CA - Knight Therapeutics Inc. (KHTRF) Q3 2023 Earnings Call Transcript
2023-11-12 01:42:09 ET
Knight Therapeutics Inc. (KHTRF)
Q3 2023 Earnings Conference Call
November 9, 2023 8:30 AM ET
Company Participants
Samira Sakhia - President and Chief Executive Officer
Arvind Utchanah - Chief Financial Officer
Conference Call Participants
Andre Uddin - Research Capital Corporation
Gireesh Seesankar - Bloom Burton
Douglas Miehm - RBC Capital Markets
Justin Keywood - Stifel Financial Corp.
Presentation
Operator
Good morning, ladies and gentlemen. My name is Mark, and I will be your operator today. Welcome to the Knight Therapeutics’ Third Quarter 2023 Results Conference Call.
Before turning the call over to Samira Sakhia, 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 these 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 statements, many of which are beyond the control of the company and its subsidiaries, may ultimately prove to be incorrect. The company disclaims any intention or obligation to update or revise any forward-looking statements whether as results of new information or 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 e-mail to info@knighttx.com or via phone at 514-484-4483.
I would like to remind everyone that this call is being recorded today, November 9, 2023, and I would now like to turn the meeting over to your host for today’s call, Samira Sakhia. Please go ahead, Ms. Sakhia.
Samira Sakhia
Thank you, Mark. Good morning, everyone, and welcome to Knight Therapeutics’ third quarter 2023 conference call. I’m joined on today’s call with Amal Khouri, our Chief Business Officer; and Arvind Utchanah, our Chief Financial Officer.
I’m pleased to announce that Knight achieved record results for the 9 months ended September 30, 2023. We delivered revenues of over $254 million and adjusted EBITDA of over $48 million, a growth of 20% and 19%, respectively, over the same period last year.
Moving on to an update of our product portfolio. We received the regulatory approval for Minjuvi in Brazil as well as the pricing approval from CMED, the regulatory body that establishes maximum prices allowed for drugs sold in Brazil. As a result, we expect to launch Minjuvi in Brazil in the second quarter of 2024. I’m extremely proud of our team’s achievements in getting the product approval faster than our expectations using the rare disease regulatory pathway available in Brazil, as well as getting optimal pricing much faster than expected.
In addition, we advanced our product pipeline with the regulatory approval, regulatory submissions of fostamatinib also marketed as Tavalisse in the U.S., and Colombia, and Mexico, and pemigatinib marketed as Pemazyre in U.S., and Europe, and Brazil. With these submissions, we now have three innovative products awaiting regulatory approval in multiple territories. More specifically, tafasitamab or Minjuvi in Argentina, Colombia, and Mexico; fostamatinib in Colombia and Mexico; and pemigatinib in Brazil, Argentina, Colombia, and Mexico.
In addition, we have four branded generic products pending regulatory approval in Colombia. As we continue to build our pipeline, during the second quarter of 2023, we strengthened our oncology and hematology portfolio with the in-licensing of a branded generic product for Brazil.
I will now turn the call over to Arvind to provide an update on our financial results.
Arvind Utchanah
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 in 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 shares outstanding at the end of the respective period. Furthermore, my discussion on the operating results will refer to figures that exclude hyperinflation.
In the third quarter of 2023, we delivered revenues of over $81 million, representing an increase of more than $12 million or 18%, and on a constant currency basis by more than $8 million or 11% versus prior year. This growth is driven by our oncology and hematology disease portfolio, which delivered over $31 million of revenues and increased of approximately $5 million or 19% compared to the same period last year.
Our key promoted brands including Lenvima, Trelstar, Palbocil and Akynzeo contributed approximately $7 million of incremental revenues. This increase was offset by a reduction in sales of approximately $2 million on certain mature and branded generic products due to the life cycle and the entrance of new competitors.
As for our infectious diseases portfolio, our revenues were $29.2 million, a growth of approximately $2 million or 7% compared to the same period last year. This growth is driven by our key promoted products including Cresemba and higher demand of Impavido, partially offset by the purchasing patterns for certain products.
With respect to our other specialty portfolio, during the quarter revenues were $21.1 million, an increase of $5.5 million or 36% compared to the same period last year. The increase is primarily driven by the transition of commercial operations of Exelon from Novartis to Knight. More specifically, in Q3 2022, Knight recorded lower revenues of Exelon due to the advance customer purchases of $3 million in Brazil and Colombia in Q2 2022. The remainder of the variance is explained by the change in accounting treatment of Exelon from net profit transfer to revenues with related cost of sales as well as timing of purchases from certain customers.
Now, moving on to gross margin. We reported $42.1 million or a gross margin of 52% of revenues in the third quarter of 2023 compared to $33.8 million or 49% of revenues in the same period last year. The increase in gross margin as a percentage of revenue is driven by the change in the product mix.
I will now turn to our operating expenses. For the third quarter of 2023, our operating expenses were approximately $39 million, excluding the impairment of intangible assets recorded in Q3 2022. The operating expenses increased by $2.2 million, which is mainly due to an increase in compensation costs related to Knight’s long-term incentive plan, higher spending on professional and consulting fees, and expansion in our product development and medical initiatives.
Moving on to adjusted EBITDA. For the third quarter of 2023, we reported $15.5 million of adjusted EBITDA, an increase of $6.5 million or 72% compared to the same period last year. In addition, Knight’s adjusted EBITDA per share was $0.15, an increase of $0.07 per share or 88% over the same period last year.
With respect to gains or losses on our financial assets, which are not reflected in our adjusted EBITDA. In the third quarter of 2023, we recorded $5.6 million of net unrealized gain on financial assets measured at fair value through profit or loss. This gain is made up of an unrealized gain of $12.9 million driven by the increase in the fair value of our Moksha8 warrants and the conversion of our strategic 60P loan into sales [ph], offset by a loss of $7.3 million due to the decrease in the share prices of the publicly traded equities of our strategic fund investments.
Moving on to our cash flows. During the third quarter of 2023, Knight generated cash inflows from operation of $15.2 million including a net working capital investment of $7.2 million. The increase in the working capital is mainly due to an increase in inventory related to our key promoted products and the settlement of the corresponding accounts payable offset by a decrease in accounts receivable.
I will now turn the call back to Samira for concluding remarks.
Samira Sakhia
Before discussing our 2023 guidance, I’d like to provide an update on our NCIB. During the third quarter of 2023, we purchased approximately 2.2 million common shares for $9.8 million, which represents an average purchase price of $4.55. Subsequent to the quarter, we purchased an additional 676,000 common shares for $3.1 million.
Now on to our financial outlook for fiscal 2023. I’d like to remind everyone that this guidance is provided on a non-GAAP basis due to the difficulty in predicting Argentinian inflation rates. Once again, we have raised our financial guidance on revenue and adjusted EBITDA. We now expect to generate revenues between $325 million to $335 million, an increase of $15 million on the lower end and $5 million on the upper end of the range.
Our adjusted EBITDA is now expected to be approximately 18% of revenues. The increase in financial outlook is primarily due to the improvement of the LATAM currencies against the Canadian dollar and an additional Ambisome order we received from the Ministry of Health of Brazil for $4.9 million, which we expect to deliver in Q4 of 2023.
The guidance is also based on a number of assumptions which are described in our press release. Should any of the assumptions differ, the financial outlook and the actual results may vary materially. Considering the recent volatility in certain of our currencies, we will continue to monitor and revise foreign exchange assumptions, which may materially impact our results and forecasts.
We remain on track to deliver record results in 2023, while continuing to advance our product portfolio and build our pipeline for long-term growth. Furthermore, we ended the quarter with $153 million in cash, cash equivalents and marketable securities. This positions us well to continue to execute on our mission to build a leading pan-American ex-U.S. specialty pharmaceutical company by bringing innovative products and generic branded products to our markets.
Thank you for your support and confidence in the Knight team. This concludes our formal remarks. I’d like to open up the call for questions. Over to you, Mark.
Question-and-Answer Session
Operator
Thank you. 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 Investor Relations department via e-mail to info@knighttx.com or via phone at 514-484-4483.
[Operator Instructions] Our first question comes from the line of Andre Uddin of Research Capital. Please go ahead. Your line is open.
Andre Uddin
Good morning, everyone. Samira, we’re just looking at Brazil. Can you please discuss the market potential of Minjuvi and Pemazyre? I’m not sure if I got those pronunciations right. Thanks.
Samira Sakhia
Sure. So let me start first with Minjuvi. What I can tell – we don’t really provide guidance or revenue by product, but what I can tell you is, Minjuvi is doing about US$100 million today. Just a couple – in the US$100 million, so let’s say, around CAD 130 million. There are just a couple of years into the launch. Given that, and if you know like our markets are about 5%, like the LATAM market is about 5%, we are launching at optimal price. This is where and the brand is, whether it’s in the U.S. or the market, there is a lot of interest in this category. It is a medically necessary product. And this is to help you kind of come up to the number.
In the case of Pemazyre, it’s even more rare disease. The second thing is that and it’s really genetically based. Given that we expect that to be a much smaller product. We are working with our specialists in the market to see where and how the testing will work.
Andre Uddin
That’s great. Thanks. That’s useful. And just looking ahead, I know you haven’t provided guidance yet for 2024, but where would you say your growth is primarily going to come from in 2024?
Samira Sakhia
It’s coming from a whole bunch of different places. So we have in our oncology product portfolio, I look at products like Lenvima, Akynzeo, Trelstar, they all continue to grow. We will be launching Minjuvi, which is coming earlier than we originally expected. We are launching Imvexxy, also in Canada next year. And all of those products are going to continue to provide growth. We also have Cresemba in our infectious disease portfolio, which is continuing to grow in all of our markets. And we’re going to continue to build a pipeline and advance the pipeline that we have.
Andre Uddin
And so in terms of growth is that, would you say that would be single-digit growth or is it going to be double-digit growth? Can you provide that color a little bit? Thanks.
Samira Sakhia
Not yet. We’ll be providing guidance kind of earlier in the next year, when we announce Q4.
Andre Uddin
Okay. That’s great. Thank you, Samira.
Samira Sakhia
Thank you.
Operator
Thank you. Our next question comes from the line of Dave Martin at Bloom Burton. Please go ahead. Your line is open.
Gireesh Seesankar
Hi, this is Gireesh on behalf of Dave. Congrats on the great quarter and increased guidance. We do have a few questions. The first one surrounding the oncology-hematology portfolio. Has the full impact of the generic competition launched, launched [in itself] [ph] in the third quarter? And if not fully in this quarter, how much erosion do you anticipate going forward?
Samira Sakhia
Sorry, just to clarify, if you’re talking about generic competition on our own BG access.
Gireesh Seesankar
[Oncology.] [ph]
Samira Sakhia
Yeah, on our own branded generics. The exact competition has been delayed, because the Colombian agency has been behind in their approvals. So it hasn’t fully impacted in Q3. We do expect what we are seeing from the agency with some changes and updates to their regulations that they’re going to start approving faster now. We do expect it to come next year. That being said, like I said earlier to Andre, Trelstar, Lenvima, Akynzeo are continuing to show great growth.
Gireesh Seesankar
Okay. Thank you. And one last question. In the assumptions for your revised guidance, you mentioned discontinuation of certain distribution agreements. Does this refer to agreements that have already been discontinued or agreements you expect to be discontinued going forward? And if it’s allowed, please comment.
Samira Sakhia
Sure. No, this is really the impact of the Gilead termination that we had last year, and that’s fully impacted like this third quarter. If you look at kind of the discontinuation impact, it’s immaterial. So that’s already all washed out of our results.
Gireesh Seesankar
Okay. Thank you very much, Samira.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Doug Miehm of RBC Capital Markets. Please go ahead. Your line is open.
Douglas Miehm
Good morning. First question just has to do with Exelon. We did see an almost $6 million increase in the quarter, but that was more because of the switch to you holding the revenues. But what I’m curious about are the unit sales trends. Are they starting to drop because of the increased competition on the generic side yet? I’m just curious about the unit trends.
Samira Sakhia
Sure. That’s a great question. We are actually seeing the objective when it comes to Exelon was really to maintain flattish. And we’re not seeing – whether it’s in dollars or units, we are retaining our share and the unit volumes are straight.
Douglas Miehm
Okay. That’s really good to hear. Do you expect that the change, though, Samira, based on any change in the competitive environment?
Samira Sakhia
Yes and no, in the sense that as there are more competitors in the market, there is more share of voice on this one molecule. So, here, we may start to lose share, but actually gain volume and really maintain the brand. And that is really what each of our teams are working towards.
Douglas Miehm
Ambisome, another order. Can you give us an idea as to why? Because I know that you indicated that we’re not likely to see that again. But what’s happening in that market that has the government continue to come back to you?
Samira Sakhia
Sure, so one of the reasons that’s really started with hard work on our team’s part. The competitor product has been on back order and has remained on back order. We have continued to strengthen our relation with the Ministry of Health. What they are seeing from our team is a quality product and reliable supply. And as long as we continue to deliver on that, I believe that we can extend their replenishment, we’ll see what happens when the competitor returns back in supply.
Douglas Miehm
Excellent. Thanks very much.
Operator
Thank you. There seems to be no further questions in the queue at this time, so I’ll hand the floor back to our speakers for the closing comments. Actually, just as I’ve said that there has come forward one further question that’s from the line of Justin Keywood at Stifel. Please go ahead. Your line is open.
Justin Keywood
Good morning. Thanks for fitting me in. Just on the financial assets, there’s a few movements in the quarter. You had the repayment from Moksha8 and then also a mark-to-market adjustment. Just wondering if you could explain the mark-to-market adjustment and then also the state of the remaining financial assets, and if there is any near term further expected liquidity events.
Samira Sakhia
Sure, I’m going to clarify a couple of things there. On the financial assets, there is three different things that are happening. The Moksha8’s loan has not been fully repaid. It will be repaid in Q4. Moksha was recently – it was recently announced that Moksha8 has been acquired, so our loan will be repaid and there was a – because we own warrants, we had warrants of that company, we recognize a gain on the warrants, because we had to mark them to market. And all the loan and the warrants will be both paid out, we expect in Q4.
The second thing that we had is, we converted our loan to Synergy, to equity, and that actually had a gain all there that was about a couple of million dollars. The rest is a write-down of our financial assets is really coming from the public securities held in our funds. And as we’ve seen in the capital markets and the biotech index, there’s been a significant downturn on those investments and we continue to mark-to-market. So we have about $100-million-some of financial assets and we mark them to market. And that’s really been the history for the last almost 10 years in the Knight, where that’s the initial fund investments and the markups and markdowns that we’ve seen.
Justin Keywood
Thank you. And is there another expected liquidity event, aside from Moksha8?
Samira Sakhia
Not really. At the end of this quarter in the loans, we really only have – at the end of this year, we will only have Synergy left. Synergy is a loan that is expected to be paid back during 2024, but depending on how the results are doing, we may continue to extend that out a little bit longer. And as you know, on the funds, we have about $11 million that is pending capital calls, but over the last few years, the funds have been cash flow positive and cash generating rather than a net outflow.
Justin Keywood
Understood. Just a question of clarification. The 60-Pharma loan, was that repaid or does that still remain outstanding?
Samira Sakhia
That was converted to equity.
Justin Keywood
At the same value? I believe it was US$6 million or around there?
Samira Sakhia
So, we had written down – given the financial situation of 60P, we had written that loan down to almost zero, so it’s actually a gain of $2 million in the quarter.
Justin Keywood
Thank you for taking my questions.
Samira Sakhia
Thank you.
Operator
Thank you. [Operator Instructions] Okay, there seems to be no further questions at this time, so I’ll hand the floor back to our speakers for the closing comments.
Samira Sakhia
Thank you, Mark. Once again, thank you for the confidence in the Knight team and for joining our Q3 2023 call. Have a great morning.
Operator
Thank you all very much for attending. You may now disconnect your lines.
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Knight Therapeutics Inc. (KHTRF) Q3 2023 Earnings Call Transcript