Knight Therapeutics Q1 2024 Earnings Call Transcript

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May 9, 2024

There are 8 speakers on the call.

Operator

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 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 intention or obligation to update or revise any forward looking statements whether as a result of new information, future 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 infoknighttx.com or via phone at 514-484-4483. I would like to remind everyone that this call is being recorded today, May 9, 2024, and would now like to turn the meeting over to your host for today's call, Samira Sakhia. Please go ahead, Ms.

Operator

Sakhia.

Speaker 1

Thank you, Liz. Good morning, everyone, and welcome to Knight Therapeutics' Q1 2024 Conference Call. On today's call, I am joined by Amal Khouri, our Chief Business Officer and Arvij Ujjana, our Chief Financial Officer. I'm pleased to report that in Q1 2024, we delivered revenues of over $85,000,000 a growth of $3,000,000 or 4% over the same period last year, including 13% or $7,100,000 growth from our promoted portfolio. In addition, during the Q1, we launched 3 products in 2 different territories: IMVEXXY and BIJUVA in Canada and MINJUVY in Brazil.

Speaker 1

Beyond delivering growth across our promoted portfolio, we have advanced our pipeline with the regulatory submission in Brazil for fostamatinib, which we licensed from Rigel and the approval of CARFIB, our branded generic of carfilzomib in Colombia. At the end of Q1, we had 9 products, including Jornay PM under regulatory review in various countries across our region. In parallel to advancing our products towards regulatory approval and launch, we are continuing to strengthen our pipeline and to add to our portfolio through business development. This year so far, we have added 2 products for Canada and LATAM, IPX203, a novel formulation of carbidopalevodopa for Parkinson's disease. And as you saw this morning, we have added Jornay PM, a novel formulation of methylphenidate for ADHD.

Speaker 1

With these two products and Calvary, we have added which we added at the end of 2023, we are well on our way to building a strong neurology portfolio allowing us to leverage our existing Exelon infrastructure. I will now turn the call over Arvind to provide an update on our financial results.

Speaker 2

Thank you, Samira. When 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 EBITDA over the number of common shares outstanding at the end of the respective periods.

Speaker 2

Furthermore, my discussion on the operating results will refer to figures that exclude hyperinflation. For the Q1 of 2024, we delivered revenues over $85,000,000 an increase of $3,000,000 or 4% versus prior year. Our infectious disease portfolio contributed to $38,000,000 of revenues, an increase of $7,000,000 or 23% compared to the same period last year. This was driven by our key promoted products, including AmbiSom and Cresemba, partly offset by the timing of demand for certain products including INPOVITO. During this quarter, we sold a total of 9 point $2,000,000 of AmbiSom under our sales contract with the Ministry of Health or MOH in Brazil, an incremental $6,800,000 compared to the MOH sales in the same period last year.

Speaker 2

During 2024, we expect to deliver approximately $18,900,000 to MOH, including the $9,200,000 already delivered in Q1 2024. Now moving to our oncology and hematology disease portfolio. We generated $30,800,000 in the quarter, a growth of approximately $2,000,000 or 6% compared to the same period last year. Our key promoted brands including LENVIMA, TRAILTOR, AKINZEO, BALBOCIL and the launch of MINJUVY contributed approximately $5,000,000 of incremental revenues. This increase was offset by a decline a decline of approximately $3,000,000 in the sales of our mature and branded generic products due to the lifecycle.

Speaker 2

Turning to our other specialty portfolio. During the quarter, the portfolio generated $17,000,000 in revenues, a decrease of $6,000,000 or 26% compared to the same period last year. The decrease is mainly due to advanced purchases of Exelon in the Q1 of 2023, driven by the transition of commercial activities from Novartis to Knight as well as the purchasing patterns of certain customers. Now moving on to gross margin. In the Q1 of 20 24, we reported a gross margin of $40,700,000 or 47 percent of revenues compared to $41,400,000 or 50% of revenues versus Q1 last year.

Speaker 2

The decrease in gross margin as a percentage of revenues was due to product mix. I will now turn to our operating expenses excluding amortization. Our operating expenses were approximately $27,500,000 in Q1 2024, an increase of CAD3.8 million or 16% compared to the same period last year. The increase was driven by higher marketing spend for the launches of IMVEXXY, BIJUVA and MINJUVY, an increase in our G and A costs due to our structure and higher compensation expenses as well as development costs for our pipeline products. Moving on to adjusted EBITDA.

Speaker 2

For the Q1 of 2024, we reported $13,600,000 of adjusted EBITDA, a decrease of 4 point $1,000,000 or 25 percent compared to the same period last year, driven by the investments in our product launches and pipeline. Our adjusted EBITDA per share was $0.13 for the quarter. I will now cover the unrealized losses our financial assets, which are not reflected in our adjusted EBITDA. In Q1 2024, we reported a net loss of approximately $16,000,000 driven by the unrealized losses on the valuation of certain private investments of our strategic funds. Finally, on to our cash flows.

Speaker 2

During Q1 20 four-twenty nine generated cash inflows from operations of $30,800,000 driven by our operating results as well as a decrease in working capital. Our working capital decreased by $15,500,000 due to an increase in our accounts payable and a decrease in our trade receivable and inventory levels compared to December 31, 2023. Our accounts payable excluding all investment activities increased by $9,400,000 due to the purchases of inventory of our key promoted products. We expect to settle those payables in the Q2 of this year. I will now turn the call over to Amal to provide more details on our product pipeline.

Speaker 3

Thank you, Arvind. Earlier this morning, we announced an exclusive supply and distribution agreement for JornePM for Canada and Latin America. JornePM is a highly innovative and differentiated product and is the 1st and only evening dose methylphenidate product that is commercially available in the United States to treat attention deficit hyperactivity disorder or ADHD in patients 6 years of age and older. JournePM is an extended release formulation of methylphenidate, a stimulant medication used for the treatment of ADHD. Journe EPAM's formulation consists of microbeads with a delayed release layer and an extended release layer.

Speaker 3

The first layer delays the release of the active ingredients until the next morning, while the extended release layer controls the release of the active ingredients from the early morning and throughout the entire day. This unique formulation provides a pharmacokinetic profile that allows a dose dependent duration of effects and control of ADHD symptoms from the time the patient wakes up until they go to bed. JOURNEY PM was studied in 2 randomized, double blind, placebo controlled Phase III clinical trials. Both studies met their primary and key secondary endpoints, demonstrating a statistically significant and clinically meaningful improvement in ADHD symptoms during the early morning and the late afternoon or evening. Jorn EPM was submitted in Canada for regulatory approval in November 2023.

Speaker 3

Following the in licensing of Calvary, a non stimulant medication for ADHD as well as IPX203, a novel extended release formulation of carbidopa levodopa for Parkinson's disease, JornePM represents the 3rd neurology asset that we in license in the last 6 months. These deals illustrate our focused execution in building our pipeline in a disciplined way that leverages our infrastructure and they demonstrate our positioning as a partner of choice with deep capabilities in our key therapeutic areas. We will continue to execute on our strategy of leveraging our unique platform to unlicense and acquire innovative products for Canada and Latin America. I will now turn the call back to Sameera for concluding remarks.

Speaker 1

Thank you, Amol, and congratulations to you and your team on closing JournePM and adding another neurology asset. Now on to our financial outlook for fiscal 2024. I would like to remind everyone that this guidance is provided on a non GAAP basis due to difficulty in predicting Argentinian inflation rates. We are reconfirming our outlook for fiscal 2024 and expect to generate revenues between $335,000,000 to $350,000,000 and adjusted EBITDA of approximately 17 percent of revenues. This guidance is based on a number of assumptions, which are described in our press release, including foreign currency exchange rates remaining at the same level as 2023 with the exception of Argentina.

Speaker 1

Considering the volatility of LatAm currencies, we will continue to monitor and revise our foreign exchange assumptions, which may materially impact our results and forecasts. Should any of the other assumptions differ, the financial outlook and the actual results may vary materially. We have a profitable and cash flow generating business. And with approximately $182,000,000 in cash, cash equivalents and marketable securities at the end of the quarter, we remain well positioned to continue to execute on our strategy to in license and acquire innovative and branded generic pharmaceuticals as well as develop our own branded generic product portfolio. Looking ahead, we remain committed to continuing to build a leading Pan American ex U.

Speaker 1

S. Specialty pharmaceutical company. Over the last several months, we've announced 3 product submissions in multiple territories, 2 product approvals, 3 product launches, and we have added 3 pipeline assets from 3 new partners. We have a pipeline of 18 products that are expected to generate over 100 and $50,000,000 in revenue and should they achieve our estimated peak sales. This demonstrates not only our commitment, but also our ability to execute on our strategy.

Speaker 1

This concludes our formal remarks. I would now like to turn the call for questions. Over to you, Liz.

Operator

Thank you. And before we begin, may I please 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 infonitx.com or via phone at 514-484-4483. And your first question comes from the line of Andre Dugan from Research Partners. Please go ahead.

Speaker 4

Good morning, everyone. You reported some nice Q1 revenues. Was that primarily due to CPI of Argentina dropping and also the Argentinian peso doing better relative to Q4, just looking at Q1 to Q4? And or was that because some products did very well this quarter? Thanks.

Speaker 1

So I'm going to start and then I'll ask Arvind to conclude on this. This is so if you look at our revenues, over 50% of our revenues actually come from Brazil, and Argentina is a much smaller part of our business. The growth is really coming from our promoted products. If you look at our oncology portfolio, we see a bit of a decline. We see an increase in our infectious diseases portfolio.

Speaker 1

And a lot of this is really buying patterns Q1. Like if I look at Q4 versus Q1, there is seasonality that has come back into the business, which is normal kind of post COVID. So it is a lighter quarter in certain categories. We had a bit of we had a big shipment out to the Ministry of Health also in the quarter. That contract is $18,900,000 and we shipped almost half of it this quarter.

Speaker 1

Arvind?

Speaker 2

Yes. No, if I can add, I think to answer the point on FX, I would say between the 2 quarters, Q4 and Q1, the FX was very stable. Argentina, there were some changes obviously, but that did not really impact our results as we reported.

Speaker 4

That's great. And just if I look at your portfolio, your pipeline portfolio, given your new in licensing agreement today, what would you say are your top 3 new product launches that are coming up in the next, say, 6 to 12 months? And if you could prioritize those top 3, that'd be great. Thanks.

Speaker 1

So the big launch that the couple of big launches are right now are MINJUVY and IMVEXXY. MINJUVY is launched in Brazil and it will really big year 1 of a launch is always a light year and then it starts to pick up. In the case of MINJUVY, we only launched Brazil and other territories will start coming online next year or the year after. We also have fostamatinib in our portfolio. Behind that, we've got Calvary, we've got Jurney, we've got IPX.

Speaker 1

All of these products are going to be very meaningful. And I'm not going to really comment on the branded generics because some of them can also be meaningful. And each one of these adds up.

Speaker 4

That's great. Thanks, Amira. That's it for me.

Operator

Thank you. And your next question comes from the line of Rahul Kaeser from Raymond James.

Speaker 5

Good morning, Sameer, Arvind, and Noel. Thanks so much for taking our questions and congrats on this morning's announcement a sense for the sales trajectory in the market? And where do you expect that that market share that is currently engenders to be able to replicate that in your market?

Speaker 1

I'm really sorry, Rahul, but I'm going to to ask you I'm not sure if you're on a speaker, but we're having a really hard time hearing you.

Speaker 5

Is that any better? Much better. Okay. Sorry about that. So I will try and remember my question.

Speaker 5

So first I said good morning. Thank you. So congratulations on the Jorn APM. I guess given that we haven't had a chance to dig into the drug yet, could you perhaps give us a sense for the sales and market penetration in this current market and how you expect to replicate that in your LatAm and Canadian markets?

Speaker 1

So Jurney so we got the rights for Jurney for Canada and Latin America. The biggest market potential for this product right now in our base case assumptions are in Canada. In Canada, the ADHD market is approximately $1,000,000,000 and methylphenidate is just over $400,000,000 and growing at 15% CAGR over the last 4 years. The other thing that we saw in this market, the last launch that happened in this market, pre reimbursement, that product was doing about $30,000,000 So we're really we're not going to have we don't we are not forecasting coverage in Canada. We are also being conservative on our label at this point.

Speaker 1

So it may not reach that number, but we are excited about this, this product. The market in Mexico, which is the 2nd market that we are forecasting, is not as big as in Canada, but growing rapidly and we expect to take a significant share there as well.

Speaker 5

Great. That's really helpful. And sorry, I meant to also ask, I assume this fits within the current guidance of $120,000,000 And peak, what proportion contribution do you expect the new drug to contribute?

Speaker 1

So we updated as of this morning and we're guiding to just over 150,000,000 dollars And this will be this we're not giving kind of how much of a proportion that this is going to be.

Speaker 6

Okay, fair enough. And sorry

Speaker 5

for missing that. Thank you very much. And then one last quick question. Just looking at the BGX portion of the portfolio, we see a little dip this last quarter. Is that seasonal?

Speaker 5

How should we be thinking about BGX for the remainder of the year?

Speaker 1

So we expect our BGX portfolio to decline from last year to this year. In Q1, there is two factors. 1 is the regular decline because of pricing that we expected because of competitors. The second is there is a bit of seasonality in Q1.

Speaker 5

Great. That's very helpful. Thanks so much for taking our questions. We'll get back in the queue.

Speaker 1

Thank

Operator

Your next question comes from the line of Scott McCauley from Paradigm Capital. Please go ahead.

Speaker 7

Morning, everyone. Thanks for taking the questions. First, just on the new agreement. This may be kind of obvious, but just wanting to confirm, you're saying you have the license in Canada and Latin America. So for Latin America, that includes essentially all the countries that you currently have operations in?

Speaker 3

Yes, it does.

Speaker 7

And then second on the cash flow, again kind of noting that significant increase year over year and the change in working capital. How like moving forward, is that kind of a one time change? Is that something that could be sustained in the coming quarters as you adjust kind of the receivables, expenditures and inventory? Or is that something that would go back down for the rest of the year?

Speaker 2

Okay. So typically, we have a high cash to EBITDA conversion ratio. That's as a reminder. So in the quarter, there was an improvement in the cash flow from operations because we had an increase in our payables of about $9,000,000 that is really driven by the timing of payments. That $9,000,000 we will be paying this in Q2 and that will lead to a decrease in an investment in working capital in Q2.

Speaker 2

So you should expect lumpiness between the quarters based on purchasing of inventory. But overall, cash flow from operations will remain positive and you should expect to see high cash to EBITDA conversion ratio.

Speaker 7

That's great. I think my other questions had already been answered. So congrats on the quarter and thanks for taking the questions.

Speaker 1

Thank you.

Operator

Thank you. And your next question comes from the line of Doug Meehan from RBC Capital Markets.

Speaker 6

Yes, good morning. A little bit more detail on Jornay. Could you walk us through how the product is in the U. S. Since it was launched and what expectations might be for it?

Speaker 6

And then the other question I have to Jyrne is, could you give us a bit of detail on the financial position of irons company that developed it?

Speaker 3

Sure. This is Anna Altek. So on the financial performance of the product, as you know, IronShore is a private company. So they haven't really disclosed their the sales

Speaker 5

the sales expectations for the product.

Speaker 3

But we have access to some U. S. Market data and I'm sure you guys do as well. So you can see there that the product is doing pretty well. I think initially they launched during COVID, so that's really impacted the launch just like it impacted all launches during that time period.

Speaker 3

But then you see an acceleration post COVID and they've had a change as well within IronShore in terms of management and kind of how they're running the company and the product. And you really see that on the results of the product. So the product is doing well in the U. S. And again, I would say we might need to look at market data and you can compare it to other launches.

Speaker 3

It is still performing pretty well. And part of your second part of your question, I mean, part of our diligence, we usually diligence not just the product, but the partner as well. And we're we don't have any concerns. We're quite comfortable with the situation of the company. And again, the product is doing well.

Speaker 3

So we don't have any concerns going forward.

Speaker 6

Okay, fantastic. And then perhaps for Sameera. Has there been any updates on political situation in various countries in South America and how it may impact the company over the day, year or

Speaker 1

2? So far, it's business as usual. What we see, I mean, I read a note this morning, there's probably going to be a union strike in Buenos Aires. We had one earlier, but the political landscape is stable. There's really nothing also like if I take kind of our big major markets, Argentina is stable.

Speaker 1

He has almost 50% approval rating. Brazil is doing fine. We're monitoring in also in Colombia. The issue there is not really political stability, but health care reforms that they are looking to put into place. So far, they have not been able to get Congress approval and things are stalled, and we continue to monitor.

Speaker 6

Okay, great. Thank you.

Operator

Thank you. There are no further questions at this time. We will now close the question and answer session. And I would now like to hand the meeting back over to Samira Sakhla for closing remarks. Please go ahead, Sakhla.

Speaker 1

Thank you. Once again, thank you for your confidence in the Knight team and for joining our Q1 2024 conference call. Have a great morning.

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