Q1 2021 Knight Therapeutics Inc Earnings Call
Good morning, Ladies and gentlemen, my name is Paul and I will be your operator today welcome to Knight Therapeutics, Inc. 2021, first quarter financial results Conference call.
Before turning the call over to Jonathan Ross Goodman 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.
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 being 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 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 infill at Knight, TX Dot com or via phone at five one for 6788930.
I would like to remind everyone that this call is being recorded today may 14th 2021 and would now like to turn the meeting over to your host for today's call Jonathan Ross Goodman. Please go ahead Mr. Goodman.
Hello <unk>.
Good morning, everyone and welcome to Knight Therapeutics first quarter 2021 conference call.
Im joined on today's call with Samira sock, yet Hasnt and Chief operating Officer, Mark Murray, Our Chief business Development Officer are for New China, Our Chief Financial Officer, and Jeff <unk>, Our VP commercial.
Since.
2014, we have set out to build a rest of the world pharmaceutical company that brings innovative products that helped a lot for patients.
Since our 2014 founding.
<unk> invested over $900 million of capital, while generating over $270 million and net income.
Today, we've commercialized pharmaceuticals in Canada, and 10, Latin American countries with nearly 700 talented people.
We are in the business of making people better while creating shareholder value.
<unk> been faithfully reporting quarterly results to shareholders for the last 27 years or 104 quarters.
Effective September one 2021, I will assume the role of executive Chairman and then talented and get that done <unk> will assume the role of president and CEO.
In addition, Jim Gayle, who has been nights chairman since founding will transition to the role of lead director.
I will continue to direct Knight strategy and remain focused on non operational areas, where I can add the most value.
I have worked side by side with Tamara for 18 years.
Had the.
Privilege of watching her develop into a season top brass executive.
It is my baby and I would not.
And I would only amtrust at Studer ship to the best and brightest.
Now ill turn over the call to Samira, who will walk through our corporate updates.
Thank you Jonathan and good morning, everyone. As I said yesterday I started as CFO of pattern in the summer of 2000 and line and it has been a privilege to have worked hand in hand with and learned from John I think for the last 20 years.
Honored and humbled to take on the role of President and CEO of Knight and to lead an exceptionally talented and dedicated executive team and Knight across Canada, and Latin America.
Over the last 18 months, we have executed on our transformational acquisition and remain focused on executing on our strategy of building on our Pan American ex U S footprint, we will continue on our mission to in license late stage innovative products.
Under commodity products and debt partner and develop branded generic products that improve the lives of patients in Canada and Latin America.
As for the quarter I'm excited to report that our key large wins in Latin America, including Chris Samba, Hamilton and Lynn Dana.
As well as child Star in Arlington, Canada grew 116% combined compared to the same period last year.
Subsequent to the quarter, we executed on another transformational transaction with the acquisition of Exelon from Novartis for Canada, and Latin America.
Turning now to the NTSB, which we launched in July last year under this in CIB.
And I can purchase up to $10 9 million common shares until July 2021.
During the quarter repurchase approximately $3 6 million common shares for an aggregate cash consideration of $18 $6 million.
Subsequent to the quarter, we purchased an additional 512000 common shares for an aggregate cash consideration of $2 $7 million I'll now turn the call over to our model for an update on BD activity.
Thank you Samira as we previously announced we have entered into a definitive agreement acquired exclusive rights to manufacture market and sell Exelon in Canada, and Latin America as well as an exclusive license to use the intellectual property and Exelon trademark within Canada and Latin America.
This acquisition Leverages, our Pan American ex U S platform and further validates our <unk> strategy.
<unk> will be the first product that we will be selling across our entire territory.
At closing, we will pay $168 million in cash and an additional milestone payment of up to $12 million of lifestyle.
Upon the achievement of certain conditions.
The transaction will be funded with nice cash and we expect to have remaining cash of at least $150 million to.
To execute on more business development opportunities.
The closing of this transaction is subject to antitrust clearance in Brazil.
Closing, we will enter into a transition surface periods during which novartis will continue to distribute until exelon until the transfer of marketing authorizations on a country by country basis.
During this transition period, we will receive a net profit transfer and once the marketing authorizations are transferred we will begin distributing the product through our own local affiliates on a country by country basis.
Our business development team will continue to focus on leveraging our broader footprint to continue positioning ourselves as the partner of choice for Canada and Latam I.
I will now turn the call over to Jeff to go over the commercial uptake.
Thank you so much from all.
Building on our hard work of 2020, the first quarter of 2021 was directed to execution excellence on our new launches.
Our revenues on a constant currency basis increased by $4 1 million or 10% versus the prior quarter driven by the launch of for Simba Lynn Bema collagen narrowing some certainty gx products as well as Charles start, which Knight started to commercialize in April of 2020 in.
In addition in March we launched <unk> for the treatment of irritable bowel syndrome with constipation in Canada, where it is now covered by most private insurance companies, we find when we finalize our commercial leadership structure.
With the addition of a country manager in Colombia.
Now today the management of our commercial operations is organizing five regions comprised of Brazil, Colombia silk about Tam or solar.
North Latam or NOLA and Canada.
Over the remainder of the year, we will focus on the execution of our new launches and we'll prepare for the upcoming launches of bema and Halloween in Colombia, as well as non FEMA Halloween and Christmas Ember in Ecuador.
I'll now turn the call over to Arvind to go over our financial results.
Thank you Jeff.
In the course of this conference call I will refer to EBITDA adjusted EBITDA, which are both non air force measures.
<unk> defines EBITDA operating loss income, excluding amortization and impairment of intangible assets.
<unk> purchase price accounting adjustments and the impact of accounting under hyperinflation.
EBITDA excludes acquisition costs and non recurring expenses.
In addition constant currency is also in non-GAAP measures, excluding foreign currency fluctuations.
Financial results at constant currency obtained by translating to prior period results.
Average foreign exchange rates.
During the current period, except for Argentina, where we exclude the impact from heightened interest.
Sure.
I am pleased to report debt for the first quarter of 2021 revenues were $46 million, an increase of 1% compared to the same period last year.
The growth of revenues from our new launches was offset by the depreciation of our Latam currency.
As for gross margin, we reported $26 million or <unk> 45 per cent compared to $19 $9 million or 43% in the same period last year.
The increase is mainly due to lower inventory provision and product mix, partially offset by renegotiated churn of certain license agreements and the depreciation of the Latam currencies.
Excluding the impact of hyperinflation, the gross margin would have been 47 per cent for the quote.
Our operating expenses decreased by $3 $8 million compared to the same period in 2020.
The decrease is mainly explained by $1 1 million of bad debt provisions recorded in Q1 of 2020.
Compared to non disclosure.
One five months into depreciation of the Latam currencies and the remainder is due to restructuring activities and cost saving measures. We can place as a result from the pandemic.
Moving on to EBITDA.
EBITDA for the quarter was $5 $2 million compared to an.
EBITDA of $1 $2 million in the first quarter of last year.
I've, just EBITDA was $5 6 million for the quarter compared to adjusted EBITDA of $3 2 million in the same production.
The increase of $2 $4 million <unk> five per cent is driven by the previously mentioned increases in gross margin and decreasing operating expenses.
Now moving on to certain items that are not reflected in our adjusted EBITDA.
During the quarter, we generated $2 million of interest income from our cash marketable securities and strategic loans.
This represents a decrease of $2.7 million or 57% compared to the first quarter of 2020 due to declining interest rates as well as a decrease in our cash marketable securities and strategic loan receivable balances.
In addition, we recorded interest expense on our bank loans of $660000, a decrease of 42% compared to the same period last year due to a decrease in interest rates in Brazil as well.
Our average loan balance outstanding.
Furthermore, we recorded a net gain on financial assets measured at fair value through profit or loss of $9 $5 million draw.
During the quarter, which is mainly coming from our strategic fund investments.
I want to remind listeners that our financial assets are subject to equity price risk and I would like to point out that debt investments held in one of our funds has seen a material decline.
Share price subsequent to the first quarter.
Should the share price remains at the current levels Knight would record a loss of over $15 million in the second quarter of 2021.
Finally, Knight generated cash inflows from operations of 17 million in the first quarter of 2021 as compared to a cash outflows of $21 million for the same period last year.
The significant increase in cash from operation is driven by an improvement in our operating results and working capital as well as interest collected on the maturity of certain marketable securities during the quarter.
I will now turn the call back to summer.
Thank you Arlen.
Looking ahead, we remain committed to building a leading pan American ex U S specialty pharmaceutical company.
At closing and goes along we will have at least $150 million in cash to continue to execute on our strategy to in license or acquire innovative pharmaceuticals, as well as developing our branded generic products for Canada and Latin America.
I'd like to turn the call back over to Jonathan for his concluding remarks.
Thank you.
Thank you Samira.
Thank you for your support and confidence in the 19 and this concludes our formal remarks, we will now open the call up to questions.
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's Investor Relations Department via email to info at Knight, TX Dot com or via phone at Taiwan for six 1 million 893 zero.
If you would like to ask a question. Please press star followed by the number one on your telephone keypad.
If you're using a speaker phone please lift your handset before pressing any key.
On the first question is coming from David Martin of Bloom Burton David Your line is live.
Good morning, congratulations to both Samira Jonathan.
First question Sameer at do you have any changes in mind for when you take over as CEO or will it be pretty much stay on the same path.
David Thank you and definitely it's business as usual where when it comes to what the strategy is exactly what we set out to do this is what we were doing for Knight.
We will continue to be doing.
Licensing and acquiring and bringing innovative products that help patients.
Okay.
As far as the 150 million Youll have on hand after the closing of the acquisition what about the money that's tied up in loans and investments in funds now do you consider that as accessible capital.
If you have a larger acquisition in mind.
So right now the as far as the financial assets are concerned we may borrow against them because what we've seen is that if we were to sell them, we're likely not to have seen the value that the ore from the balance sheet.
The other thing that we're looking to do after closing with aggregate line is.
Add debt.
Debt into our into the balance sheet in local currency to hedge against the currency exposure. There. So that's really what's going to give us a little bit more flexibility in capital.
Okay and the last questions just a housekeeping question.
What exchange rates do you use when you reported a quarter the rate at the end of the quarter or the rate as the revenues come in or something else.
I'm going to turn that over to Arne to answer.
So in terms of the conversion the addiction ratings for <unk>.
Average for the for the Q.
And it is converted from each other functional currency of each of our entities to Canadian dollars using debt rate.
The exception that I would say to that truly is Argentina.
The accounting rule index to inflation is different.
And I wouldn't I would refer you to we posted on our website to eat administration of how the condition works for CNET networks.
Once you're out to Dot Com, Inc.
Simple posted online.
Okay. Thank you I'll get back in queue.
Thank you.
The next question is coming from David Novak of Raymond James David Your line is life.
Good morning folks thanks for taking my questions first and foremost congratulations here on that new title Theres really nobody better suited to lead Jonathan's baby and for the next stage of life.
A couple from me this morning, I suppose for some financial assets I know you guys mentioned for Varian TRA.
We're a mark to market in mid May and the <unk>.
And question looks like they're working on a COVID-19 antiviral, which I suppose explains the equity performance as the market looks to vaccine uptake I'm. Just wondering if you could help me understand how knight ended up with such a significant exposure to that specific equity.
Total just taken outsides position here to the tune of I guess, it looks like 30% allocation is that what's going on there.
And do you want to take that.
Yes, so total bolt on the first question.
This was an investment made by one of our funds. So it was not a direct investment made by Knight.
Even though we're saying like there will be a reversal of gains we've just decline that you've mentioned.
We are still sitting on from an overall profit based on the cost base of.
Where the fund entered into that company.
The fund really invested in the company for IP.
Okay got it great. Thank you and just looking at revenues by therapeutic area here. It looks like you guys are seeing a nice uptick in infectious diseases, which I guess might be helped by Chris Samba.
But despite the launch of <unk> in other on therapeutics. The <unk> line is still a bit under pressure is that a function of continued COVID-19 impact on hospitals and patients not being managed in a timely manner and Latam or is there additional color you could add there.
Jeff do you want to take that one on.
Sure.
Yes, so the infectious disease piece.
Both <unk> and we are seeing ice's flow of patients and many of our Latam countries, where were for simple can definitely benefit some of those patients.
When when when it when a patient with COVID-19 gets aspergillosis, obviously need and require urgent care.
Additionally, we are starting to see maybe some potential traction with Amazon in the same area for.
For Brazil, Nicu's has for the <unk> piece.
We have continued to see.
Decreased treatments.
For our oncology portfolio in Latam.
For.
For several of our brands.
Some of them.
Halliburton, which is an infused product in hospital.
Is challenged.
Cause of that while others, which are oral like alarm FEMA benefit.
Doctors are looking to treat those patients externally. So it's a bit of a mixed bag, but please samira anything that you'd like to add.
No that's exactly right. They all have these products are actually whether it's Halloween Medina and Chris I'm not there in launch phase and it's also promotional efforts are a little bit tougher and that's also on your line and trial start.
In Canada.
We are seeing traction when I look at our Chris <unk>, which was launched pre COVID-19 in Mexico. It is chugging along a lot better because it is a great product and provides a lot of clinical efficacy and benefit.
Excellent. That's helpful. Thank you very much and just looking at revenues in other way by jurisdiction.
Argentina, it seems to be disproportionately on your pressure relative to other key territories do you guys largely attribute this to the <unk>.
Pandemic hyperinflation currency things like that or is there additional color around Argentina, specifically you could provide.
Yes.
Really a currency issue and pandemic.
Argentina has a great power market.
Unfortunately, right now the financial crisis isn't really allowing us to show to.
To obtain the results I would like to get.
Got it great and then just lastly, small housekeeping item.
On the nonrecurring expenses. There is 874000 inventory write off and you mentioned an insurance claim is that claim expected to hit in Q2.
Alright, I think that was for last year.
Take that yes. This was really a claim.
And write offs I showed you tweet temperatures cushion when we're shipping the product.
I don't believe we provide any further updates on the claim but we were working through it.
Great got it I will hop back in the queue. Thank you very much for answering my questions.
Thank you.
Yes.
Thank you once again, just a reminder, ladies and gentlemen, if you wish to enter the Q&A queue. Please press star one on your phone and the next question is coming from Andrea <unk> from National Bank Angie Your line is live.
Hi, good morning, Thanks for taking my questions and congrats from Euro.
On the job a.
A couple from me first I just wanted to watch.
Inventory building in the quarter.
Is there for building our deflation at the prior quarters or do you think it has been a good spot right now at the wholesalers.
I mean do you want to take that first and then I'll add if necessary.
Sure Yes.
Throughout 2020, we've been really working hard and really setting a process and controls and really making sure we have an efficient.
Allocation of working capital and it's really paid off so like you see it at the end of 2020 and really in this quarter, where we see the current levels. I think is a more stable levels going forward, but also to keep in mind that would be.
Depending on timing of purchases and sales there could be some accretion in working capital.
Going forward.
And on the other side.
To inventory in the trade one of the things we know is and it's similar to Canada, where Q4 is because of the holiday season.
Really a little bit higher we saw that unfortunately, its really hard with COVID-19 to know how much was.
Wholesale of build outs versus just a reaction to COVID-19.
Once the market stabilizes post COVID-19 will have a better idea.
Okay.
I think your next question is I mean first debt congrats on launching those new products, but are you able to quantify what the contribution looks into quarter end.
What I'm trying to get there, it's more kind of like how efficient towards these launchings versus a more normalized environment.
So we're not providing kind of bull.
We're not providing revenue by product part of that is for both for confidentiality as long as competitive reasons.
When we start to have market data will start to disclose that war.
The issue the other side is as you know when you're launching products. There is they're not profitable because there is a lot of commercial spend do you have a lot of people working and they're not really they're they're just doing an uptake in revenue. We do expect it to all of the brands that we kind of bottom line.
The next three to five years to be big contributors not just for the top line, but also to the bottom line.
Okay understood.
Last one for me are there any significant renegotiation agreements coming up let's say the next 12 months.
How long do you want to take that one.
Sure.
I think what you should assume Andrew said, there there's always it's normal course to always have renegotiations and renewals coming up just because of the nature of the business.
On the other scanner on the beef is kind of a.
Hi, specifically they've been they've had partnerships for for a long time until its normal course, and renegotiating and renewing.
Okay, but we shouldnt be expecting any any major.
Over the next year I will tell you that we're not expecting any correct.
Great. Thank you that's it for me thanks.
Thank you and the next question is coming from adjusted Keloid from Stifel GMP, Justin Your line is live.
Good morning, Thank you for taking my call and congratulations on the appointment.
For Epsilon and other sales were 47 million U S last year, but just wondering if there was any pandemic impacts in the figures.
Sales have trended over the past couple of years.
How long do you want to take that.
Sure.
So the in the last couple of years I would say if you. If you look at a lot of times, specifically I think sales have been relatively flat.
And Canada, we have seen a decline because of generics ization of the patch.
And just how generic dynamics work in Canada.
On COVID-19, specifically, it's really hard to tell.
For this is a this is a chronic care product so it's not a hospital.
Not in hospital and current acute right. So if there was an impact.
It would be really hard to parse out that impact because of the spike COVID-19 patients sort of continued their therapy.
So that's really what I can tell you and we're not seeing again any we're not seeing anything in the sales that would tell us that there was a COVID-19 impact.
Okay, and whats the split roughly <unk> of the sales between Atlanta, and then Canada.
Well, we had said is that two thirds of the sales for Brazil and Colombia.
No.
It's most of the sales are coming from from.
Latam, Canada as well.
All contributed.
Okay.
Sorry, just to add there I think when we we also said that according to IMS like the Canadian sales are about 2 million line.
Okay. That's helpful and what is the anticipated close date again.
So on the price is.
Sure. So on the close date for the antitrust process in Brazil is it going.
Faster than expected, we start through the first level of for and can you.
So right now we're expecting a final clearance and hopefully closing in the next two to three weeks.
And that would be much sooner than that.
I think it was first described as it could close over a number of months if I was correct.
Yeah. The initial the.
For the initial estimation was 45 to 90 day.
So this will actually be just under 45 day.
It's gone very well.
Okay. Thank you and then just a final question on the global ERP system implementation and all this.
As highlighted last quarter, just wondering how that's going and if there's a timeline to complete the integration.
Hi, Robin do you want to take that one.
Yes.
Good day to day of integration is progressing well as planned.
And as we've disclosed it and Jim and yet it would expect substantially most of the work to be completed in the next 12 months.
And in the next 12 months is that progressive throughout that or is it a system that basically you need to do all the work out at the end of those for 12 months, it's already ready to go or just if you have any additional color on the timeline, yes. Nonetheless, it's really.
Progressive approach given we have so many <unk>.
Ntt's Andrew fiction.
There was a way you would work is also customize the local rules for certain countries. So it's really a progressive approach and its a rollout basically on a country by country basis for the next 12 months.
Okay. Thank you appreciate you taking my questions.
Yes.
Thank you just one thing.
Thank you and next up we have a follow up from David Martin David Your line is less.
Yes, thanks for taking the follow up.
Star is you would consider a launched product, but unlike some of your other launch products.
That was already selling as you took it on I'm wondering what kind of growth. If any are you seeing withdrawals star since you've taken over sales.
Sure.
Can I actually ask Jeff to answer that question.
Yes. Thanks, so much for the question yes.
Yes, we do consider it a relaunch.
So when we acquired it it was actually declining.
So there was a lot of work that went into to bending that curve and I.
Q1, we're starting to see the benefits of our of our work so.
It was up by about 20%.
Q1, this year versus same time last year.
Sure.
Okay.
Thank you said you have full reimbursement for is for a while now did I hear that correctly.
Okay.
<unk>.
I'm happy to take that some any other yep.
Please go ahead.
So on <unk>. The primary market is going to be private and we have been able to obtain a large portion of the private coverage in Canada.
Okay. Okay. Thank you.
Thank you.
Once again, ladies and gentlemen through any final questions. Please press star one on your phone.
The next question is coming from Doug <unk> from RBC, Doug Your line is less.
Yeah, good morning, and.
Congratulations from me as well.
Maybe you can talk from Europe.
Trends within the South American marketplace.
As we enter a new season with respect to COVID-19 and your thoughts on perhaps when.
You might see in line at the end of the tunnel here and then the second question just has to do with margins.
Gross margins were a little bit better than we thought they would be can you.
And maybe walk us through why that is and what trends, we could see with respect to those margins over the next one.
Sure, so I'm going to kind of.
Speak to COVID-19.
This situation isn't improving rapidly that being said the country. Each other countries is slowly advancing through.
Vaccine distribution are.
I know for example in Argentina, they are in locked down our team.
Is having to deal with another winter of Lockdown.
There is as you've seen.
As you've seen in the news there is a lot more talk about trying to get.
Vaccines into developing countries.
And hoping that.
I don't think that that will know things for sure.
I really like our teams are looking at to what you can what we can do to also vaccinate all teams.
And I do think that things will start on.
On the back end of this year to start improving.
The vaccine rollout will move faster.
And we will see an uptake there is there is obviously a lot of uncertainty a lot of there's a bit of political unrest as well, but I think that as.
Countries.
Turn to the better we're going to see an impact of that as well.
Okay. Thank you and I'm going to ask Arvind to answer the question on margin.
So in terms of the margin really.
The improvement that you are referring to is really driven by product mix.
Where how your margin products have outperformed.
Expectations.
In terms of forecasting for the resin Russell.
Really hard to predict because of currency.
But what they can't tell us like what's still for the current business. It's I would say expectation should be low to mid <unk>.
We guided to last year, and then again as we close X elong keeping my interest will be a net profit transfer before the amaze our transferred from the country by country basis.
During that transition period, we will be recording net sales of 300% gross margin.
Thank you very much.
Thank you and there were no other questions in queue. At this time I'll now hand, the call back to the Knight management team for any closing remarks.
It's John as Jonathan Thank you for the confidence in the 19 and for joining our Q1 2021 conference call.
Stay safe and be healthy.
Thank you ladies and gentlemen, this does conclude today's conference you may disconnect at this time and have a wonderful day. Thank you for your participation.
Okay.