Q3 2020 Knight Therapeutics Inc Earnings Call
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Good morning, Ladies and gentlemen, my name is James and I will be your operator today.
Welcome to the Knight Therapeutics, Inc., 2023rd quarter financial results Conference call.
Before turning the call over to Jonathan Ross Goodman, CEO Knight listeners are reminded the portion of today's discussion me by their nature are 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 these forward looking statements are based to be reasonable at the time they were prepared.
The cautions that these assumptions regarding the future of and many of which are beyond the control of the company in the subsidiaries the ultimately prove to be incorrect.
The company disclaims any intention or obligation to update or revise any forward looking statement.
Well the result of new information future events, except as required by law.
We would also like to remind you of questions. During today's call will be taken from analyst on.
Should there be any further questions. Please contact Knights Investor Relations Department, the emailed to you or else equal info on.
Good night Dot Com info.
Info <unk> Knight, she x. dot com or via phone at five one for 6788 930.
I would like to remind everyone that this call is being recorded today November 13th 2020.
I would now like to turn the meeting over to your host today for todays call Jonathan Ross Goodman. Please go ahead Mr. Goodman.
Good morning, everyone and welcome to Knight Therapeutics third quarter 2020 conference call.
I'm joined on today's call the summer soccer, <unk>, our president and Chief operating Officer.
But of course, RPP business, the polymer and our but the China, our Chief Financial Officer.
As of quarter, we completed the significant stuff with the acquisition of all the remaining shares of GP tea and our need the integration work, which is complicated by cope with the idea.
In addition, we remain focused on execution of business the bomb and instead of 10 license on acquired innovative pharmaceuticals for the Canadian and Latin American markets.
I will now turn the call over the summer of the walk through the development of our portfolio of corporate updates.
Good morning, everyone. Thank you Jonathan I'll provide an update on our products, which have continued to advance this quarter average.
As we discussed on our last call in July 2020, Knight obtained regulatory approval for Linebeam or the back end.
In Ecuador for the treatment of advanced liver cancer as well as advanced kidney cancer in combination with of our ever Lena and differentiated thyroid cancer.
In August 2020, we also obtained regulatory approval for how of in in Ecuador for the treatment of metastatic breast cancer.
Knight has the license to have them in other beam out from a cycle for all of Latin America, Excluding Mexico.
During the quarter both index the and did you go for approved for Health, Canada Index see an extra dollar budget on insured has been approved for the treatment of post the monarch I wish Matt impose on moderate to severe dyspareunia, a symptom of most of her and gosh on Sherfey Jude of menopause.
The June or a once daily combination of bastard child and progesterone in a single oral capsule was approved for the treatment of moderate to severe base of motor shouldn't and Jude of menopause.
He expects the lunch both products in 2020 true.
Finally in October Knight, and Nasonex, a new exclusive agreement with daily AD for the commercialization of out of the show a life is on <unk> and for terrorists and B that is used to treat anti fungal infections and for some has been part of our Brazilian affiliates portfolio for over 20 years and the new agreement is the effect.
The of Gen 120 21.
Moving on to corporate updates.
On July 10, we announced the acceptance by the T.S. acts of our notice of intention to make in normal course issuer bid, which commenced on July 14th 2020.
Under this on T.I.D., we can purchase up to 10.9 million common shares over the next 12 months during the quarter Knight has purchased just under 800000 common shares for an aggregate cash consideration of approximately $4.8 million I'm.
I'm not I'm going to turn the call the virtue I'm all for updates on BD activities.
Thank you for some years and good morning, everyone on as we previously announced the acquisition of 100% of the GBP was by way of a two step transaction. The first step was the acquisition of 51.2%. The majority stake sort of private transaction that closed last year on November 29 2009.
Jean giving knight controlling interest.
On July 15, 2020, following the approval by the Brazilian Exchange and Securities Commission, we launch the tender offer to acquire the remaining 48.8% of GBP.
In accordance with the off for the our holders were eligible to cancer therapy. The ours at the auction the took place on August 14th.
Following the completion of the auction, 99.6% of the public PDR holders tendered therapy of yards at the alternative off the price of 10.
The 10 40, Brazilian real price per VTR in cash Knight.
Knight Peyton I forget the purchase price of 500 on 38 million Brazilian real price on.
For $171 million and acquired all of the outstanding on T. ours.
As of October 20 for 2020, the VDR program in Brazil was canceled.
I will now turn the call over time and to go over the financial results for the quarter.
Thank you travel in the course of this conference call I would put Tonight adjusted earnings which is the non high force measure the.
Knight defined adjusted earnings of reaching lost income adjusted to exclude amortization and impairment of intangible assets.
Creation acquisition cost and nonrecurring expenses incurred but I think the interest income on any costs for me to two leases.
I'm pleased to report that for the quarter and the September for just 2020, we're on.
Reported revenues of 45 for too long adult and the increase of 41.2 billion Boes compared to the same period last year.
The growth in revenues is explained by the consolidation of diabetes results, which accounted for $14.6 million moving rental revenues.
GBP generated revenues of $60 million in Brazil, $8.5 million intelligence about 7.7 million Boes in Colombia, and $8.4 million for the rest of Latin America.
For the quarter ended September 30 of Twentytwenty.
For the gross margin of $19.5 million or 43 per cent compared to 3.3 million Boes, 82% in the same period last year.
The gross margin would have been 46 person who worked to exclude the back of the cards infusion of cash.
The mill during the quarter, we recorded an inventory provision of 1.8 in adults the bike of COVID-19 on site in your part of launches.
Our operating expenses for the court the increased by 14.8 million bodes well for a true frequency Nike.
The variance is explained by the consolidation of Gbdcs results.
Jack counted on hold for $10 million on my call expenses the.
I mean the of the increase is explained by $3.5 million of expenses related to the inside the tender offer completed in Q free 2020 compared to $2.5 billion of expenses related to the GBC transaction in the Caribbean can free last year.
The interest bearing on the cash marketable securities and but you can loans words people into more on those decrease of 2.9 billion Boes per day.
Seven per cent compared to the third quarter sales of 20.
Due to an increase in interest rates as well as cash marketable securities and loans. These people bonuses.
The addition reported interest expense for the quarter of just above $800000 on over backwards.
Adjusted earnings for the quarter was $6.6 million of 18% or one for Scott.
For $1 million compared to the same quarter last year.
I mean, the true true Gbcs incremental adjusted earnings, which is partially offset by a decrease of interest income.
Now moving onto the gains and losses that go on book reflected the good earnings.
For the quarter were good and bad game of the fundamental the measured at fair value to profit for lots of 12.9 million adults mainly through the gains on our strategic fund investments.
I will now turn the call back to share.
Thank you Arvind.
The recent outbreak of current of ours for COVID-19, our focus has been on ensuring the continuity of products supply to patients in Canada, and Latin America, and ensuring the safety of our colleagues and their families. At the end of Q3 2020, we had net cash cash equivalents and marketable securities of 348 million.
The dollars from the strong cash position, we continue to execute.
On the integration of the which I scanner and on bringing on new business development opportunities to grow the business I'll now turn the call back to Jonathan for his concluding remarks.
Thank you Sarah Thank you for your support and confidence in the Knight to.
This concludes my formal remarks, and now I'd like to open the call up to questions operator.
Thank you before we begin may of please remind you question during today's call will be taken from analyst on we should there be any further questions. Please contact Knight Investor Relations Department of via email to U.R.L. equals info on good Knight Dot Com info at night, TX Dot com or for your phone on five one flow.
For 6788, 930, if you'd like to ask the question. Please press star followed by the number one on your telephone keypad for using a speaker phone. Please lift your handset before pressing on the key.
And our first question comes from the line of David Novak with Raymond James Go ahead. Please your line is open.
Good morning folks thanks, very much for taking my questions and just two for me. This morning, I guess first on the Lat am operations no. We understand called the 19 continues to impact operations in some of your more significant markets an unfortunate situation, which is really be on anyone's control however beyond coded.
The JBT is December of financials, a number of changes were discussed which have impacted the operational environment in Argentina could you guys provide some insight into some of the issues, which are still facing here and how that maybe impacting the timing of future launches of new products.
Sure.
So.
Over the last year, one of the things. We've we continue to see the it's not just cold that obviously there is still hyper inflation.
On a lot continues to go through on a continuing to impact the business. So when you look at what we have reported we did report under eye on a under I am 29, which is hyperinflation county, as well as under historical accounting.
And one of the things that you may have noted is that at the end of last year for a new government was elected government continues to.
The government came at the right as Colin said why the sort of they have a they have put in some legislation when it comes to certain price increases.
At the beginning they have left I'd go day continues the one of the things due to covert that they have done is they put a firing of free in true legislation and we continue to work through that and the.
The the business.
As far as our business is concerned they the business continues to operate we've had.
Leaving for we have.
We've been submitting our beds, we continue to sell.
On the Inc.
We're executing [noise].
[noise] [noise] great. Thank so much in the I guess, just secondly, and turning it over to the Canadian operations and on Neurontin of specifically assuming approval of the EPS MBS is the plan here to Reengage with the protocol on potential public coverage following that Smbs approval.
Oh, well the the team is continuing to assess the based on not just this idea, but also the competitive market or what else will be out there and we're also looking to see if there is other additional data on that cold I might be of lot of be able to provide later on.
And we'll know a we'll know.
As a part of it.
The first.
Got it great and that's it for me thanks, very much guys I'll hop back in the queue.
Thank you.
Our next question comes from the line of on for you know with National Bank Go ahead. Please your line is open.
Hi, Good morning, Thanks for taking my question I get a couple of for me, but the first I was already pick on I'd talk a little bit on the the sales to Latin America out of the it looks like compared to last year in terms of.
I I should <unk> be a similar a similar currency, excluding the FX or volume wise I mean, any way you want to define it something that is like for like basically.
Hi, Good morning, that's a really great question before I turn it over the Arvind, it's a little hard to do like for like during a pandemic.
But I'll get our <unk> I'll turn it over the Arvind to answers on more on the questions of currency and how I kind of how it's happening.
Hi, Thanks for the question sort of.
What the kind of tell you in terms of currencies like we continue to see a for the depreciation of the losses on currency the across all the countries.
And this has been for the accentuated we've called <unk>. So if the funding issues on numbers, we see the clients in currency for Q3 versus Q.
The one in Q2 of the share.
And then the other.
It always makes it even harder to use to compare to the Australian but even the show when it comes to our sales through the what we're seeing is the wholesalers and distributors and the lifetime or are really trying to manage destocking inventory.
Because of the cash flow and liquidity comes on.
That that's also how the covenant like on us.
Okay.
Oh, I think well the so but then looking forward.
And lets say I mean pandemic aside for a second of what one would be good good run rate.
Part of the lack of business.
So I kind of.
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Sorry go ahead of him.
So for me going for what it's I mean, it's the given the fundamentals of how FX is moving and lack of meats and also for.
Thank God, how would the wholesale that we'll be making their buying and in that in the next.
And the next one just because of pandemic, if it's something that's really hard to forecast for this one.
Okay. Okay. Thanks.
Thanks.
And how many and then the next the question I mean are there any new products of you're planning for launch a then in Latin America and.
How much of it would you scaled back cash because of the pandemic.
That's a great question. So we are launching we are in the launch phase on quite a few products. We have had all of them and demonize that are low and better on different phases of launch depending on the country and under a regulatory approval. So for example in Colombia. So that's pretend.
Actually a launch of I'm going to say 20 to 22.
In the current and there's also of course on a under launch in all parts of lot of time again out of different place in launch of.
The what we are doing is given pandemic, making sure that the activities that we have addressed a digital means address clinical experience and walking sumit on so we're redirecting how would how how we're how we're commercializing obviously, it's a lot of it.
A lot more difficult to coal should be launching without face to face interaction without hands on experience. The other thing that we are seeing and we're seeing that it's not just the Latin American issue with the Canadian issue with the global issue is due to the pending I'm actually where patients are going to see either for doctors.
And because of that the number of diagnoses has has also slowed down and that's it that's the that's not just a nice total right can last time that is the global issue.
Okay. Thank you and one more for me and for a jump in the queue.
Can you just give us the timeline on how do you think the integration of the Latam assets for Progressive I in terms of I mean, it will be done by mid 2021 end of to talk on 21 earlier than that.
Great question, depending on the issue of certain things are moving faster than we are the as fast as we would like certain things are moving slower the issue really is the about.
That being able to be there to make some of the changes to work with the team directly.
And as I mentioned the for example, the due to the pandemic of we have the legislation issues that prevent us for making certain changes, but we're working through them. We are out of the depending on the issue and one other things I kind of said before was we were looking at things like systems and processes and those cash.
On 10 year to advance so depending on the system on the POS says it all the the system on launch Q1, Q2, Q4, or five and true until the end of the year. So everything is continuing to move for.
Okay. So the sole day by day by mid next year. I mean, you should have made substantial progress for set a pair of sticky.
On quite a few things and on on everything.
Okay. Thank you.
Our next question comes on the line of Tanya Gonzaga is the C.G. Yeah. Go ahead. Please your line is open.
Good morning, guys. Thanks for taking my question on.
So firstly you highlight that the Mexico rights to Abraxane terminated in August I'm wondering how meaningful dishes to revenue I believe it was the top six jobs at some point in 2019 and also just wondering when the contracts for Abraxane and the dots on the Brookdale come up for renewal, but they didn't get your relative pretty low.
Moving called contributors and maybe even day were impacted by the acquisition of course, the liars acquiring celgene.
Hi, Ted Yeah. That's a great question on you know, let alone and sure on the agreements.
Hi, Tony on good morning, So for Abraxas in Mexico. It was a it was actually the it.
It was the small product and it was something of that we were expecting the BMS would actually take pot of for the other products I mean, we're not or the other agreements I should say, we don't provide specific terms per agree.
Payment of but I can tell you that kind of the way you should look at it is the overall. This is a business that has been that has been in existence for a long time a lot of these agreements have been there for a long time and kind of the renewals of these agreements are going to be a part of no.
Normal course, so different the for agreements come up for for renewals at the different time and the continued to work on that some of the lines management's perspective.
Okay, great. Thank you.
Secondly on in the back seat and that you've got great news on those two drag of when will you start hiring dot sales force and how many people do you intend on hiring.
Show in that team did you ever on start going through the reimbursement process.
Oh, we expect yeah.
Given the type of products, we do expect that that will take.
That will take of many months, we don't expect to really have launch activities until 2022, so it'll it'll it'll.
It'll be right around that.
Okay and in 2022, how many people do you think you would hire to support these two drugs.
The the team is continuing to make bad loans.
This is a this is the markets while the to large market, it's not a very noisy market. So we will structure around the potential and who else is there.
Yes.
Okay, and one last one for me for Amazon on the.
The Brazil market are you able to tell us how much what proportion of revenue that makes up of GBP on and if there were any material changes to that contract.
Sure. So we haven't disclosed revenue by product both from a partnership confidentiality is was markets.
Intelligence the.
The Charles it's kind of what we had guided to go for we knew that the terms would be different but we don't disclose the terms on.
And I'll I'll turn it over you do add some more.
Yeah, I mean, the of the and the only thing I would add a ton inside of the I think the the the new terms are in line with what we were expecting for doing the transaction [noise].
Okay, Great. That's helping me thank you very much.
[laughter].
And again as a reminder, if you'd like to ask the question. Please press star followed by the number one the on your total from the Todd.
And our next question comes from the line of Justin Keyword with Stifel. Go ahead. Please your line is open.
Good morning, and thank you for taking my call.
I was wondering if you could provide an update on M&A initiatives as appears that the balance sheet remains very strong. The it was just under 400 million Inc. In cash.
So it's not all the time, a you know to be a bit more conservative for are you still seeing the opportunities either in the Latin America or or in Canada.
I'm going to let alone the answer that question.
Hi, Justin Yeah, we continue to see and chase the opportunities across all of our territory of.
Kind of as it is now the time I mean for US you know, it's the though the the time is always the of the right time to look at opportunities and the status and move forward a when we see the the the write off for charity, having said that with it with the pandemic. There were some discussions that were put on hold or delayed.
Ah, but we continue to see a good deal flow and then we continue to be you know to the work very hard on the on on different opportunities.
Okay and does the pandemic disrupt the due diligence process at all or can that all be done yields for virtual means.
It's all being done through virtual means I mean, the and the again as you can imagine, but it doesn't help specific Tonight I think everyone has the husband adopting to to the switching on to to virtual.
Okay and then my next question just given the all.
All the currency volatility I'm wondering if there's a hedging program in place or if that's feasible or well, maybe just too complicated with the amount of countries on what you'd be she is involved in.
I'm going to let Arvind take that one.
Hi, so from an operational standpoint, the we were looking at the hedging our risk is really by the other debt you have anything on the local country too we do have debt in Brazil that is denominated in BRL.
And that's the that's the natural hedge against that were operating activities.
And that's how we're looking at the critically <unk> and they will the weighted the process of looking at the are being at the old debt in different countries and the clinical.
It's just the way I understand because I believe the Dutch pretty low in the overall business or would that be enough to to hedge against the the currency fluctuations.
Yes, so I mean, we do have the debt level. These are on the <unk> hundred 60 million of Euro, which is for who run them for 3 million Canadian.
Which is a more than a couple of years of.
The current adjusted earnings.
We do have some cash the steep for additional debt in some of other countries and that's what the looking at.
Okay. That's helpful. Thank you for taking my questions.
Our next question comes from the line of Douglas Miehm with RBC capital markets. Go ahead. Please your line is open.
Thank you.
Good morning, everyone.
First question just has to do with the sequential decline in revenues relative to what we saw in Q2, perhaps you could put it in the frame of what's going on on the ground with respect to Kobe didn't these countries relative to North America and the more we saw on.
Yeah, a material decrease in revenues of <unk>, if things are stabilizing in those countries such that the outlook for Q4 on Q1 or maybe a bit more reasonable.
That's the that's a really good question and I am going to turn it over to our friends.
And let him and he'll walk you through kind of the various reasons why why we did have a sequential decline.
Hi, So if you look at our revenues with the touch screen quick look of Q1 compared to Q2 and Q3. We did have we did have some significant swings.
It is really true two big reason, that's the explaining the business during the first one is like so depreciation.
That's great thing the screen, we couldn't but the revenue so can you get the old.
So Q3 was was kind of their head compared to Q2, and it's even a bigger hit when you look at the compared to Q1. So that's the that's that's one of the reason.
And as I mentioned also other.
The trend we've been seeing in the basket. During Htwo 2020 is the on the inventory level of management of our old fields.
And most especially go the Brazil like reducing demos of trying to find the share.
Venture, we that the whole.
Really managing how much the buy from us and trying to.
Many of your cash flow and liquidity is because of the concentration.
Yeah go anything on that.
Sure I think the going into a lot of them.
But I guess my question is and those are the result of where I think what's going on on the ground with respect to cope with both foreign exchange and other approaching the inventory levels and what I was hoping it is to get the better of viewpoint of.
What's going on there with respect to the virus and the impact on.
Right. Okay. So the there's a couple of things so one of the the the big thing for our business is that of our products are high specialty and our field force is normally go into hospital and they can't.
We've got [noise] in.
Infectious disease products on we've got oncology products and we really are seeing the.
Gross due to there is an impact on the business because our field force is just not able to be seeing physicians and it's just not as effective.
Whether it's here or there.
Reps Rep rap and sales force effectiveness has gone down by like things, 40% to 50%.
And the.
When it comes true diagnoses were seeing the diagnoses come down because patients are seeing their physicians. The these aren't these aren't the chronic products. The the other thing that I want to add is that our products, whether it's Chris on the Hell of England's EMA throughout our countries are in the launch.
Phase so physicians are.
The physicians will turn into something that they know in a in a crisis time and the so you know I can I can manage the toxicity I know how to do that rather than trying something new on a patient and that's another thing that we're facing is that they're they're not trying something new and cross the one other things on our teams have done is real.
We try and I'd just on get clinical experience happening yet.
Physicians trying but it's the the growth curve and the launch curve.
Has flattened because of the.
Of because of course, the right now.
Okay.
[noise].
In other just sort of housekeeping question. When you think of that the end she I'd and other where you are in the coal would curve in.
You know the longer term over the next day you're too.
Do you think it's a good idea to start to use debt and right and she I'd be two more significant extent or when here's what's your thinking on the.
So where we're going to the opportunistic with VNC I'd one of the things of the law was mentioning her team is super busy when it comes to business development. So we also want to be able to have powder to be able to execute and execute quickly.
The the fact that we have this in a day [noise] Pan American ex U.S. structure, we're looking at various kinds of opportunities both small and large so we're going to remain opportunistic with the on she I'd and make sure that we have powder to execute.
Okay. Thank you.
And again as a reminder, if you'd like to ask the question. Please press Star then one on your telephone keypad. Our next question comes on the line of Andre Leno with Nash.
National Bank go ahead. Please your line is open.
Hi, a couple of follow up for me I mean, the the first the one wanting to watch I guess on Arvind, but we're.
We're talking about the inventory management ER and how the that is kind of shifting and changing because of the cold it but.
Do you do you think our on what discussions have you had the with your Ah we share with the wholesalers in terms of when or this inventory level going to stabilize I mean are they at the point of right now that is more or less stable or do you do expect further changes on shift as we had into a the the next few quarters.
Hi, Thank you for the question. So I mean, we've seen dramatic drops in the levels over the last couple of months, but the [laughter].
[laughter], they're going to cause of credit how's the will be buying for the rest of the year and into next year, but I would expect.
Yes, I would but the expected of course.
For the dramatic decline of levels from the phone.
Okay. Okay. Thank you and other than more of the <unk> general the kind of outlook question on sort of from your you've mentioned before the dog.
As of Latin American countries, they get into recession for when you expect the bit of a slowdown.
Yeah.
The people lose their insurance plan and then it comes up when did those areas.
The big the surpassed that the recession for I mean are the do those things still hold true on number one and number two how has the picture changed from let's say six months ago to now.
We the the.
The each of the markets has responded very definitely true pandemic.
On right.
Right now the.
Sort of like I take the major low market like Brazil, there have they have seen some decline in employment, but not a lot, but that's also a company that has stayed pretty much the open throughout pandemic.
But.
If anything whether it's our markets or kind of globally, it's really too early to tell.
How long how whether wheelhouse.
What sort of bounced back wheel house, whether it's a K or be a W.
And how long the recession if at all the last we were kind of lot of during the on a weekly and monthly basis, we're seeing effect on the business because of.
His vision and prescribing habits, we haven't seen it come out so far on the economic tolls, but it's still too early to tell.
Okay. Thank you that's it for me.
And there are no further questions at this time I'd like to turn the call back over to Mr. Goodman for some closing remarks.
Thank you I, just like to remind everyone that the road to success in Latin America is never a straight.
But long term. This is the place we want to be because we know we're gonna grow of Barry.
Substantial profitable business.
Thank you for your confidence in the Knight team and for joining our Q3 2020 conference call. Please stay healthy and stay safe.
Ladies and gentlemen, this does conclude today's conference call. Thank you for joining you may now disconnect.
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