Q3 2022 Knight Therapeutics Inc Earnings Call
You are currently on hold for that nice Therapeutics I N C Tech course, two conference call.
At this time, we are something today's audience and plan to be underway. Shortly we appreciate your patience and please remain on the line.
[music].
Good morning, Ladies and gentlemen, my name is Elaine and I will be your operator today.
Welcome to nice Therapeutics I N C tart kosher 2022 with the conference call.
Before turning the call over to Samira.
President and CEO of nice 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 could stay Jersey 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 beyond the control of the company and its.
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 future events, except as required by law. We would also like to remind you questions. During today's call. It 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 5144844483, I would like to remind everyone that this call is being recorded today November the tenants 'twenty 'twenty.
I would now like to turn the meeting over to your host today to me right second yeah.
Please go ahead Mr <unk>.
Thank you Lee.
Good morning, everyone and welcome to Knight Therapeutics third quarter 'twenty Two conference call I'm joined on today's call with them all Curry, our chief business Officer, Arvind <unk>, our Chief Financial Officer, and Jeff Martin Our global VP of commercial.
I'm excited to announce that for the first nine months of 'twenty 'twenty. Two we reported record revenues of over 210 million, which represents a growth of 14% as well as record adjusted EBITDA of over 40 million, which represents a growth of 24% over the same period last year.
This growth was generated by the full year effects of Exelon and the continued performance of our recent launches.
During the past quarter, we made progress on the commercial transition a vacuum of Exelon and Atkins yet to date, we have completed the onboarding of Exelon in Brazil, Colombia, Argentina, Chile, Peru, Mexico, and Canada as well as I can do in Brazil and Argentina.
Furthermore, we continue to advance our pipeline with the submission of Panther system up in combination with Lenalidomide two N visa the Brazilian health agency.
We also expect to submit type of system I've been other key lifetime countries over the next several months.
Turning now over to the NCI b during the third quarter, we purchased approximately 800000 common shares for aggregate cash consideration of $4.4 million.
Subsequent to the quarter Knight has purchased an additional 887000 common shares for aggregate cash consideration four 8 million.
The average purchase price of the shares purchased through the MTI be Washington July 22 was $5.46 per share.
I will now turn the call over to Jeff to provide more details on our product results.
Thank you Samira.
For the third quarter, we had revenues of $69 million, excluding hyperinflation, which represents a decrease of $2 $5 million over the same period last year.
This decrease is primarily driven by the planned termination and transition agreement with Gilead for the HIV HCV portfolio, which took effect July one.
Now moving to our oncology hematology portfolio.
During the quarter revenues, excluding hyperinflation were $26 3 million growth of $3.2 million or 14% versus the same period last year.
This includes the contribution from our key promoted brands, including new launches.
Halliburton in Colombia, the growth of trial start in Canada, and the addition of the <unk> in Brazil.
This increase was partially offset by a decline in sales of certain branded generic products due to the entrance of new competitors.
As for our infectious disease portfolio, we delivered revenues of $27 $2 million, excluding hyperinflation, a decrease of $3 $7 million compared to the period last year.
With the increase in patient treatments as our markets reduce COVID-19 restrictions as well as the growth of our key promoted products infectious disease portfolio grew by $7 million. This growth was offset by an estimated $10 $5 million due to lower COVID-19 related demand as well.
As the plan termination of the Gilead agreement.
Now moving to our other specialty portfolio during the quarter revenues, excluding hyperinflation was $15 6 million a decrease of $2 million compared to the same period last year. The decrease is mainly due to advance exelon purchases by certain customers in Brazil in the second quarter.
In anticipation of the transfer of the commercial activities from Novartis to night.
On a year to date basis as <unk> mentioned, we have delivered record revenues of over $210 million, an increase of over $25 million or 14% compared to the same period last year, we grew across all of our therapeutic areas due to the increasing market penetration of our new launches as well as the full year acquisition of <unk>.
Quebec swap.
I will now turn the call over to Arvind for an update on our financial results.
Thank you Jeff.
In the course of this conference call I will refer to EBITDA and adjusted EBITDA, which are non <unk> measures Knight defines EBITDA as operating income or loss, excluding amortization and impairment of intangible assets depreciation.
As price accounting I, just meant and the impact of accounting under had been station, but to include costs related to leases.
I just stood EBITDA exclude acquisition costs and nonrecurring expenses.
I will go directly to gross margins as Jeff has already discussed our revenues.
Excluding hyperinflation the gross margin for the third quarter was $33 $8 million or 49% of revenue.
Compared to $38.4 million or 50% of revenues in the same period last year.
The decrease in gross margin both in dollars and as a percentage of revenue is due to the change in product mix as well as the change in the accounting of Exelon from net profit transfer to net revenues and related cost post the transfer of commercial activities from Novartis Tonight.
We expect gross margin as a percentage of revenue to further decline over the next quota as the commercial activities of eggs alone or transferred to night in Mexico, Peru, and Canada and night Records revenues related cost of sales instead of in net profit transfer.
Finally, I would like to remind everyone that the change in the accounting presentation of excellent has no impact on the absolute gross margin dollars or cash flows of the company.
The address for the third quarter, we reported gross margin of $32.4 million or 42% of revenues compared to $77.8 million or 51% of revenue in the same period last year.
The gross margin as a percentage of revenue was negatively impacted by the change in the accounting of eggs alone and product mix and was further negatively impacted by the higher levels of inflation in Argentina.
In the first nine months of this year the inflation in Argentina was 66% as compared to 37% in the same prior year period.
While we expect the gross margin as a percentage of revenue under for ice to further declined due to the inflation environment in Argentina, we do not expect the high inflation in Argentina to have any material impact on <unk> cash flow cash flows over the next year.
Yeah.
Our total operating expenses for the third quarter, excluding hyperinflation and amortization and impairment of intangible assets was $24.4 million, an increase of $4 million compared to the same prior year period.
As we return to normal commercial activities, we see an increase in our sales and marketing costs for our key promoted brands, including promotion spend behind the relaunch of Exelon Atkins deal.
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 and consulting fees.
Moving on to adjusted EBITDA.
Adjusted EBITDA was $9 million for the third quarter decrease of $8.3 million or <unk> 48 per cent compared to the same period last year.
We would like to remind everyone that our results on a quarterly basis remain lumpy.
In the third quarter of 2021 we had significant COVID-19 related sales and as previously mentioned in the second quarter of this year we.
We had advanced purchases of Exelon in Brazil in anticipation of the transfer of the commercial activities from Novartis to night.
More importantly on a year to date basis, we have delivered record numbers on both revenues and adjusted EBITDA in the first nine months of this year due to the full year effect of our excellent acquisition as well as growth of our new launches.
Now moving on to net gains on our financial assets, which are not reflected in our adjusted EBITDA.
In the third quarter, we recorded $5 $4 million net unrealized losses on financial assets measured at fair value through profit or loss.
The loss is driven by the decline in the share prices of the publicly traded equities in our strategic fund investments.
General market conditions, and the revaluation of certain private investments.
Moving to our cash flow from operations.
<unk> generated cash inflows of 11 port for a million dollars for the quarter and $45.8 million on a year to date basis.
This quarters operating cash flow includes $6 million collected for settlement of certain claims with the former shareholders of GBT.
As well as an outflow of $4.1 million related to the working capital of excellent and Atkins Hill.
Finally, as we continue to transfer their commercial activities of excellence from Novartis to Knight as I mentioned earlier, we will go net revenues with related cost of sales instead of a net net.
Net profit transfer, which will lead to a decrease in our gross margin as a percentage of revenue.
We expect additional investments in working capital with an increase in the level of inventory in the next quarter that will negate the impact our operating cash flow.
Ah we're working capitals are expected to normalize at the beginning of 2020 free.
I will now turn the call over to summer.
Thank you our event as you can see from our Q3.
Q3 results and as we have said previously our performance is best measured on an annual basis. The quarterly fluctuations are expected to continue due to factors such as timing of customer purchasing historical COVID-19 related impact on boarding of new acquisitions, divestments or certain products and volatility in exchange.
Rates.
Based on our strong year to date financial performance, we are increasing our revenue guidance for full year 'twenty two to the range of 265 million to $275 million.
The guidance is this guidance is a non-GAAP basis as it excludes the impact of Ias 29. This is due to the difficulty in predicting the argentinean inflation rates.
The guidance is also based on a number of assumptions, which are described in our press release should any of these assumptions differ the financial outlook and the actual results may vary materially.
Looking ahead, we remain committed to building a leading Pan American ex U S. Specialty pharma company, we have over $145 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 turn the call over to questions.
Operator, thank you.
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.
Email to info, nice, TX dot com or via phone at <unk>.
5144844483.
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 making any before pressing any key.
If you would like to withdraw your question. Please press star two.
Our first question will come from Andrea wooden from research capital. Please go ahead.
Good morning, everyone.
Just some of this was actually touched on by urban severe or maybe you could just add.
Add some color on this if one looks at the hyper inflation that you're seeing right now in Latin America.
How is now you're dealing with it in and can you provide maybe just a little bit more color on that and is it possible to actually adjust drug pricing and those those regions. Thanks.
Sure. So first of all hyper inflation is only in Argentina, the rest of inflation is.
Similar to kind of the situation that we're seeing in global markets, whether including Canada and.
The U S and Europe .
The other thing that I want to mention is like you know when it comes to markets like Brazil, Colombia, and Mexico. They had started for a loan.
Monetary policy to start increasing interest rates are much earlier, so they've been able to.
Work through some of the inflationary issues, a little bit better than we have but inflation is in these markets. When it comes to pricing it really price adjustments it really depends on a country by country basis as to what their regulations allow us to do it also depends on some of our customers.
On some of our products, especially due to competition, where we want to be able to manage not out pricing ourselves versus our competitors. So when you take markets like Brazil. They allow us to there's only an annual increase that's the legislated we may choose to take the Max we.
May not be depending on the product the customer and the competitive forces.
Okay, that's great and maybe on either some of your a mall maybe you can just also give us a little bit more color in terms of what youre seeing in business development.
Are you seeing any changes in pricing for products and then what's the competition environment like that'd be great. Thanks.
Sure this is about.
Where we're not seeing a we're not really seeing any significant changes.
So deal flow continues to be healthy.
Of course, there is also competition.
Across across the board are done on a on the deals that we look at so I would say.
Adam line really no significant changes.
And just one last question in terms of your near term product launches.
And the next year or so what would be your most.
Sort of important products, we should be watching for.
Lunches.
I'll take that on and right now the only products that we have that.
Our launch for US is really akin zero, which is being added to our portfolio. We have some smaller b G X that we'll be launching as replacement of some of our current products, but there they're not going to have a they are basically a replacement rather than a new launch.
But like I am all set her team is very busy with deal flow and we continue to look for new opportunities.
Okay. Thank you very much.
Once again, if you would like to ask a question. Please press star one if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
We will take our next question from Doug.
From RBC capital markets. Please go ahead.
Good morning, everyone.
I wanted to continue on the idea.
Typical acquisitions et cetera et cetera.
Maybe you can speak to.
What type of countries, where youre looking.
Yeah.
South America, Canada, maybe a few others, but I'm, particularly interested in Mexico is there anything that.
Is going on in that market that may be an opportunity.
Good morning, Doug to somehow yeah. So we're in terms of product acquisitions, we're looking for our entire territory. So all of US all of the countries. We're in.
In terms of M&A as you know, we had highlighted both Canada and Mexico as a priority countries because of the sub optimal size of our businesses in both markets.
So we are so we do have.
Kind of a higher priority on those two are in terms of specific opportunities, where we're looking at as you know that's not something that we disclose.
Disclose until there's something to be announced that we are prioritizing those two countries.
Okay, and then just as a follow up.
I know that you said no significant changes.
I'm, just curious with the rates increasing as much as they have here.
Figure in to how you look at the returns on invested capital.
And products that you could be buying given that.
In Canada, we're seeing rates increase and you're paying the.
At the same price for everything.
Would you expect your returns to start to decline.
We're taking a more conservative and balanced approach and you have to also remember is when we're looking at our forecast we're looking at it on a decade, plus we've always remained I'm kind of very careful in those ranges and we we.
Aimed to be generally in that mid teens range on the portfolio and balancing out currency is cash flow.
The devaluation curves and that's and we're staying on that same path that we were doing last year five years ago 15 years ago.
Okay perfect. Thanks Man.
As a reminder to ask a question. Please press star one we'll take our next question from Andre <unk> from National Bank. Please go ahead.
Yeah. Good morning, Thanks for taking my questions and apologies if I repeat something I was a bit late getting on the call, but I will continue on that acquisition.
Particularly for Mexico, I think their question are there any negotiations with the EU Commission.
To make it a regional hub to produce that vaccines and medications.
Has that changed anything in terms so.
In terms of multiples in terms of your interest for the market in terms of sort of competitors interested in that market.
Good morning, Andrew This is allow them. So you know the.
Kind of Mexico, becoming a regional hub, whether it's for vaccines or manufacturing is not really that relevant for us because we're not in in either business or on the vaccines business or manufacturing business. So for us really what we're looking at when it comes to acquisitions.
Yes.
You know our portfolio of products, so companies with our existing marketed products with profitable sales, that's really what's the interest for us.
And and again the.
Kind of the the environment hasn't really dramatically changed in terms of who these players are or who is who is looking at these opportunities.
Okay, Okay got it.
Thanks for that answer.
Other question.
Another country, but perhaps this has been answered so I'll I can read out there let me know.
The elections in Brazil.
That was concluded a week or two ago any kind of color you can share on that front, if you haven't already.
Sure happy to happy to comment so Brazil is kind of in the same place as a lot of the other Latam countries that we see going a little bit more towards the last the one thing that or a couple of things that I'll point out is one.
All of these countries similar to the rest of the World is is really dealing with what looks like recessionary environment. So they're gonna have to be able to manage kind of their their budgets.
The second thing is we're in the pharma business and we sell drugs and people are always going to need our type of products.
Putting those two things together.
What we really are mindful of and we have been really paying close attention to is the pharmaceutical budget of payers, whether they be public or private and that's we're kind of having a branded generics portfolio and innovative portfolio.
It acts that are cash pay versus a public a public or private institutional pay and that's really what our team's focus is on two to continue to grow the business.
Okay. Thanks Samir.
Last one for me has to do with FX.
The U S dollar strength I mean does that impact any of your business I mean do you do your part.
Just anything in U S dollars.
Any color you can share there.
I'm sure we do have some U S dollar purchasing of our of our inventories and euro the the thing that I would comment on is really.
A lot of our agreements that come from our partnership way I'm all have done a lot of great work on negotiating profit share versus just a transfer price that being said as we see inflation kind of creeping up everywhere we do.
To see that I am coming into our costs starting at some point next year.
Okay. That's it for me thank you.
It appears there are no further questions at this time Samira I'd like to turn the conference back over to you for any additional or closing remarks.
Yeah.
Thank you and thank you everyone for your confidence in the Knight team and for joining our Q3 22 call I have a great morning.
This concludes today's call. Thank you for your participation you may now disconnect.
Yeah.
[music].