CA - Medexus Pharmaceuticals Inc. (MEDXF) Q2 2024 Earnings Call Transcript

2023-11-11 12:39:13 ET

Medexus Pharmaceuticals, Inc. (MEDXF)

Q2 2024 Earnings Conference Call

November 07, 2023 08:00 AM ET

Company Participants

Magda Gardner - IR Representative, Adelaide Capital

Kenneth d'Entremont - Chief Executive Officer and Director

Marcel Konrad - Chief Financial Officer

Conference Call Participants

Andre Uddin - Research Capital

Scott Henry - Roth Capital

Stefan Quenneville - Echelon Capital Markets

Presentation

Operator

Greetings and welcome to the Medexus Fiscal Second Quarter 2024 Earnings Call. At this time, all participants are on a listen-only mode. And a question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note, this conference is being recorded.

I will now turn the conference over to your host, Magda Gardner of Investor Relations. Ma'am, you may begin.

Magda Gardner

Thank you and good morning, everyone. Welcome to the Medexus Pharmaceuticals second fiscal quarter 2024 earnings call. On the call this morning are Ken d'Entremont, Chief Executive Officer and Marcel Konrad, Chief Financial Officer. If you have any questions after the conference call or would like more information about the company, please contact Adelaide Capital at 416-206-8869.

I would like to remind everyone that this discussion will include forward-looking information as defined in securities laws. 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 company.

For more information about the forward-looking information and non-GAAP measures, including reconciliations to net income and loss, please refer to the company's MD&A, which along with the financial statement is available on the company's website at www.medexus.com and on SEDAR+ at www.sedarplus.ca. As a reminder, Medexus reports on a March 31 fiscal year basis, Medexus reports financial results in U.S. dollars.

I would now like to turn the call over to Ken d'Entremont.

Kenneth d'Entremont

Thank you very much and welcome, everyone to the call today. We're very pleased to report another great quarter with solid performance in our product portfolio, in particular, continued strong demand growth for Rupall. This has translated into a positive operating profit for the quarter and meant that we met our targeted quarter-end cash position ahead of the October 16th maturity date for our convertible debentures, which we repaid fully in cash.

Our fiscal Q2 '24 revenue of $30.3 million compares favorably to $27.7 million for the same period last year or 9.4% growth year-over-year. The $2.6 million increase is mainly due to recognizing 100% of Gleolan net sales in total revenue and continuing strong Rupall demand growth. Adjusted EBITDA increased to $5.3 million for the quarter, compared to $4.2 million for the same period last year. The $1.1 million year-over-year increase is mainly due to increases in revenue and a reduction in operating expenses.

We produced a net loss of $1.1 million for the quarter, an improvement compared to a net loss of $2.7 million for the same period last year. Overall, we are pleased to be reporting this quarter financial results with positive key metrics and year-over-year revenue growth. I'll let Marcel comment on the details later in this call, but I also want to highlight our success in securing the accordion feature of our credit agreement with BMO, which we apply towards the convertible debentures and our success in completing our October 2023 bought-deal public offering, which we intend to use for working capital and general corporate purposes, including our ongoing business development activities and initiatives.

I also want to highlight our success in executing the third amendment of our U.S. Treosulfan agreement, which we think responds well to the current status of the FDA regulatory review process processed by one, further extending the agreed outside date for FDA approval; and two, outlining a process for potentially agreeing to adjust the value of unpaid milestone payments in light of future circumstances around Treosulfan's prospects in the U.S. market.

Turning to our specific products. IXINITY unit demand in the United States decreased during the quarter and over the trailing 12-month period ending September 30th, 2023. Demand continues to reflect the effects of lower observed average quantities of product consumed by an increasing number of newer patients. We intend to continue monitoring these trends and assessing their potential impact on product level revenue.

We are optimistic about the prospects for a favorable FDA decision on the supplemental BLA for the treatment of pediatric patients, which the FDA accepted for review in June 2023. If approved, we think the new pediatric indication would in addition to expanding the current market potential for the product, provide us with an opportunity to reinforce brand awareness and messaging for IXINITY in relevant markets.

Our optimism here is partially due to our familiarity with the data presented at the National Hemophilia Foundation, Bleeding Disorders Conference earlier this year in National Harbor, Maryland, where researchers reported that prophylaxis with IXINITY was associated with low annualized bleeding rates, effective control of bleeding episodes, consistent PH and a consistent safety profile.

On Rasuvo, we've maintained a market-leading position during the quarter, as unit demand remain strong in the moderately growing U.S. branded methotrexate market. We continue to deploy a highly efficient allocation of sales field resources and our position remained strong despite sustained competition in the market.

Rupall unit demand in Canada remained strong during the quarter, which is reflected in the unit demand growth of 22% over the trailing 12-month period ended September 30th, 2023. This strong performance reflects successful execution of our sales and marketing initiatives, as well as the timing of certain orders during the quarter relative to planned price increases. This was partially offset by the effects of increased competition on relatively smaller unit demand in the pediatric segment.

We see tropical terbinafine, which we licensed in March as a strategic fit with Rupall and we expect that if and when approved by Health Canada, that new product will both contribute to our Canadian revenues and engage our in-place commercial infrastructure currently supporting Rupall.

On Gleolan in the United States, we continue to execute our post-transition commercial plan, including new sales and marketing initiatives. This has included continued application of existing sales force resources to expand and deepen market coverage, improve distribution of relevant product information content in relevant forms and increasing application of our broad range of commercial expertise to the relevant market.

We expect to continue developing insights regarding market dynamics and the potential through these initiatives to inform our continued commercialization efforts, as we seek to maximize product level revenue. Metoject unit demand in Canada increased by 14% in the trailing 12-month period ended September 30th, 2023, in spite of direct generic competition. Product level performance continues to experience disruption from the launch of a generic product in the Canadian methotrexate market in calendar 2020.

We continue to seek to defend the product's strong market position, as we await the federal court's decision following the January 2023 trial in the patent litigation we initiated against Metoject's generic competitor in 2020. We continue to remain optimistic about Treosulfan, an agent for the use in conditioning regimens as part of allogeneic hematopoietic stem cell transplantation protocols or allo-HSCT.

We have fully launched the product in the Canadian market under the trade name, Trecondyv. In the U.S., Treosulfan remains under an ongoing regulatory review process with the FDA. Medac, our licensor and the party responsible for the regulatory matters continues to work towards responding to the FDA.

As most of you are aware, the process for obtaining FDA approval has been delayed beyond the outside date for FDA approval previously agreed to with Medac. As such, as I mentioned earlier, in September, we entered into a third amendment to our U.S. Treosulfan agreement with Medac to address this ongoing delay. We continue to expect that it will take Medac a period extending into the first half of calendar year 2024 to collect and submit the information requested by the FDA and obtain FDA acceptance of Medac's Treosulfan NDA resubmission.

We and Medac will then have a specific negotiation period to agree to a further amendment on any adjustments to unpaid milestone payments. We have no obligation to make any milestone payments before the effective date of the further amendment, if any. We expect that the commercial experience we are gaining in Canada and the positive data regarding the product will serve us well if and when the FDA approve Treosulfan in the United States, where Treosulfan is an important pipeline product for us.

If and when approved in the U.S., we expect that Treosulfan will become a leading agent for the use in conditioning regimens as part of allo-HSCT and continue to benefit from the orphan drug exclusivity period that would begin to run from the FDA approval.

While we continue to focus on maintaining stability of our base business and generating cash from operations, we also look to -- for near-term transaction opportunities to augment our product portfolio, increase the scale of our operations and deliver long-term growth. A key component of our growth strategy will be to continue to lever our infrastructure through business development by executing new product acquisitions and partnerships. In the meantime, we continue working to increase revenue, develop and leverage our commercial infrastructure across existing products and maintain strict financial discipline.

I will now turn the call over to Marcel, who will discuss our financial results in more detail. Marcel?

Marcel Konrad

Yes. Thank you, Ken. We are pleased to report our sixth consecutive quarter of positive operating income and eighth consecutive quarter of positive adjusted EBITDA. In addition, our convertible debentures have now been fully repaid in cash. It has simplified our balance sheet and leaves our $56.5 million BMO credit facilities, which continue to benefit from an attractive interest rate, as our only remaining debt. We were also able to bolster our balance sheet by completing a C$11.5 million bought-deal public offering of units in October.

Turning to the quarterly results. Total revenue for fiscal second quarter was $30.3 million. This quarterly revenue number compares favorably to revenue of $27.7 million for the three months period ended September 30, 2022. As Ken mentioned, the $2.6 million increase in second fiscal quarter 2024 revenues versus the prior year second quarter is primarily due to recognizing 100% of Gleolan net sales in total revenue and continuing strong local demand growth.

Gross profit was $16.3 million for the three months period ended September 30, 2023, compared to gross profit of $16.1 million for the same period last year. The gross margin was 53.8% for the three months period ended September 30, 2023, compared to 58.1% for the three months period ended September 30, 2022. As we mentioned on last quarter's call, we continue to monitor this metric and the factors that contribute to gross margin. The year-over-year decrease in gross margin primarily reflects changes in product mix, including changes in how we accounted for Gleolan sales in the United States under IFRS over the course of fiscal year 2023.

Selling and administrative expenses were $11.9 million for the three months period ended September 30, 2023, compared to $12.9 million for the three months period ended September 30, 2022. Research and development was $0.7 million for the three months period ended September 30, 2023. This compares to $0.9 million for the three months period ended September 30, 2022.

Adjusted EBITDA for the three months period ended September 30, 2023 was positive $5.3 million, compared to $4.2 million for the three months period ended September 30, 2022. As Ken mentioned, the $1.1 million year-over-year increase was primarily due to the increases in revenue and the reduction in operating expenses. The net loss for the three months period ended September 30, 2023, was $1.1 million, compared to a net loss of $2.7 million for the same period last year.

Net income or loss includes a non-cash unrealized gain or loss on fair value of the embedded derivatives in our now repaid convertible debentures, which were sensitive to among other things, fluctuations in our share price. As such, we believe that adjusted net income or loss provides a better representation of performance of our operations because it excludes these non-cash fair value adjustments on liabilities.

Subsequent to quarter end, on October 16, we fully repaid these debentures in cash and maturity. Our adjusted net loss for the three months period ended September 30, 2023, was $1.2 million compared to an adjusted net loss of $2.8 million for the same period last year. Our cash position continued to improve throughout the quarter with cash and cash equivalents of $19.5 million at September 30, 2023, increasing from $15.8 million at June 30, 2023. We ultimately ended fiscal second quarter with $37.5 million of available liquidity as we had $18 million available, but then undrawn under the accordion feature of the term facility under the senior secured credit agreement with BMO.

Subsequent to quarter end, in October, we used the full $18 million together with cash on hand to repay our convertible debentures. We made the final maturity payment of C$51.1 million, approximately $37.5 million in cash as we had guided previously. As mentioned earlier, in October 2023, we also completed a bought-deal public offering, including full exercise of the overallotment option and issued an aggregate of 3.9 million units at a price of C$2.95 per unit.

This yielded into a C$11.5 million aggregate gross proceeds or C$10.8 million aggregate net proceeds before expenses. Each unit issued in the offering consisted of one common share and one-half of warrant and one-half and one-half of one warrant described in greater detail in this quarter's MD&A. Adjusting our quarter end cash balance for the series of subsequent or global transactions, we had approximately $8.5 million in cash or $8 million after underwriting commissions and before expenses of the public offering, putting us on solid footing to continue maintaining our growth, continue to maintaining our growing -- our business over the coming quarters.

We've been consistent in executing our plan quarter-over-quarter, which has put the company in a strong financial position with strong quarterly revenue and improved profitability. As always, there can be variability in quarter-to-quarter results, but we look forward and are energized to continuing to build the company and its portfolio in the coming quarters and beyond.

Kenneth d'Entremont

We're now open for questions, operator.

Question-and-Answer Session

Operator

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions]. Thank you. Our first question is coming from Andre Uddin with Research Capital. Your line is live.

Andre Uddin

Hi, Ken and Marcel. Nice to see the converts out of the way and now that your converts are taken care of, where do you see the best opportunities right now for business development? Is it in the U.S. or Canada? And is there any particular therapeutic area that you're looking at right now? Thanks.

Kenneth d'Entremont

Thanks, Andre. Good question. Yes, clearly, we're looking to build the company through business development. We've been consistent in doing so in the path. I wouldn't say we're looking at any particular market. Obviously, we can get bigger hits in the U.S. and we'd very much would like to find some more business in the U.S., but we're certainly not ignoring Canada. We've got a very strong portfolio in Canada, excellent performance. And so we're looking to do both. So we've got a full pipeline of BD lined up and we're assessing all those products. So we hope to start closing some of those deals.

Andre Uddin

That's great. And so just looking ahead, in terms of the decision on the Canadian Meadow Jack [ph] lawsuit, is that still expected by calendar year-end?

Kenneth d'Entremont

Yes. There is no defined time line unfortunately. So there's no means for us to put any pressure towards a decision. It's totally up to the court. We -- typically decisions come within 12 months of the trial. So, yes, we would expect and hope that it would happen this calendar quarter, but there's no guarantee that that will happen.

Operator

Thank you. Our next question is coming from Rahul Sarugaser with Raymond James. Your line is live.

Unidentified Analyst

Hey, Ken and Marcel, this is Mike on for Rahul this morning. Congrats on a solid quarter and on executing the hard work of polishing up your balance sheet. Congrats. Yes. First question here. There's a note in the press release this morning or I guess last night, indicating a focus on maintaining the stability of your base business. And I wonder where are some of Medexus's priority areas for resource allocation during the next 12 months or so?

Kenneth d'Entremont

Thanks Mike, good question. Clearly, the top four or five products have generated a fair bit of revenue and growth is strongly coming out of Rupall. So, IXINITY for sure, it's a key focus for us. We've got the pediatric indication coming soon, we hope which will give us a chance to more or less relaunch the product, which we think will drive some additional revenue out of that brand. Clearly, the Gleolan relaunch, which we're about a year in to. We're starting to see some traction, not yet seeing the sort of sales revenue growth that we expect to happen, but we're seeing some good things happen in the marketplace.

And then Rupall continues to perform extremely well. 22% growth in the quarter versus the previous year. Six years after the launch is tremendous. So we've got those three that really we're focusing on. And then we got the whole rest of the specialty portfolio. Rasuvo, Metoject continue to perform well even with competition. So we're really focusing in those areas.

Unidentified Analyst

Okay, that is great. Thank you. Now price increases on Rupall were noted in the press release. I wonder if you could describe sort of the proportionate size of these price increases. And also if there are any price increases anticipated for other products?

Kenneth d'Entremont

Yes, the price increase with Rupall is in line with CPI. So we're allowed to take small price increases from time-to-time and so that was the reference made in the press release. Other products in the U.S. from time-to-time, we're able to take small price increases. So it's nothing of significance. But when allowed, we do take the price increase.

Unidentified Analyst

Okay, that is great. And now if I could shoot on one more. The pediatric opportunity for IXINITY, we have a relatively near-term outcome coming there, we hope. How would you describe the incremental opportunity bound up in that pediatric population?

Kenneth d'Entremont

Yes. It's difficult to quantify being a rare disease. There aren't a lot of newly diagnosed patients per year. But it does put us on equal footing with our competitors. We've been at someone of a disadvantage not having the pediatric indication to this point where all of our competitors have the pediatric indication already and had it since launch. So it's been somewhat of a disadvantage, which causes us to go after product and patient switches, which obviously are more difficult than new patient starts. So I would say, there obviously is an opportunity to start to get some new patient starts, but it also gives us an opportunity to relaunch the product and then to have something new to say to clinicians, which obviously, they're more interested in talking to our sales force when there's something new to say.

Unidentified Analyst

Got you, okay, thanks very much. I'll pass it on.

Operator

Thank you. [Operator Instructions] Our next question is coming from Scott Henry with Roth Capital. Your line is live.

Scott Henry

Thank you. Good morning. And congratulations on the progress on the balance sheet, tremendous progress over the past year. Couple questions. First, IXINITY, can you talk about -- a little bit about why the quantities are going down? And I don't know if you can give any color on the revenues in the quarter for IXINITY in the U.S.?

Kenneth d'Entremont

I'll speak to demand, which ultimately drives revenue. So demand, we're noticing that we continue to get good patient initiation. So we're getting the switches. But the switches that we're finding are at a lower volume than what we've seen historically when we've got no switches, meaning those patients are tending to use less than our historical patients. And so we see that trend. The other trend that we see and this is not anything new, is that quarter-to-quarter, there can be a fair bit of variability, a low -- a small group of patients, which we have, a few of those patients don't fill in a particular quarter, it can have an effect on the quarter. And so that dynamic that play as well. We haven't given any guidance on IXINITY revenue, but it continues to be our #1 product.

Scott Henry

So is revenue -- without giving a point estimate, is it still increasing with price? Or is it flat or a modest decline? How should we think of it in the big picture as far as the trend?

Kenneth d'Entremont

Yes, on the quarter, it's a slight decline, slight to moderate decline. So that is the trend that we're seeing. Demand is more or less flat, slight declining. So we think that quarter-to-quarter, you can see this variability in a quarter and half or two quarters, we do expect to relaunch with the pediatric indication, which will give us something new to say. So that's kind of how we're looking at it. So we're really pleased with the revenue number that we've had this quarter with second quarter of $30 plus million in revenue. So that's really good. So the whole portfolio is performing well. We've got our eye on IXINITY to make sure that it continues to deliver what we expect.

Scott Henry

Okay, great. And then just on the balance sheet now that you're in the new stable phase, how should we think about the interest expense? Is this $4.2 million I see on the add-back, is that representative of the number we should see going forward?

Kenneth d'Entremont

I'll let Marcel take that one.

Marcel Konrad

Yes, hi, Scott. Good question on the interest expense, we see this quarter and that you've noticed, it hasn't really changed a lot versus last quarter, for example, it may have gone up a little bit and we had this. There were several components that is interest expense this quarter with the debenture, with the accretion of the debenture still coming to its end and coming to its peak towards the end. So now going forward with the debentures gone and the facility kicking in, as I mentioned, this is now quite a clean balance sheet with the $56.5 million of credit facility that includes $15.5 million revolver in there, which we now basically amortize and with the very attractive interest rates moving forward.

So the expense there, you will see coming through according to amortization schedule we have published in our disclosures. So the interest expense per se will be staying probably roughly about at that level, maybe a little bit lower and then getting a little bit higher towards the end since the amortization schedule is structured that way. But we're certainly very pleased with BMO specifically with the $18 million that we've been granted from our partner towards debentures, which leaves us with a very clean balance sheet at the end.

Scott Henry

Okay, great. Thank you, Marcel. And with regards -- because I don't believe all the documents or all the quarterly documents are available yet, at least not when I look for them. With regards to the BMO credit facility, how much of that is outstanding? And is there a due date on that? Just trying to get a sense of the up-to-date capital structure.

Marcel Konrad

Yes, so the way to look at this, what's outstanding now is, as I mentioned, is the $56.5 million minus a bit of an amortization we've already done since the beginning of the facility. So it's a bit less, that's what's outstanding. There's nothing more to come. And this is -- we essentially, this is a three year agreement. We amortized a facility over five years. And so that gives you a rough idea what's to expect over the next few years, yes.

Scott Henry

Okay, great. Thank you for taking the questions.

Operator

Thank you. Our next question is coming from Stefan Quenneville with Echelon Capital Markets. Your line is live.

Stefan Quenneville

Hi guys, thanks for taking the question and congrats on all the hard work in the last couple of months, you've been very busy taking care of things. I wanted to ask a bit about the Treosulfan and your -- the potential to renegotiate once the submission is accepted by the FDA. Are you -- I guess is like a big picture, when you look at the opportunity in the U.S., you've seen how the drugs sort of performing in markets where it's approved or it's largely the standard of care. Do you feel that the opportunity may be sort of a similar size as what it was or was it initially envisioned, is question one. And then question two, in terms of your renegotiation with Medac or potential renegotiation, is it about the absolute numbers or maybe just I wish shuffling of the -- when those payments are due? Or how are you thinking about that renegotiation, I guess, is the ultimate question.

Kenneth d'Entremont

Thanks, Stefan. So great questions. I think the way we're thinking about it, Treosulfan continues to be an excellent opportunity. We see the performance of the drug in Canada where we've launched it over the last, I guess, 18 months and we're seeing the uptake. We're seeing how people are using it. So we feel good that there is -- continues to be a strong place for the drug in the market and we believe the same thing for the U.S. Obviously, there's been a two year delay. So that is significant. So we obviously will be positioning that things have changed. And so when we get into negotiation with Medac, we will want to negotiate terms that we're obviously comfortable with and recognize the value of the drug at this stage.

And so we're obviously getting prepared for those discussions, assuming that Medac completes the resubmission on the timeline that has been previously stated and then we'll initiate that discussion and have that period between resubmission and decision to renegotiate those milestone payments. And so everything is on the table at this stage. And so we'll be looking to negotiate a deal that works for us.

Stefan Quenneville

Great. And just finally, you guys have generated some nice data in Canada. None of that data -- there's no consideration of trying to get any of that on the label, that's really not part of what Medac is doing at all. Is that correct?

Kenneth d'Entremont

Correct. As far as we understand, there is no mechanism by which we can use what's been generated in the Canadian market, particularly at Princess Margaret hospital to influence the label in U.S. Clearly, it will be part of a resubmission, the safety update would include all new markets, including Canada. And so that information will become available to the FDA and obviously bodes well, if anybody's looked at it. That data suggests a 30% improvement in overall survival for certain leukemia patients in a real-world setting at a top-notch institution like Princess Margaret. So the information bodes very well for the drug. It won't affect the label though.

Stefan Quenneville

Okay, great. And I'm just going to reask a question because hopefully I'll get a little more clarity or see if you can let something slip. Just in terms of your business development sort of activities, I mean, it sounds like you've got quite a few irons in the fire, if I'm hearing correctly. Is this more a question of you just prioritizing one that makes the most sense for you? Or we could see you do a couple of things in the next reasonable timeframe if you can actually transact, is it, are both possibilities? Or is it -- we should expect one the best deal to come to the surface or maybe if I can get a little more clarity on that?

Kenneth d'Entremont

Yes. I think you can expect a mix of deals. The Canadian deals tend to be smaller, require less capital upfront, so easier for us to execute. The U.S. deals tend to be bigger, require some capital upfront in most cases. And so those are more challenging to do, take longer to do. So I think you'll see a mix of those two.

Stefan Quenneville

Wonderful, that's all from me. Thanks guys.

Operator

Thank you. [Operator Instructions] Okay. As we have no further questions in queue, I will hand it back to Mr. d'Entremont for his closing remarks.

Kenneth d'Entremont

I just want to thank everyone for joining the call today. We are proud of the financial results for fiscal Q2 2024 and the performance of our core portfolio. We look forward to building upon this in advancing our product portfolio and continue to deliver strong performance for the rest of the year and beyond. Thanks very much for your interest.

Operator

I do apologize sir, just as you started to speak -- it's okay. The gentleman left the queue. Thank you, ladies and gentlemen. Thank you. This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.

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Medexus Pharmaceuticals, Inc. (MEDXF) Q2 2024 Earnings Call Transcript