Q2 2021 Knight Therapeutics Inc Earnings Call
Yeah.
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Please standby were about to begin.
Good morning, Ladies and gentlemen, my name is Katie and I will be your operator today welcome to Knight Therapeutics, Inc..2021 second quarter financial results conference call before turning the call over to Jonathan Ross Goodman CEO of Knight listeners are reminded that portion of today's discussion may by their nature necessarily involve risk.
<unk> and uncertainties that could cause actual results to differ materially from those contemplated by 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 by but cautions that these assumptions regarding the future events many of which are beyond the control of the company and its subsidiaries may ultimately prove to be incorrect the company disclaims any <unk>.
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.
Would there be any further questions. Please contact Knight's Investor Relations Department via email to info at night T X dot com or via phone at 5146788930.
I'd like to remind everyone that this call is being recorded today August 13th 2021 and now would like to turn your meeting over to your host Jonathan Ross Goodman. Please go ahead.
Good morning, everyone and welcome Tonight Therapeutics second quarter 2021 conference call I'm.
I'm joined on today's call with some Red Sox, our president and Chief operating Officer Corey are cheap.
Sure Barbara Turner, our Chief Financial Officer, and Geoff Burns a P P commercial.
After 104 quarters of bleeding.
Publicly traded specialty pharmaceutical companies since the tender age of 28.
With the majority of these quarters was mirrored by my side. It is the right time for both night and poor Canadian Society for me to step aside and make room for female superstar.
I look forward to fulfilling my new role as chair.
From her and her team to the best of my apologies I.
I do this not just because I had the good and the largest night shareholder, but because teams support each other jumbo G U D. Good times and bad times.
Thank you to our shareholders and to a mall Corey Jodi ankle Corey Richardson, our printer, China, George Atlas, Eric Boyer Jerry.
And the many others, who followed me from the Pal them from Paladin labs for their confidence over the last 27 years.
A special Thank you goes to James Gale entering partner of Sigma Health care partners for you I'm in the role of lead director imagine what we're going to do now that we're just warmed up.
I will now turn the call over to Samira, who I will have to start being nice too.
In 17 more days.
As to mirror will become Knights, new talented orchestra conductor.
Tomorrow.
Thank you Jonathan and good morning, everyone.
It's been a privilege to have worked hand in hand, with and learn from Jonathan over the last 20 years and it was just a couple of weeks ago that we actually did celebrate our 20 year anniversary.
I'm honored and humbled today to take on the role of CEO of Knight and to lead an exceptionally talented and dedicated executive team and nights across Canada and Latin America.
As for the quarter I am excited to announce that for Q2 night achieved record quarterly results. Despite the ongoing challenges posed by the pandemic during.
During the last six months, we executed on multiple fronts with our business to business development team closing Exelon and already beginning to work on transition the commercial team delivering on strong growth on our key.
Key brands and all of our teams executing on integration and systems implementation.
Turning now to the MTI V. We completed the 2020 NTIC on July 13, 2021, and purchased a total of $6 million 193169 common shares at an average price of $5.33 per share.
Subsequent to the quarter, we announced the acceptance by the Toronto stock exchange of our notice of intention to make a normal course issuer bid which commenced on July 14th 2021.
Under the 2021, and CIB 19 purchase for cancellation up to $10.2 million shares over the next 12 months as at August 11, 2021 Knight has purchased two 3 million shares.
Aggregate cash consideration of $11.9 million or $5.17 $5.17 per share.
I'll now turn the call over to them all for an update on BD activities.
Thank you Samira and during the quarter as you know we completed the acquisition of the exclusive rights of Exelon for Canada, and Latin America for which we paid a total consideration of 217 million Canadian dollars or 180 million U S dollars.
This acquisition Leverages, our Pan American ex U S platform and further validates our rest of world strategy Exelon as our first global brand that we are.
Selling across our entire territory.
In addition to the Exelon acquisition, our business development team remains focused on leveraging our Pan American ex U S footprint to build our portfolio along our three pronged growth strategy, which includes acquiring products or companies with existing sales.
Licensing innovative pipeline assets and developing our branded generics portfolio I will now turn the call over to Jeff to provide a commercial update.
Thank you Amal.
Building on the hard work of 2020, our efforts in 2021 remained focused on execution excellence of our new product launches.
We're all our revenues to kind of current.
Current current on a constant currency basis pardon me increased by $14.4 million or 28% during the quarter versus Q2 last year. The growth in revenues is driven by an incremental demand estimated to be between $5.5 million and $7 million, primarily due to our infectious disease products that treat invasive.
Fungal infections associated with COVID-19.
$4.8 million related to the growth of our recently launched products and.
And $4.2 million from the acquisition of Exelon.
Furthermore, on July six 2021.
Health Canada's approved neuro links to treat her two positive metastatic breast cancer patients in Canada.
Over the remainder of the year, we remain focused on the execution and acceleration of our launches and continue our work on the return to field plan and all of our territories I will 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 and <unk>.
EBITDA as well as constant currency, which are all non <unk> measures.
<unk> defined EBITDA.
In la so income, excluding amortization and impairment of intangible assets depreciation purchase price accounting adjustment and the impact of accounting under hyperinflation boats to include costs related to leases.
Adjusted EBITDA exclude acquisition costs and nonrecurring expenses.
In addition constant currency is also a non-GAAP measure used to exclude foreign currency fluctuations.
Financial results at constant currency obtained by translating in the prior year period results.
Average foreign exchange rates in effect during the current period, except for Argentina, where we exclude the impact of hyperinflation.
I am excited to report that for the second quarter of 2021, we achieved record revenues of $65.8 million, an increase of $14.4 million or 28% on a constant currency basis.
As for gross margin, we reported $28.8 million or 44% of revenues compared to $22.2 million or 42% of revenues in the same period last year.
The increase is mainly due to higher revenues lower inventory provision and a change in product mix, partially offset by the renegotiation of certain license agreements and the depreciation of the Latam currencies.
Excluding the impact of hyper inflation, the gross margin would be 46% of revenues for the quarter.
Our total operating expenses for the second quarter increased by $1.7 million or by $1.3 million.
In constant currency.
<unk> to the same periods in 2020.
The increase is mainly due to an incremental expense of $1.2 million related to the extension of stock options held by certain executive officers directors and employees, partially offset by lower cost of restructuring versus the second quarter of 2020.
Moving on to EBITDA.
The EBITDA for the quarter was $9.3 million compared to an EBITDA of $6 million on a constant currency basis in the second quarter of last year.
Adjusted EBITDA was $9.4 million for the quarter compared to an adjusted EBITDA of $6.4 million on a constant currency basis in the same period last year.
The increase of $3 million or 47% was mainly driven by the previously mentioned increase in gross margin.
Actually offset by higher operating expenses.
Now moving on to certain items that are not reflected in our adjusted EBITDA.
During the quarter, we recorded $28.5 million of net gain on financial assets measured at fair value through profit or loss, which is mainly coming from our strategic fund investments.
The unrealized gain was driven by several of our strategic fund investments, including an unrealized gain of $35 million on singular genomic system.
An investment held by domain, which had an initial public offering in the quarter.
The unrealized gains in the quarter were partially offset by an unrealized loss of $13.5 million on the shares of idea.
Public company held by sector <unk> Nemo too.
On a life to date basis Knight has recorded an unrealized gain of $8.9 million on MTO.
I would like to remind listeners that our financial assets are subject to equity price risk. For example, singular genomic system has seen a material decline in its share price subsequent to the second quarter and at the current price level Knightswood recorded an unrealized loss or reverse part of the second quotas under.
<unk> gained by $14 million.
Okay.
Finally, Knight generated cash inflows from operations of $12.4 million in the second quarter of 2021, an increase of $4.3 million or 54% over the same period last year.
The significant increases in cash from operations 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 art.
Looking ahead, we remain committed to continue to building a leading pan American ex U S. Specialty pharmaceutical company. After closing Exelon, we have over $160 million in cash cash equivalence and marketable securities to continue to execute on our strategy to in license and acquire innovative pharmaceuticals, as well as developing our branded generic.
Portfolio.
Okay.
Thank you for your support and confidence in the 19. This concludes my formal remarks, and I would like to turn the call over <unk>.
<unk> city.
Thank you before we begin May I. Please remind you questions. During today's call we will be taken from analysts only should there be any further questions. Please contact Knight's Investor Relations Department via email.
Q E info at night, TX dot com or via phone at 5146788930.
If you would like to ask a question. Please press star one on your telephone keypad, if you're using a speaker phone. Please lift your handset before pressing any key if you would like to withdraw your question. Please press star two we'll take our first question from Doug <unk> with.
With RBC capital markets.
Thank you.
That's the first comment I'd like to make.
And I'm sure I've done this before but congratulations to you both Jonathan it's been great to work with you for such a long time.
And good luck to you Sameer as we move ahead in this new role.
First question that I have.
Just has to do with the sustainability of the antifungal strength that you saw in the quarter can you talk about what you expect to see or are seeing in Q3.
And how we can expect that to move through the remainder.
Of the year.
First of all thank you so much for your congratulations and looking forward to continuing to work with you, but I'm going to turn it over to Josh to answer the deep sales related to our products.
Thanks, so much for the question Doug.
Doug.
No.
Yes, as far as the sustainability.
We expect due to COVID-19 that our sales will continue to remain lumpy right, we're going to see probably movements in both directions.
But.
What I can say is that there is really two factors right. There is.
Our infectious disease products.
Which are used in some cases in patients that are co infected with.
With Covid.
And for those patients obviously as long as Covid is there we will continue to see.
A positive upside.
But theres also.
The other element which is.
<unk>.
After Covid is behind US have you experienced with these customers has been positive.
And we like to think that some of the positive experience that they've had with our medicines will will continue.
So I think there will be some sustainability, but it will be up and down.
One of them.
Okay.
Yes.
I'll kind of wrap up later on that Covid is going up and down in our territory. So what we saw for example in Q2 is that Mexico cases were getting a bit better but there was a pickup in Brazil is starting to turn a little where Mexico is getting worst in Q3 things are getting slightly.
At her in Brazil, so it really depends on a market by market basis as well as hospitalizations.
Okay that makes perfect sense and then just a related question you did start to get some traction in your product launches and maybe what we're ultimately going to see is as COVID-19 started to when youre going to get more traction on those product launches, but perhaps you could expand a little bit on that.
And I'll leave it there.
Sure so.
As Geoff mentioned one of the things that we are counting on is the utilization so far on a product like Chris Samba during COVID-19 is going to carry forward.
<unk> utilization post COVID-19, because he got familiarity on how to use. It then there's product like Halliburton FEMA, both of which continue to advance maybe not as fast as we'd like but we do it.
As our reps start to go back in the field.
Patient starts to go back to doctors and diagnosis start to happen, we expect that to rise and the same thing in Canada behind Charles Star Neuro lengths in Australia.
Great. Thank you.
Thank you we'll take our next question from David Novak with Raymond James.
Yes.
Good morning folks thanks for taking my questions and I guess I will just echo Doug here and Jonathan sending you the absolute best as he transitions out of the CEO role that said you know.
I know nothing really changes here as you and Humira are and always have been completely on the same in human genius wavelength. Nonetheless.
Nonetheless, what a hell of a good <unk> of course quarter to bow out on.
I guess just moving onto questions. So first for me just building on Doug's former question is it fair to assume that the largest revenue contributors from the infectious disease portfolio are Chris Samba.
Andy as AUM and if so could you give us a bit of perspective into what the historical run rate for these products were pre pandemic, while noting that historical run rate may not be reflective of go forward run rate, particularly it would be if you can establish additional loyalty or physician comfort with these assets just having some historical context would be helpful.
So that's a great question. So in the case of Chris Samba, there is very little run rate because it was an early launch phase, especially in a market like Brazil, where we only launched it late March just as the world was shutting down.
And every kind of.
Every extra every dollar we're making is actually an extra dollar that we didn't have last year.
Or even in the last Q, because we are seeing a spike in the Q as well.
As far as Amazon is concerned I like one of the things as we are not disclosing product by product data, we did see a spike happen in the queue.
And we don't we expect it to temper over the next few quarters for two reasons one is.
Really going back to infections and hospitalizations, but also we're seeing vaccinations in these territories also start to go up and that all kind of.
Drive that down as well.
Got you, great and that actually leads well into my next question. So thinking about the Latam market from a macro perspective here emerging markets like Latam are likely to take a bit longer coming out of the cyclical downturn from COVID-19 relative to North America.
Can you share any views around changes quarter over quarter, Youre seeing with respect to things like unemployment vaccine uptake et cetera. In these markets, which may help us zero in on a rebound to economic growth in these particular jurisdictions.
Sure so.
As you know.
You are saying these are emerging markets as a whole amount of.
I think the economy is partially the informal economy until a lot of these countries.
<unk> being shut down just because they couldnt afford it that much longer but we are seeing when it comes to vaccinations is they are moving pretty rapidly there about six months I'm going to say three to six months behind us depending on the territory, so markets like Argentina and Brazil.
Our latest data is showing that.
50 ish mid.
Mid fifties have gotten at least one dose.
In markets like Mexico, and Colombia.
Late <unk> early <unk> and then the smaller markets are a bit behind that.
So we do hopefully as.
North American and European markets.
Not vaccinating as much vaccine start to move south and that continues to ramp up.
No for a fact that in our team in Brazil over 70 people or 70% of the people have received their first dose and we expect that by kind of end of September there'll be past their second dose.
In Colombia, we were able to through the chamber of Commerce acquired vaccines for people and I believe by the end of this month they'll all have first dose.
And hopefully by the end of October early November there second notes.
Excellent that's very helpful. Thanks, So much and I guess, just lastly for me and then I'll hop back in the queue is samira, you've recently spoken about your thoughts around the potential to secure a latam domicile debt facilities that hedge against volatility in the Latam markets. Now this is a bit of a change from Knight and paladins historical anti debt perspective.
But could you just share your current thinking around this strategy as it stands today.
So that's a great 0.1 of the things we will be doing and this is this is less about adding debt.
And shoring up our cash flow, it's really more about hedging currency exposure. So we are looking to and Arvind is working very hard on this is to add debt in reais, Colombian and Mexican Chilean peso. So that we can hedge the cash flows that are coming in especially behind.
Exelon from those countries.
Excellent. Thanks, so much that's very helpful. I'll hop back in the queue.
Thank you.
We will take our next question from David Martin with Bloom Burton.
Hi, Good morning. This is antonia on the line for Dave So just two questions for me.
Can you give us a.
A bit of insight into.
The diagnosis and treatment of cancer patients are things going back to normal in <unk>.
Latam countries and then also for Epsilon or sales still expected to be in that 45% to 50% range.
Or has anything changed in the acquisition.
Oh, thanks, so much for the question and maybe I'll start with.
With answering the oncology diagnosis rate in treatment.
In Latam and Canada, and then I'll pass it over to him off for the other question.
So so on this.
I guess, we are in a situation, where the waves of COVID-19 very country to country.
So for example, Mexico actually was showing a significant decline where we're seeing diagnosis rates increasing.
But there was a spike in Brazil, and Argentina, et cetera, which hindered.
The ability for doctors to diagnose and patients obviously being apprehensive with with cancer to go in and or a condition to get diagnosed so I would say.
Diverse footprint that we have probably leads to some country showing an increase in diagnosis rates at times and others less.
So there is some variability, but one thing is absolutely certain as the vaccination rates.
Continue to progress the diagnosis rates will continue to increase.
And we've positioned our new product launches to successfully obtained some of those patients. So that is really I think the situation on the diagnosis rate.
But we've actually seen examples of this in the countries as well so I guess, it's a matter of us just holding a tightening waiting for the vaccines to eventually let these these businesses to open up.
I think that answers the question I'll, maybe pass it over to Omar sure. Thank you Jeff.
So for Exelon I think your question was on.
Performance and if anything changed since the close the deal. So if we look at the first five weeks.
Kind of from when we closed that which may 26 till the end of the quarter the performance.
<unk> was actually ahead of what we were expecting but that's because there is some lumpiness in buying patterns.
Overall expectations are still the same as we have communicated previously so we expect this brand to be a flattish so to remain in the similar range to what we saw last.
Last year, so in the mid $50 million.
<unk>.
The other thing Tony that I would add is.
Especially on Jeff's comment on where what we're seeing as far as vaccinate as far as kind of treatment and diagnosis.
Our territories are really not that different from Canada to the U S. We are eyes as doors open and we saw this at the end of 'twenty 'twenty, a little bit, especially in a market like Brazil, where they were actually in their summer months.
And there was a lightness we saw diagnoses happened.
And then it stepped down again as they went into winter.
Over the next couple of Qs, they're going back into summer and vaccinations are going out so we do expect.
Diagnosis to continue to start going back up.
Okay. Thank you.
Thank you as a reminder, star one for questions. We will take our next question from Andrea <unk> Leno with National Bank.
Hi, good morning, Thanks for taking my question.
Congratulations on the transition.
Jonathan Thank you Samir congrats to both of you.
A question with a hat.
A couple.
He just started a bit with that with vaccinations I think has come up several times.
Wondering if you have any comments on for example, the efficacy of some of the companies that have been used and even though people have been vaccinated. I mean, there was still waves and there was still shut balancing in Chile. For example is there something that has been observed in the other geographies or not to take yet.
So one of the things is we get all of these countries are getting different types of vaccines. We did see early on that Chile went in and out of.
Out of shut down.
They are now seeing is that some of the some of the other vaccines, while they're efficacious.
There may not be.
Efficacious and nothing preventing infection.
They are still quite good in preventing serious infection and hospitalization and thats kind of the feedback that we're seeing we saw that in Chile, we saw that in Uruguay, as well where cases continue to spike, but then they started to really come off as well.
These countries are continuing to monitor so there's conversations that are happening in the U S and Canada about third doses those same conversations are happening in markets like Chile, and Uruguay were.
And other markets as well.
Oh, great. Thank you that's very helpful. The other question I wanted to ask on the newly launched products.
They've been launched in all of the intended geographies and it's just a question of breath them up are in countries that still.
Have not been launched yet.
Thanks, So much for the question is Jeff I'll take that question.
So.
We do have.
A couple of launches pending so maybe I'll start there.
So we do expect to see how <unk> approval in Colombia later this year and we're also waiting for the final <unk> review for in vaccine, but Uva and we're bullish that we will see a positive outcome, there and look forward to launching those two products here in Canada. So those are the pending launches all the rest of the medicines.
Have been launched in all jurisdictions, where we can get an indication.
I would say.
Just to name them right. So neuro links in Canada, <unk> and Latam countries pending Columbia.
I'll start here in Kansas, obviously, a bit of a turnaround product, we would like Thomas referred to that as a launch because we reassumed it and it's been responding beautifully the promotion here in Canada. So so there are those pending launches, but where we have launched obviously in a COVID-19 environment. It has been a bit slow some of the uptake in some of those areas, but we're really seeing traction now.
As COVID-19 starts to get under control.
Okay, that's a long term bill.
That's great. Thanks, Jeff.
Last question for me.
Excellent.
Are they.
Can we assume that you think directly go to EBITDA or is there a margin that we need to apply to that sales number.
Sure there is.
There is a little bit of <unk>.
And in the Opex, but the the number that we reported is net revenue so that is going straight to gross margin.
Great. Thank you that's it for me.
Thank you we'll take our next question from Justin <unk> with Stifel GMP.
Good morning, Thanks for taking my call and nice quarter.
I was just wondering if theres any seasonal strength in Q2.
Perhaps didn't show up as pronounced last year in the early days of a pandemic.
Actually no I think what we really what's happening.
Even there wasn't really any seasonality in the Q2 of last year a lot of what was happening in Q2 of last year was.
The total crisis that the whole planet was under which shut down what we're seeing in this quarter.
Is really about.
The treatment.
We're seeing growth in our products, we see the addition of Exelon and what's really driving in our infectious disease products is utilization in association with Covid infections and very busy ICU.
Got it and can you just remind us is there any seasonality in the GPT business just in general.
In general there is a little bit similar to Canada right in a little bit in Q4.
And that's really around the Christmas season that we see where.
Wholesalers in hospitals do start like to stock up because of Christmas vacation.
It.
Hard to tell right now between Q4 of <unk> 19 in Q4 of 'twenty as we go and we're going to continue to monitor and be careful.
Because of Covid, a lot of that seasonality has been.
Hard to measure.
Okay and.
And for Exelon was it a full quarterly contribution.
I've just been this demo.
We closed May 26, so it was a five week of contribution during the quarter.
Okay. So we should see that to progress.
Just in general the adjusted EBITDA reported in the quarter.
Is that a good level to assume going throughout the remainder of the year.
So yes it.
It's really hard to guide because we are we are.
Kind of still going through this crisis and the lumpiness that it drives to the top line as well as margin.
If you look at our margin. It's also been swinging quite a bit and that's really in.
Depending on product mix. The one thing I can say is.
Our teams are working really hard we are focused on continuing to execute on our launches and manage through Covid. We do expect some of our expenses to rise over the next Qs as we start to go back to field and open things like travel.
But where we are driven to profitability as well and the other thing that I would like to remind you guys is that we are like you said, it's going to be getting full quarter contribution behind exelon.
Understood and my last question is just on the ERP project and how that implementation is going and any timeline to completion.
So we continue to progress and as Les discuss like its going out into multiple phases on a country by country basis. So the last guidance. We gave was about nine to 12 months I mean, we're still in the same lead times went by mid of next year, we should be substantially completed.
Okay. Thank you for taking my questions.
Yeah.
Thank you with no additional questions in the queue I would like to turn the call back over to Mr. <unk> for any additional or closing remarks.
Thank you for your confidence in the 19 and for joining our Q2 'twenty one call.
Please stay healthy and stay safe and hope to see you soon.
That will conclude today's call. We appreciate your participation.
Okay.
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