully reimbursed across Canada.

Speaker 5

Okay. And last question on that. Given the recent product launches, do you have any insight into which ones would be the main drivers for revenue growth of those 3 in the following year?

Speaker 1

What we are expecting is each of MINJUVY and IMVEXXY will be driving growth. BIJUVA is in a smaller category of products. It too is a good product, but it's a smaller category.

Speaker 5

Okay. Thank you very much for that.

Operator

Thank you. And your next question will be from Raul Zoekster at Raymond James. Please go ahead, Raul.

Speaker 6

Good morning, Sameer, Amal, Arman. So looking forward, as you've recently peak sale peak estimate from the pipeline to $120,000,000 do you have a sense for approximately when in what year that peak would likely happen, so to treat the duration on the assets? And as a Part B to that question, are there any specific individual or 1 or 2 assets that we see representing 10%

Speaker 1

Hi. I'm going to repeat your question because it was cutting in and out. So you're looking at our pipeline that is now $120,000,000 to $150,000,000 And when is that actually going to land and which products is that coming from? Is that right?

Speaker 2

Yes, please.

Speaker 1

Okay. So the we don't guide to any one product revenue. What you see in there is there are some products that are in the in oncology, some of them that are in CNS, some of them are in very big markets. So if you look at a product like Calbri, a product like IPX, a product like MINJUVY, these are big contributors. I'm not going to get into the ones that are VGX because that would be providing a lot of information.

Speaker 1

As far as timing, it's really coming on a phased it will come over those years. Some of these products are launched MINJUVY, IMVEXXY are launching this year. We are expecting launches starting more launches next year, the year after. And it's going all the way to 28, 29. So this is really over all of those years.

Speaker 6

Terrific. That's very helpful. So my second question is on the competitive landscape. So given part of our deep contingency, compliance and controls that Knight has, how are you seeing your peers or competitors in LATAM performing with respect to winning bids on in licensing high value drugs? And or how are you seeing the pharma players who are out licensing these assets and their appetite to out license versus set up themselves in terms of their own sales and marketing?

Speaker 3

Good morning, Gaurav. This is Amal. And again, I think you're cutting in and out. So I think your question is related to compliance and how does Knight position itself to winning deals based on compliance. I think that was your first question.

Speaker 3

Did I hear that correctly?

Speaker 6

Close enough. Thank you.

Speaker 3

Okay. The so yes, so compliance is extremely top of mind and very important across the industry. And we see it in most deals that we look at, that companies are not just kind of looking at anybody to for any type of bid. They're also performing diligence on who they would be partnering with. So the fact that we are a Canadian publicly listed company, but also operating in Canada.

Speaker 3

We are members of the Pharmaceutical Industry Associations, So IMC here in Canada and equivalent associations across our markets. And of course, we have a quite a sturdy compliance program up to global standards. That's all something that is evident to whoever whatever perspective licensor is doing their diligence. So that we are seeing that as a very important aspect that prospective licensors are looking at. And it's kind of hard to imagine them finding someone else with better standards than what we have in our markets.

Speaker 3

I think your second question was looking at big pharma out licensing products and or set or other companies setting themselves in our markets. Was that correct?

Speaker 6

Yes.

Speaker 3

Yes. So it's really it's a mixed bag. Where you see companies looking to set up themselves. I think you can again, it's hard to generalize, but I'll still give you generally speaking, if a company has a really kind of super rare orphan drug that is kind of they can you can have a very, very small number of patients and one like 10 patients in one country, a few more patients in another country, then they could consider either not so much setting up themselves, but maybe having kind of one person as a representative in the country and just helping with the import. So that's again hard to generalize, but this should give you a sense of who would be considering going kind of a direct market entry model.

Speaker 3

On the other end of the spectrum, when you're at big pharma who already have presence in those markets, in terms of our licensing, it's again, it depends on the company, the country. We see some companies, for example, some big pharma giving up their part of their portfolio to a distributor. We're not seeing a massive exodus, let's say. We're just seeing kind of in general some level of refocus where they choose which part of the portfolio they want to continue investing in and which part of the portfolio they'd rather outsource and outsource means different things.

Speaker 6

Great. That's very helpful. I'll get back in the queue.

Speaker 3

Thank you.

Operator

Thank you. And at this time, we have no other questions registered. So I would like to turn the call back over to Samira.

Speaker 1

Thank you, Sylvie. And once again, this is the end of our call. Thank you for your confidence in the Knight team and for joining our Q4 year end 2023 conference call. Have a great morning.

Operator

Thank you. Ladies and gentlemen, that does indeed conclude your conference call for

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