Q3 2021 Knight Therapeutics Inc Earnings Call
Good morning, Ladies and gentlemen, my name is lianne and I would be your operator for today.
When it comes to Knight Therapeutics, Inc, 2021, third quarter financial results Conference call.
Before turning the call over to Samira, <unk>, President and CEO of Knight.
Listeners are reminded that portions of today's discussion may by their nature necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward looking statements.
The company considers the assumptions on which these forward looking statements are based to be reasonable at the time they were prepared.
But cautious 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 intention or obligation to update or revise any forward looking statements, whether as a result of new information or future events, except as required by law.
We would also like to remind you that 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 night T X dot com or via phone at 5146788930 again five one for six seven years.
88930.
I would like to remind everyone that this call is being recorded today November 11th 2021 and.
I would now like to turn the meeting over to Yahoo is today.
<unk>. Please go ahead Ms Ikea.
Thank you Ann Good morning, everyone and welcome Tonight Therapeutics third quarter 2021 conference call I'm joined today on today's call with a mockery, our chief business Officer, Arvind <unk>, our Chief Financial Officer, and Jeff Martin Our global VP of commercial.
I'll now walk you through some of our corporate updates.
I'm excited to announce that for the second consecutive quarter at night achieved record quarterly results. Despite the ongoing challenges posed by the pandemic in fact similar to last quarter. It is due to the pandemic that we have seen an increase in sales of our infectious disease products that were used extensively by physicians to save lives.
Okay.
In addition to the Great results. We also had some significant changes to our management team last quarter, not just myself and Jonathan but more importantly, the addition of three season to get executives.
Monica pair Corio joined night in September as global VP of scientific affairs with nearly 30 years of experience in the pharmaceutical industry.
Monica joins us after a successful career at Sanofi and Brazil, where she had been working since 2008, most recently as head of regulatory and center of expertise for a lot of time at.
That Sanofi. She also participated in the integration of Adventist with medley of Brazilian branded generic pharmaceutical company and developed a strong expertise in the generics market as well as mature products.
Further she implemented the regional regulatory functions with teams across Latin America.
Just another female anika worked in various regulatory roles that are masa now part of he pair of pharma during her time there. She created the Pharmacovigilance Department and participated in clinical research studies and the development of biologic products.
Daniela Marino joined Us as global VP of legal and compliance with over 20 years of experience in the legal field in the pharma industry.
<unk> was previously at Bausch House, formerly Valliant in Brazil, where she had been working since 2013, most recently as head of legal and compliance for Latin America.
She was responsible for all activities carried out by the legal and compliance Department in Latin America, including supporting the various business units throughout lot in Latam as well as providing transaction support to both legal and corporate teams.
In addition, she was responsible for managing all activities related to the legal department in the compliance area prior.
Prior to Bosch Daniela was out of specialty law firm in Sao Paolo where she advised clients on mergers and acquisitions corporate reorganizations and deal negotiation.
Finally, Susan emblem joined night as global VP of Human resources, Susan had worked for over 20 years at Paladin Labs, where she held a.
A number of leadership roles, including Vice President of HR and corporate communications.
In fact, Susan played a key role in the integration of pilot and into Endo.
Monica and Daniela are based in Sao Paolo and Susan is based in Montreal.
We also continued to execute on expanding our portfolio through our business development activities and we closed a distribution agreement with insight for two innovative products.
Turning now to the N T I D. We launch it 'twenty, one 2021 and CIB on July 14th 2021 and under this NCI E. We can purchase for cancellation up to 10.2 million shares during the quarter. We purchased approximately three 3 million common shares for an aggregate cash consider.
<unk> of $15 $3 million at an average share price of $5 18 per share.
Subsequent to the quarter Knight has purchased an additional 1 million common shares for an aggregate cash consideration of $5 $3 million or $5 21 per share.
I will now turn the call over to Jeff to provide more details on our product results.
You Samira building on our hard work of 2020, our efforts in 2021 remained focus on execution excellence of our new product launches.
Our revenues on a constant currency basis increased by 27 4 million or 62% during the quarter versus Q3 last year.
The growth in revenues is driven by an incremental demand estimated to be between nine to $11 5 million.
Primarily due to our infectious disease products.
It's a fungal infections associated with COVID-19.
Of this amount we estimate that approximately $3 2 million to $4 2 million was not utilized during the nine months period in.
In addition, we had an increase of $6 million and net revenues related to the growth of our recently launched products and $9 $9 million from the addition of Exelon.
Overall, the remainder of the year remained focused on the execution and acceleration of our launches and our infectious disease portfolio.
<unk> oncology portfolio as well as for the commercial efforts behind X one.
With vaccination rates improving in many of our territories. We have started to cautiously returned to field.
I'll now turn the call over to Arvind to go over financial results. Thank you Jeff.
In the course of this conference call I will refer to EBITDA and adjusted EBITDA as well as constant currency, which are non <unk> measures.
Defined EBITDA as operating loss or income, excluding amortization and impairment of intangible assets depreciation purchase price accounting adjustment and the impact of accounting under <unk>.
Nation, but to include costs related to leases.
Adjusted EBITDA excludes 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 the prior year period results as the average foreign exchange rates in effect.
During the current period, except for Argentina.
Excluding the impact of hyperinflation.
As Jeff already mentioned, we achieved record revenues of $73.3 million, an increase of 27 portfolio or 62% on a constant currency basis.
It's really due to increased demand for our infectious diseases portfolio as a result of the pandemic.
As for gross margin, we reported $47 8 million or 51% of revenues compared to $19 5 million or 43% of revenues in the same period last year.
The increase is mainly due to higher revenues lower inventory portion 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 hyperinflation in the gross margin would be 54% for the quarter.
Our total operating expenses of $22 $5 million for the third quarter.
<unk> by $1 million compared to the same period last year.
Excluding the nonrecurring costs, such as the unique unified tender cost incurred in the third quarter of 2020.
Increase was $5 million.
The increase is mainly due to an increase in variable costs, such as logistic expenses variable compensation and an increase in medical and marketing initiatives on the new product launches as well as the pixel.
Okay.
Moving on to EBITDA.
EBITDA for the quarter was $17 $3 million compared to a negative EBITDA of $700000 on a constant currency basis in the third quarter of last year.
EBITDA was $17 $3 million for the quarter compared to an adjusted EBITDA of $3 $7 million on a constant currency basis in the same period last year.
The increase of $14 $6 million or 369% was mainly driven by the previously mentioned increase in gross margin, partially offset by higher operating expenses.
Now moving on to certain items that are not reflected in <unk>.
EBITDA.
During the quarter, we recorded $21 million of net loss on financial assets measured at fair value through profit or loss, which is mainly coming from our strategic fund investments.
The unrealized loss in the quarter was mainly driven by a singular genomic system.
Public company held by domain with ship price significantly decreased during the quarter.
On a life to date basis Knight has recorded an unrealized gain of $12 $9 million on SGS.
Furthermore, the Nemo two investment fund managed by sectoral was liquidated in the third quarter of 2021, following the sale of the shares of <unk> Pharmaceutical Inc.
We have realized a life to date net gain of approximately $9 $6 million in connection with Ikea.
Despite the unrealized loss on financial assets recorded in the third quarter of 2021, we have recorded a net gain on financial assets of $16 $6 million or the <unk>.
Nine months periods ended September <unk> 2021.
The net gain was driven by unrealized as well as realized gains on our strategic fund investments.
Finally, Knight generated cash inflow from operations of 10 point familiar for the third quarter of 2021 and $14 million for the nine months period ended September <unk> 2021.
The cash flow from operation generated is driven by us.
Our operating results.
I will now turn the call over to Mark to provide and update on business development activities.
Arvind estimate I previously mentioned during the quarter, we entered into an exclusive supply and distribution agreement with insight for Latin America for the rights to deficits Ahmad sold as lung jewelry in the U S and men's yoga in Europe, and so we got to that market that was here in the U S Europe and Japan.
Deficits and that is approved in combination with lenalidomide in the U S and Europe for the treatment of adult patients with relapsed or refractory diffuse large b cell lymphoma, who are not eligible for stem cell transplant.
The LDC al is the most common type of non Hodgkin lymphoma, and there are approximately 12000 to 16000, new cases, each year in Latin America.
Let me get it approved in the U S Europe, and Japan for the treatment of adult patients with locally advanced or metastatic cholangiocarcinoma with a fibroblast growth factor receptor two or <unk> fusion or rearrangement that have progressed after at least one prior lines of systemic therapy.
<unk> carcinoma is the most common cancer of the bile duct <unk> fusions or rearrangements have been observed in 10% to 16% of patients with intrahepatic cholangiocarcinoma, whereas the incidence in patients with extra hepatic cholangiocarcinoma is rare.
There are approximately 4000 to 6000, new cases of intra hepatic cholangiocarcinoma each year in Latin America.
We expect to file both products for regulatory approval in key Latam markets in the second half of 2022.
In addition, our team has been actively working on Onboarding Exelon, which we acquired in the second quarter of this year.
We also continued to focus 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 a good steak sales.
Sensing innovative pipeline assets and developing our branded generics portfolio.
I'll now turn the call back to Samir for concluding remarks. Thank you know looking forward, we remain committed to continuing and building a leading lineup leading Pan American ex U S. Specialty pharma company, we have over $155 million in cash cash equivalents and marketable securities to continue.
To execute on our strategy to in license and acquire innovative pharmaceuticals, as well as developing a branded generic portfolio.
For your support and confidence in the 19. This concludes our formal remarks I would now like to turn the call over to questions.
Leann.
Thank you.
Before we begin May I, please remind you ladies and gentlemen questions. During today's call will be taken from analysts only.
It would be any further questions. Please contact Knight's Investor Relations Department.
IMO two info at nights, TX dot com or via phone at 514678890.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
If you are using a speaker phone please lift your handset before pressing any T.
If you would like to withdraw your question. Please press star two.
And we will take our first question from David Martin with Bloom Burton. Please go ahead. Your line is open.
Good morning, Samira and everyone else.
First question is can you explain what's meant by three 2% to $4 2 million not utilized during the nine months is that.
Excess stock that was built up in the channel inventory.
Yeah, that's that's pretty much it so one of the issues.
There was quite a pandemic crisis and some of these major countries, especially Brazil and to a certain extent in Mexico.
L. A we were tracking was not yet we were everybody was trying to make sure that inventory was available and what we saw kind of closer to the end of the quarter.
To the best that we could is that there is probably somewhere between $3 million to $4 million of inventory.
That didn't end up being utilized because the cases started to come down and hospitalization started to come down a bit.
NIM was up mostly infectious disease products.
That's it yes, okay.
So another question on the infectious disease products the revenues are holding up.
Very well despite the fact that case counts as you said were down and people are getting vaccinated.
Got two things going on here.
Launch of new products, and Covid coming out of Covid do you anticipate that franchise will be at a substantially higher level than it was pre COVID-19, even once COVID-19 goes away because of the launch of the new products and.
Maybe a better familiarity with your products and gaining market share.
So it's a little bit multi factorial so.
There's two real products in this category one is <unk> and the second is Chris Samba Amazon is a well established brand and it took it's used or different kinds of fungal infections that come after multiple types of utilization, so whether it's bone marrow transplant.
There is oncology patients that are immuno compromised that may develop a fungal infection.
The second one is <unk>, which is an early launch phase during COVID-19 a lot of the surgeries and treatments that would normally happen that would drive utilization of ambisone didn't happen.
And Chris Samba was being launched during Covid. So both of those brands stumbled a little bit because of Covid.
Last few months, we've been seeing a lot of Covid utilization, what we do expect is that there is.
Familiarity now it's really in.
In the case of Ambisone treatments to start going back up whether it's oncology bone marrow transplant or whatever else. It can be used for and in the case of Chris Samba, our commercial teams capitalizing on that experience and continuing to reinforce that message.
Well, Jeff I don't know if you want to add something else.
Maybe the only thing I would add is.
Because of the inventory build you can expect maybe a softening in Q4 because of.
That excess inventory you asked about earlier.
And other than that yes, there's been some positive experience with especially with the <unk> and the new launch. So we we have a plan to action.
So sorry is it Chris Samba only that is used in COVID-19 patients or Amazon as well.
So.
Okay.
Is it the.
So we just kind of they're both.
They are both for the treatment of invasive fungal infections.
One has a little bit of a broader indication, but the it really depends on what fungal infection has been diagnosed and in the case of Amazon. If they don't have time to figure it out they are able to use ambisone.
Okay and.
Do you see sales at the end user level like the.
The infection rates have dropped off substantially in Brazil.
Are you not only seen drawdown of inventory, but less use of the products or is there a right of use holding up.
So.
We that they use in relation to Covid is coming down obviously.
The issue is the issue is that.
That's not what they were designed for they were designed for.
Fungal infections that could come for whatever reason right.
Patient, who immuno compromised the issue with that is that kind of utilization rate, we expect to pick up as those treatments start to re happen. What you usually see is a few months of gap between the treatment and the need for <unk>.
Fungal infection product.
Okay.
Okay. Thank you.
Thank you we'll take our next question from David Novak with Raymond James. Please go ahead. Your line is open.
Hi, good morning folks thanks for taking my questions just two quick ones starting on the top line here.
Looking at revenues by jurisdiction, you showed a really healthy growth across the key geographies, but Brazil really sticks out that almost 95% growth year over year could you share any comments on the uniqueness of that particular market.
Sure So one of the issues.
We is really related to COVID-19.
One of the bigger products in the Brazilian market is Amazon and like I mentioned earlier.
<unk> took a big hit last year, because it was being utilized.
For patients who are being treated for <unk>.
In oncology and hematology, whatever the case may be and because those treatments weren't happening sales of Amazon had come down in this quarter, what youre seeing and Christiana <unk> wasn't there.
Very early launch phase what you see in this quarter on a year over year basis as both of those products are being used or used heavily.
By physicians, because COVID-19 infections were so high hospitalizations or high.
And fungal infections with that with patients and IC use happened.
Hmm.
As Jeff said, what we expect is that Q4 will be there will be softness on this but we expect that as.
The world and especially Brazil returns to normal these brands will start to pick back up in the long term.
Yeah.
Got it.
A majority of inventory for Chris and then have you zone that is moving through the channel is being utilized in Brazil versus your other sort of key jurisdictions.
Is that sort of understandable.
Yes, we have ambition, primarily in Brazil, we have Chris samba throughout our region and so that one is kind of a little bit all over the place.
Oh, Okay, so maybe more specifically of the.
$15 million to $16 million of growth that we saw in the quarter in Brazil could you sort of paint a relative picture as to what that would be from Chris <unk>.
Yeah, I don't have it at the top of my head, but there is also exelon that's in Brazil.
I can get that to you later.
Okay No worries.
Lastly, I don't mean to beat a dead horse here, but based on what Youre seeing on the demand side and your own projections. The inventory that is currently sitting in the channel workers.
Workers in Arizona.
Is that likely to destock in Q4, I guess, what would be helpful. Here is to understand the profitability of any potential inventory write downs or anything like that going forward.
Sure. So we don't expect a return of this inventory we do expect all of it to be utilized in the queue.
What we also expect to in the queue. Because this is Q4 and there's usually a bit of seasonality of high purchases in advance of the holiday season, some of that will.
We will be a link some of that kind of downturn of this 3.2 will be offset by the seasonality.
We don't expect any write downs or returns.
Great. Thank you so much I will hop back in the queue.
Thank you.
We take our next question from Justin <unk> with Stifle JMP. Please go ahead. Your line is open.
Hi, good morning, Thanks for taking my call.
Just on the impact of infectious disease products related to Covid are you able to quantify what that did to the adjusted EBITDA in the quarter.
So like you see what our margins are right. So that would have been dropping to the <unk>.
The similar rate as a margin.
Oh.
Sorry, the consolidated EBITDA margin or the gross margin.
Gross margin.
Okay, Alright, that's helpful and then as we look into Q4.
Should we.
Just to get an idea of the sort.
Softness for those two infectious disease products should we assume basically a zero contribution just given the extra inventory in the channel or do you still anticipate some seasonal purchasing are ahead of the holiday season.
We do we do expect.
So this isn't this isn't a quarter's worth of inventory I'm going to say this is normally somewhere between.
Six to 10 weeks of inventory that's here the $3 million to $4 million. The and then the second so that that's kind of the estimate of what we have the rest of it is that there will be a little bit of pickup because of the holiday season.
Okay understood. So a few moving parts here I'm wondering just as we look into next year.
There's some new drug launches in some variability with the infectious disease products, but do you have any broad target goals for organic growth in the business.
We're working on that right now as we as we come out of Covid a lot of the teams are kind of working through what the uptake would be and we'll be providing guidance when we announce Q4.
Okay. Thanks, those are my questions good to see the operating leverage in the business.
Thank you we take our next question from Stephen Kwai with National Bank Financial. Please go ahead. Your line is open.
Hi, guys. Good morning, Thank you for taking my questions just calling in for angry.
And I know you guys touched upon the infectious disease products quite a bit already but outside of that looking at oncology hematology and the other products now with the reopening and things coming back a little bit of a normalized levels in Latam. How are you seeing those other products are trending.
Turn that over to Jeff.
Yes, thanks for the question Steven So our oncology products in both oncology and heme.
Year over year growth.
20% on the queue.
These launches.
These drugs, including <unk>, how often Charles star neural links and some of our team.
Branded generics medicines as well.
So Colby did.
Negatively impact some of the diagnosis rates.
I'd have to say that this impact probably varies widely depending on the country. The vaccination rates situation that they were in.
But overall.
I think encouraged that we showed this 20% growth even during a pandemic.
Okay, great and just to add.
Yes, just to add just kind of October.
So a bit more your question. What we are seeing is that if you take for example, a market like Canada, where we have significant vaccinations.
The pace of return is there, but it's still pretty slow and where we expect that that's going to continue into <unk>.
The pace will be a slow uptake into the first half of the year.
You remember markets like Brazil, Argentina, Chile, they're going into their summer months and summer vacations. So they will there is a return, but it's slow and paced.
Got it that's great and I mean.
The next one here.
Just how are you seeing.
New product launches pickup that you've done recently and do you have any more significant launches coming up in the near future.
Sure.
Turn I'm going to answer a little bit and then I'll ask Jeff to add to it. So the launches that we have coming up in the first half of next year, Yeah R. Lindsay I'm on holiday and Colombia, those products are pending approval right now.
We are in launch phase on those two products in a couple of other markets, including Chile and Argentina.
Yes.
And in Canada, we have the launch of trial Star <unk>. The issue that we have is we don't disclose revenue by product and in the case of the Latam markets. The third party like IMS or IQ via data is not as readily available.
But we do have some info on the Canadian products.
Maybe the only thing I'd add is I think we already mentioned that $6 million on the Q was related to these launches.
And.
And those those drugs, yes, neuro <unk> Bema Alevin, Charles Star and Theres also some bgs launches in there as well maybe the only other pending launches.
Want to comment on it was in <unk>, Canada. We're currently evaluating the Canada situation will evaluate launch new medicines.
And next year.
Okay, perfect that's great color and just my last one here.
I know you've mentioned in the past that.
Agreements or renew throughout the year do you have any other ones coming up soon that are worth highlighting.
Hi, Stephen This is this is yes.
Yes.
<unk> renewals are a normal course for for this business.
You may have seen or you will see that we.
We disclosed that we signed.
Our new agreement with BMS Celgene in the quarter. So this is a this has been a longstanding relationship that we have had and this was a renewal that we signed in the quarter for a vaccine and with Acer in Brazil.
Okay perfect. That's all my questions. Thanks.
Thank you.
We take our next question from Scott Mccauley with paradigm capital. Please go ahead. Your line is open.
Good morning, everyone. Thanks for taking the questions.
I wanted to switch a little over two to Exelon and just wanted to ask if there's been progress on changing the exelon kind of registration transfers kind of from Novartis to night.
And how much of the Exelon revenues at the moment are kind of the profit transfers versus revenue and sales from our products kind of fully from from you guys.
Hi, Scott. This is al. Thank you for the question for Exelon, we're still working.
On executing the transfers.
Novartis, we have started to file.
For EMEA transfers that we Havent had any army transfer already we expect the first <unk> to occur in the first half of 2022. So so far the numbers that you're seeing are really the profit transfer that were booking.
Got it that's great and then just one last one in terms of.
On the on the ground.
Physicians offices and in marketing.
Conferences and things like that how are things opening up.
In the various kind of Latam countries.
You're getting growth in some of those launch products, but just a bit of color in terms of kind of how things are working on the ground.
Sure it really depends on the country and their vaccination rates, so things are picking up.
There are give you. An example for example in Canada depend.
Depending on the therapeutic areas some physicians continue to see patients.
Through telemedicine, and they're seeing their reps telemedicine telemedicine as well in markets like Chile, and Brazil things are opening up.
Most physicians are starting to see patients markets like Colombia, it's somewhere in the middle right now.
Got it no that's great. Thank you very much.
Thank you.
We take our next question from Doug <unk> with RBC capital markets. Please go ahead. Your line is open.
Yes, good morning.
Both of these questions will be mostly for a mall, but.
Now when I look at the revenues associated with the extra long they were a bit stronger than you had anticipated is there any seasonality to that product or anything that.
Occurred with Exelon during the quarter that helped out the revenues or profit share.
Sure, it's not so much seasonality more.
More more like buying patterns, because it's not all kind of.
Retail there are some some some institutional buying that happened.
So that's why you see the numbers I think overall, we haven't changed really average you have the product. So we're still expecting a the product too to remain flattish to the levels that we are that we had.
We acquired <unk>. So it was kind of in the mid $50 million range.
On an annual basis.
Perfect and then.
Just generally as you look at other opportunities.
In various markets that Youre looking at right now can you tell us what that pipeline looks like if it's changed.
In regard over the last quarter or two.
The pipeline continues to be quite <unk>.
Quite full.
This is quite busy across.
If you look at our growth strategies, we've kind of outlined really three.
Our three pronged <unk> due to the increase of our product portfolio. So in terms of acquisitions looking at <unk>.
Products or portfolios or companies with existing sales.
And licensing of innovative assets and on the <unk> site development and in licensing as well so across all three the team is quite active and deal flow continues to be quite strong across the territory.
Okay, great. Thanks very much.
Yes.
Thank you and we take a follow up question from David Martin with Bloom Burton. Please go ahead. Your line is open.
Thanks for taking the follow up I may have missed it but when you sign a new agreement for blockchain did you say your economics.
<unk> got a little less than they were previously or do things stay the same.
We didn't announce the terms and was there any comment on the terms but.
There is nothing materially.
Different.
Okay.
What percentage of your watch him revenues as represented by licensed products versus products that you own.
Oh I see.
Hey.
I know that our branded generics or we're about a third of our business.
It's shifting with Exelon. That's the that's the issue. So I don't have the number you used to be about 30 70, but that's without exelon.
Okay. Okay.
And then I just wanted to go back to Chris' number in Brazil.
Once more quickly.
Would you say the markets that they were previously used in are bigger than the cobot market or is COVID-19, a bigger market, where they were previously used or they are still use but to a lesser extent.
The.
Yes, maybe I'll hop in and answers and then I'll pass it back to you tomorrow, if there's anything you'd like to add so.
The cobot market is an in and out to flash in the Pan.
So you will see big swings on a quarter.
The over the baseline business, which is fungal infections caused by all kinds of reasons right, including bone marrow transplantation.
Hematology patients that are immune compromised oncology piece that are immune compromised.
That base business over the long term is far more sustainable and large in size I don't know if that helps answer the question Samir anything to add yes, that's it.
Okay. Okay. Thank you.
Thank you and as a reminder, ladies and gentlemen, Please press star one to ask a question.
And as it seems we have no further questions I would like to turn the call back over to you Mr. <unk> for any additional or closing remarks. Thank you.
Thank you and thank you for joining our Q3 2021 conference call and for your confidence in the 19, we'll speak soon.
And that will conclude today's conference call. Thank you for your participation you may now disconnect.
Yeah.
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