Q2 2022 Knight Therapeutics Inc Earnings Call
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 info at night, TX Dot com or via phone at 501 for $4 eight four for $4 83.
I would like to remind everyone that this call is being recorded today August 11 2022.
And now I would like to turn the meeting over to your host for today's call <unk>. Please go ahead Mr. <unk>.
Thank you Jeff.
Good morning, everyone and welcome to Knight Therapeutics second quarter two conference call.
Im joined on todays call with them, all Curry, our chief business Officer.
I actually financial Officer, and Jeff Martin.
Global VP of commercial.
I am excited to announce that night achieved record quarterly revenues of $75 8 million for the quarter, which represents an increase of $10 million or 15% compared to Q2 2021.
We continue to see growth in our key brands driven by market penetration as COVID-19 restrictions are lifted as well as the impact of the <unk>.
Acquisition of excellent.
Almost one year after closing that transaction, we have completed the excellent marketing authorization transfers Tonight, and our key Latam territories and have assumed commercial activities in Colombia. We also continued to execute on the business development front and entered into exclusive distribution and supply.
<unk> with <unk> and Rigel in our key territories.
Turning to the NTIA during the second quarter of 2022, we purchased approximately one 5 million common shares for aggregate cash consideration of $7 7 million at an average price of $5 30 per share.
Subsequent to quarter, we announced the acceptance by the Toronto stock exchange of our notice of intention to relaunch our normal course issuer bid, which commenced on July 14th 2022.
Under the 'twenty, two and CIB Knight may purchase for cancellation up to 8 million shares over the next 12 months.
I will now turn the call over to our event to provide more details on our financial results.
Thank you Samira in.
In the course of this conference call I will refer to EBITDA, adjusted EBITDA, which are non <unk> measures.
Defines EBITDA as operating income or loss, excluding amortization and impairment of intangible assets depreciation purchase price accounting adjustments and the impact of accounting under hyperinflation, but to include costs related to leases.
I just did EBITDA excludes.
Acquisition costs and nonrecurring expenses.
With respect to our reported revenues I will focus on the growth related to Exelon and Jeff will provide an update on the rest of the portfolio.
During the quarter ended June <unk> 2022 revenues, excluding the impact of hyperinflation under Ias 29 was $75 million, an increase of $9 8 million or 15%.
For the second quarter ended June 30 of 2022, nine nights recognize revenues of $12 $4 million forged alone an increase of $8 $2 million or 200% compared to the same period last year.
The increase in revenues is driven by the full quarter effect of the acquisition of Exelon, which was executed on May 26 2021.
Included in the $12 4 million of revenues related to Exelon four to $4 $5 million is due to the purchasing pattern of certain customers as well as higher sales in Brazil in anticipation of the transfer of the commercial activities from Novartis Tonight.
I would like to remind everyone that the majority of the Exelon revenues for the first half of this year hasn't been accounted for as a net profit transfer and not net revenues.
Moving on to gross margin for the quarter ended June 30th 2022, we reported $38 3 million or 51% of revenues.
<unk> to $28 9 million or 44% of revenue in the same period last year.
Excluding the impact of hyperinflation, the gross margin as a percentage of revenue would have been 54% for the second quarter of 2022.
The increase in gross margin both in dollars and as a percentage of revenues is due to the change in product mix, including the acquisition of Exelon and its related revenues recorded as a net profit transfer.
With the transfer of the commercial activities of Exelon in Colombia, We started accounting related revenues on a net net revenue basis, starting in June 2022, which was not material in the quarter.
Okay.
Our total operating expenses for the second quarter of 2022, excluding the amortization of intangible assets increased by $3 $7 million compared to Q2 of 2021.
As we return to normal commercial activities post COVID-19 restrictions, we see an increasing our sales and marketing activities for our key promoted brands as well as excellent.
In addition, we saw an increase in compensation expenses as we expanded our structure, including the management team and certain variable costs, such as logistic fees consulting and professional fees.
Moving on to adjusted EBITDA.
EBITDA was $17 9 million for the second quarter of 2022 and.
An increase of $8 5 million or 90% compared to the same period last year.
The virus is due to the increase in gross margin offset by the increase in operating expenses.
Now moving on to net gains on our financial assets, which are not reflected in our adjusted EBITDA.
In the second quarter of 2022, we recorded $7 $7 million of net loss on financial assets measured at fair value profit or loss, which was mostly unrealized.
The loss is driven by the continued decline in the share prices of the publicly traded equities in our strategic finance investments.
Due to general market conditions.
Moving to our cash flow from operations nine generated cash inflows of $11 $5 million for the quarter ended June 30 of 2022.
The cash flow from operations is driven by our operating results as adjusted for noncash items, such as depreciation and amortization.
Net loss on financial instruments, unrealized foreign exchange gain or loss in change in working capital.
Finally, as the commercial activities of Exelon transition to night as I mentioned earlier, we will record net revenues.
<unk> cost of sales instead of in net profit transfer, which.
Which will lead to a decrease in our gross margin as a percentage of revenues.
Furthermore, we expect additional investments in working capital with an increase in the level of trade accounts receivable and inventory in the next two quarters that will negatively impact our cash flow from operations for the rest of the year.
Theyre working capital levels are expected to normalize at the beginning of 2023.
I will now turn the call over to Jeff to provide an update on our commercial activities.
Thank you Arvind.
Building on our hard work of 2021, our efforts in 2020 to remain focused on execution excellence of our new product launches, while delivering competitive growth for a mature promoted portfolio as previously discussed by Arvind, We started commercialization of Exelon in Colombia in June and expect commercialization of <unk>.
<unk> to start in Brazil in Q3, while Mexico, and Chile will start during the fourth quarter of 2022.
In addition to the increase of revenues from Exelon described by Arvind, we had a growth of $2 1 million and our oncology.
<unk> hematology portfolio in Q2, 'twenty two versus the same period last year.
This includes the contribution from our launches of lymphedema Halloween and are dissatisfied branded generic <unk> in Colombia.
As well as penetration of our oncology hematology portfolio and other territories.
This increase was partially offset by a decline in certain branded generic products due to entrance of new competitors.
As for our infectious disease portfolio remained relatively flat due to lower COVID-19 related usage estimated to be between $4 $5 million to $6 million.
This lower demand is offset by an increase in sales related to certain customers buying patterns.
As well as the organic growth from our new product launches and an increase in patient treatments as our markets reduce COVID-19 restrictions.
On a year to date basis, our oncology portfolio grew by $7 4 million or 17% versus last year.
Our infectious disease portfolio grew by $5 4 million or 10% versus last year, while our commercial efforts were hindered by Covid last year with return to field. This year, we are resuming normal commercial activities.
Patients returning to physicians, we are starting to see the impact of our efforts I will now turn the call over to Omar to provide a business development update.
Thank you Jack and Samir I previously mentioned in the second quarter, we announced the signature of two agreements that added three innovative product portfolio.
First we entered into an exclusive license distribution and supply agreements with Hudson for Atkins Al for Canada, Brazil, and other Latam countries and <unk>, Canada.
Both products are highly synergistic with our oncology portfolio and commercial footprint in Canada, Brazil, and the remaining countries.
In July we assumed commercial activities in Brazil, and Argentina are correct.
And we will begin commercial activities in Canada, following a transition from Hudson's current partner.
We also entered into an exclusive license and supply agreement with lifestyle for the exclusive rights to commercialize post Imatinib in Latin America.
<unk> is commercially available in the United States under the brand name catalysts and in Europe under the brand names of labs.
The treatment of chronic immune thrombocytopenia.
Both of these deals are highly synergistic with our oncology and hematology portfolio and.
Further validate our strategy to in license innovative products.
We will continue 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 existing sales.
And licensing innovative pipeline assets and developing an in licensing branded generic products.
I will now turn the call back to Sandra for concluding remarks.
Thank you.
Looking ahead, we remain committed to building a leading pan American ex U S. Specialty pharmaceutical company, we have over $136 million in cash cash equivalence and marketable securities and we generate cash from operations, which positions us well to continue to execute on our strategy.
Thank you for your support and confidence in the 19. This concludes our formal remarks I'd like to now open up the questions open up the call for questions.
Yes.
Thank you.
Before we begin the Q&A. Please remind everyone that questions during today's call will be taken from analysts only.
Should there be further questions. Please contact Knight's Investor Relations Department via email to info at night, TX Dot com or via phone at 5144844483.
If you would like to ask a question. Please press star followed by the number one on your telephone keypad.
If youre using a speaker phone please lift your handset before pressing any key.
I would like to withdraw your question for any reason please press Star then two.
We will pause momentarily to assemble our roster.
And our first question will come from Andre <unk> with Mackie Research. Please go ahead.
Good morning, everyone.
A bit of a curve ball for you in 2016, there were some rumors I think it was trying to buy.
Power them from Endo, and given that Endo is likely going to file for chapter 11.
Comment if Nate will take another look at it.
This opportunity thanks.
Hi, Andre.
What I can tell you is when it comes to looking for M&A and acquisitions, we've always prioritized Canada.
And this is nothing new with prioritize Canada with prioritizing Mexico. These are two markets where our operations.
Our sub optimal.
That doesn't mean that we wouldn't look at markets like Colombia or Brazil.
When it comes to pallet and Endo.
What I can tell you is the issues that the bankruptcy is an $8 billion chapter 11.
It is not worth anywhere near that.
We would obviously look at such an acquisition, but we will be opportunistic if it makes sense, we will get it done.
I don't know the timing you have to remember chapter 11 in the U S takes a really really long time, we don't know if there'll be filing for bankruptcy in Canada very complicated. So if there is an opportunity we will look at it otherwise.
We.
We'll just wait it out and we will continue to build our business and license acquire as we see fit.
That's a great answer so.
Just in terms of could you also just comment a little bit in terms of color and what youre seeing in business development in terms of prices or prices.
Growing up down in.
Are you seeing more opportunities can you comment a little bit a bit more on that that'd be great. Thanks.
And while you will take that one.
Sure.
Yes.
So why are we.
We continue to see a lot of deal flow prices and valuations.
We really havent seen anything dramatic.
You have seen kind of on the macro industry side, Youre seeing M&A pickup and Thats really there is a lot of opportunities for some of the big pharma, who are quite catch rates.
But for US really the deal flow continues to be healthy, but nothing dramatic in terms of change of prices or evaluation.
Okay.
Thanks very much.
And with no further questions, we will conclude our question and answer session.
I'd like to turn the conference back over to Samira <unk> for any closing remarks.
Thanks, Joe Thank you for the confidence in the Knight management team and for joining our Q2 'twenty two conference calls.
I think we have some more questions coming up maybe Joe do you want to take those absolutely.
Just a moment to assemble our roster.
Yes.
Alright. Thank you for your patience. Our next question will come from Andrew <unk> with National Bank. Please go ahead.
Thank you for taking my question and congrats on the good quarter and.
I apologize if I repeat something you said I just jumped on the call that I had like three at the same time.
Yes.
Alright, this within the prepared remarks, but the first question I wanted to ask is that.
Thank you for clearing that have lift from exelon revenues, which could potentially.
That would be classified as one time so.
The question I have there is that.
Should we apply any margin to that.
As far as it goes to EBITDA or is it just a direct flow through.
So the the thing that I can tell you is.
As we've said before when it comes to Exelon, we're recording net profit transfer so that drops straight to the gross margin and EBITDA.
But what we've also said is that that four and a half yes, yes, its a little bit one time, because there is a shift in buying patterns and a shift between quarters, but about half of that.
Is loading into the channel in advance in Brazil in advance of taking over logistics and commercial activities in Brazil, So thats actually going to have an impact in Q3.
Thank you Samira and is that part as a reason why you are keeping guidance unchanged for the balance of the year or I didn't see it in the press release anyway.
Yes.
That's part of it that's one part of it and the second one just as a reminder is and we announced this in Q4 is that we are we were transitioning and terminating our agreement with Gilead when it comes to the Nbn HIV HCV portfolio and that shows up as an impact in the back half.
Of the year, because that ended as of middle of the year.
Okay, that's good to hear.
Thank you.
The other question.
We've seen some very far some drug shortages in Brazil will be specialty and hospital also.
Can you talk a little bit is there any impact on night either way they are positive or negative for any color you can give us.
Not really I think there is a little bit of gain and a little bit of like we had a little bit of a delay or one of our competitors had a little bit of a delay offset each other we haven't really seen anything major when it came to our products.
Okay great.
Great. Thank you and ask you to Ita in Brazil, but I guess, a little bit about Colombia.
Just had an election brookdale it'll happen in the election soon.
And chill it did two any color I mean, what are the expectations.
Do you expect some kind of any of these candidates any any changes you can highlight that could come to those countries.
Countries.
We haven't so Peru, and Chile, one on the left and last year or earlier this year.
In the case of Colombia. The inauguration was just last weekend, we expect a change in Brazil.
Macro concerns that we've always had kind of during Covid post COVID-19.
Is.
Is the payers.
And as these economies try to recover from COVID-19 to manage their budgets and how that impacts.
What they will pay for pharmaceuticals, and the pricing and reimbursement pressures that we may see.
Going forward as these government changes, we're going to continue to monitor.
And Thats one of the other reasons why we have kind of this blended portfolio of innovative assets as well as branded generics that we can try and bundle and have savings for our for the payers.
Okay. Thank you thanks for color and the last one for me in terms of the ERP systems.
Are they still on track to complete by the end of the year.
Marvin do you want to take that.
Yes sure yes, we're on track we've been progressing according to our timelines.
Actually already implemented in eight different countries and over 20 entities as of today.
By yearend, we should be going live in all countries excluding Argentina.
Okay.
Let me take you a bit of a follow up for Jay.
Why are you, leaving Argentina out then do you need to implement something specific.
Or is it as it is.
It's the <unk> with respect to the nature of the business.
Sure Rick.
Recall, we have our manufacturing facilities in Argentina, and the whole ERP implementation, we've de manufacturing activity as a whole different project in itself Thats why its going.
Going to be a project connection.
Okay.
It for me thank you.
Okay. If you have a question you May press Star then one to join the queue.
Our next question will come from Sahil singer with RBC. Please go ahead.
Alright this is <unk>.
Hello, Ingo for Doug. Thank you for taking our questions.
My questions relate to.
On the infectious disease portfolio.
Is that product portfolio stable now given that you highlighted that as a $4 $5 million to $6 million of impact.
First off the higher base of last year. So are you seeing any changes in the transfer or is that Stephen and <unk>.
Related to that on the oncology.
You've previously highlighted that.
It goes of lifting of Covid restrictions Yossi.
Please demand of those products so.
You're back to pre pandemic levels or is there still some room to grow thank you.
Thank you Sir so on the infectious disease side as I mentioned earlier, one of the things that's going to be happening in the back half of the year is we.
We'll see a drop in connection to the Gilead portfolio, which we are.
Wherever we've terminated the agreement we may do some small distribution, but thats really not going to be material to the numbers anymore.
As far as Covid in that portfolio, we really see minimal sales related to COVID-19.
There are pockets.
I think in Q1, it was about $1 million ish in Q2, it was about $1 million ish, where it was several million dollars last year.
When it comes to markets going back to normal alright, most of our markets in Latam are really back to normal and patients are going to doctors are seeing our reps and patients are seeing their doctors. So we expect this can see continued growth in our oncology portfolio behind that not just in Latam, but also.
In Canada.
The thing that I will mention is that Canada has been a lag when it comes to patient seeing Dr.
Doctors are seeing their patients on a face to face basis, but we see that ramping up a little bit over the summer, but there's still more to go there.
Okay. Thank you and are you seeing any early signs of.
In Latin America.
Well most of our bigger countries has just Scott Lake has just gone through summer, Brazil, Argentina, Chile, Uruguay, Peru and.
In winter right now just like we're in summer there in winter and this is hopefully that's the worst that they've seen and they are going into their summer months.
Which hopefully bodes well for a country like Canada, because they have gone into winter and they.
They had very minimal.
Shutdowns or closures.
Okay. Thank you those were all the questions from my end.
Our next question is a follow up from <unk> Leno with National Bank. Please go ahead.
Thank you yeah, just a quick follow up.
Just wanted to mention also on the last call. It was discussed how the sales reps.
I have to go into the field and we're going to see a bit more kind of higher expenses. This quarter. So I was wondering if the sales force back on the field right now and kind of fully operational and just to kind of fight back I mean is this a cost structure that you have in Q2.
Barring any kind of increases to for growth, but is this a good kind of cost.
Our cost basis for going forward, what you have in Q2.
I'll take that question and maybe I'll pass it back to to Samira for further comments Andrew Thank you for it.
So it is very much business as usual I think samira mentioned that things are a little slower in Canada. So I think.
We're slowly building back to normalcy in Canada for Latam, Yes, it has been business as usual reps in the field.
I will say, though that expenses will we expect expenses will rise with some of our targeted investment on Epsilon.
As we commercialized and some of those countries and the in the back half of this year or anything Tasha.
Andrew It would be there's a couple of things when it comes to spend spend will rise a bit because especially on them.
Because.
More activities will happen.
During Q3, hopefully a little bit more.
Especially because we are we.
We are launching a sales force behind Exelon in Brazil too.
We had Ah.
Focus team.
Front half as we take on logistics, we're going to expand that team.
Okay. Thank you.
And with no remaining questions, we will conclude our question and answer session.
I'd like to turn the conference back over to Samira <unk> for any closing remarks.
Thanks again, Joe Thank you for your confidence in the <unk> and for joining our Q2 'twenty two conference call have a great morning.
Okay.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.