Q1 2023 Knight Therapeutics Inc Earnings Call

Speaker 1: acquisition costs and non-retelling expenses.

Speaker 1: NITE defines adjusted EBITDA per share as adjusted EBITDA over the number of common shares outstanding at the end of the respective period. I will first cover the sales we made in relation to the one-time contract on Ambisom with the Ministry of Health in Brazil. In December 2022, we signed the contract for a total value of $18.4 million, of which $7 million was delivered in 2022, $2.4 million in Q1, 2023, and $9 million in April 2023. In addition to the full amount of the 2022 contract of $18.4 million, subsequent to the first quarter of 2023, NITE received an order for an additional $9 million from the Ministry of Health, which was also delivered in April 2023. In summary, in Q1, NITE recorded $2.4 million of Ambisom revenues for the MOH contract, and in Q2, we expect to record $18 million in relation to the MOH contracts. We do not expect further purchases from the MOH for Ambisom. Now moving to gross margin. For the first quarter of 2023, excluding the impact of hyperinflation, we reported a gross margin of $41.4 million, or 50% of revenue, compared to $33.8 million, or 53% of revenue in the same period last year.

Speaker 1: The decrease in gross margin as a percentage of revenues is due to the change in product mix including the change in accounting treatment of Exelon. Now moving on to our operating expenses excluding hyperinflation.

Speaker 1: For the first quarter, our operating expenses were $34.8 million and increased up to $2.9 million compared to the same prior year period. The increase is mainly due to our expanded commercial and medical activities, as well as certain invariable costs such as logistic expenses.

Speaker 1: which rose as a function of higher sales. I also want to remind everyone that Q1 2022.

Speaker 1: In 2021-22, we had limited infill activities due to the COVID environment, mostly specifically on the Omicron.

Speaker 1: Moving on to Agistered Editor.

Speaker 1: For the first quarter of 2023, we reported $18.2 million and increased of $5 million or 37% compared to the same period in prior year.

Speaker 1: In addition, Knights adjusted EBDA per share with 17 cents, an increase of 5 cents per share or 45% over the same period in prior year.

Speaker 1: Now, moving on to gains to our losses on our financial assets which are not reflected in our adjusted EBITDA. In the first quarter of 2023, we recorded $11.8 million of net unrealized losses on financial assets measured at fair value to profit or loss.

Speaker 1: This loss is driven by mark-to-market adjustment of underlying assets mainly as a result of a decrease in the share prices of the public traded equities held by our strategic funds.

Speaker 1: Moving on to our cash flows. During the first quarter of 2023, 9 generated cash inflows from operation of $3.7 million, a decrease of $9.2 million compared to the same period in prior year.

Speaker 1: The decrease in operating cash flow is a result of an increase in working capital. Investment in working capital is due to an increase in inventory, primarily for amnisone in anticipation of the deliveries under the Ministry of Health contract.

Speaker 1: as well as timing from payments from certain customers which were settled in April .

Speaker 1: I will now turn the call back to Sam Racco concluding remarks.

Speaker 2: Thank you, Arvind. I will now discuss our financial outlook for fiscal 2023. I would like to remind everyone that this guidance is provided on a non-GAAP basis due to the difficulty in predicting Argentinian inflation rates.

Speaker 2: We have revised our forecast and now expected generate revenues of $300 million to $320 million and increase of $20 million on the lower end upper range.

Speaker 2: In addition, we expect adjusted EBITDA to be between 14% to 15% of revenues.

Speaker 2: The increase in financial outlook is primarily due to an improvement in the forecasted lifetime currencies against the Canadian dollar, primarily the Brazilian way out, and the second NLH order for end basurman Brazil.

Speaker 2: The guidance is also based on a number of assumptions which are described in our press list. Should any of the assumptions differ, the financial outlook and the actual results may vary materially. Considering the recent volatility in certain of our currencies, we will continue to monitor and revise our foreign accounts.

Speaker 2: exchange assumptions which we materially impact our results in forecast.

Speaker 2: Looking ahead, we remain committed to building a leading Pan-American XUS specialty pharmaceutical company.

Speaker 2: We have over $160 million in cash, cash equivalents, and marketable securities, and we generate cash from operations, which positions us well to continue to execute on our strategy to in-license and acquire innovative pharmaceuticals, as well as develop our branded generic PAR portfolio. Thank you.

Speaker 2: Thank you for your support and confidence in the NITE team. This concludes our formal remarks. I would now like to open up the call for questions.

Speaker 3: Ready?

Speaker 2: We will now begin the question and answer session.

Speaker 2: To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.

Speaker 2: To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.

Speaker 2: The first question comes from Doug Mime with RBC Capital Markets. Please go ahead.

Speaker 4: Good morning, everyone. First question has to do with Exelon and you do describe that

Speaker 4: There is buy-in, I'd say a little bit...

Speaker 4: associated with the quarter and I'm just curious as you think about Q2, would you expect some headwinds in Q2 and then things to normalize as we look out to the second half of the year?

Speaker 2: So there's a lot going on in Exelon. First, the change in accounting. The transition is a little bit of phasing and it'll normalize. The third thing that we are obviously – and we've discussed this before – is we do face generic competition in certain of our countries. So we do know that –

Speaker 2: Age generic has now launched in Brazil. We're not changing our, as we explained in our guidance, we're changing really because of currency and the MOH order and the phasing. And we don't really try.

Speaker 2: We don't manage to quarters or managing to the year. And we expect to continue to retain the brand.

Speaker 4: Okay, that is fair. Then, as you think about the political landscape, and I know there's been chatter about this over the last several months, but specifically in Brazil and Colombia, have there been any changes relative to, I guess, a couple months ago when you last...

Speaker 4: I had discussed this point. It's...

Speaker 2: Similar status in Brazil, there really hasn't been any updates. In Colombia, the reform has been published.

Speaker 2: But how the reform will be implemented is not clear and there is a significant amount of debate in the Congress about this and the entire country is watching as are we. Excellent. Okay. The question is from David Martin with Bloom Burton. Please go ahead.

Speaker 2: Hi there. This is Antonia on the line for Dave. Just wanted to, you know, elaborate a bit more on the earlier commentary. So, are you thinking, given the strong quarter, are you thinking that the generic impact of your brand-explanaric business might be less than expected when you reported fourth quarter results and also when do you expect additional?

Speaker 2: compensatory launch of your own brand-in-a-genera pipeline.

Speaker 2: Sure, so the only reason we're really revising guidance is because of the MOH order and the change in currency FX rates. It's really not on the portfolio. When we look at local currencies, the portfolios...

Speaker 2: performing as expected. Whether it's a little bit of lumpiness, we always expect that. We don't manage to quarters as much and that's where it is. When it comes to the branded generic portfolio, it's really a bit of lifecycle issues that we are dealing with and if you look at our pipeline, we've expanded our pipeline dramatically.

Speaker 2: not just in the innovative portfolio with Tafacizumab, Ekinzeo, PEMI, and Fafsamatnib. We've also done a lot of work to in-license as well as continue the development of our own branded generics.

Speaker 2: the issue is really life cycle management. And it's a bit of a lumpy year because the declines are going – the mature brands are declining faster than we are able to launch. And this is again, why we are spending a lot of BD effort on each of our two portfolios to make sure we strengthen the pipeline going forward.

Speaker 2: Okay, and if I can just add an additional quick question. Are there any strategies you have to help mitigate the hyperinflation impact?

Speaker 2: So this is the revision of the forecast that we're talking about excludes hyperinflation. So hyperinflation, this is really the majority of the change here that we're seeing is we went from an expectation that there would be a slight decline in the Brazil.

Speaker 2: When it comes to hyperinflation, and this is exactly what to reiterate, we don't include it in our forecast. And how we manage Argentina is to make sure that Argentina is able to, we kind of ring sense that business.

Speaker 2: And please remember that what we manufacture in Argentina, we sell in Spanish-speaking South America. So it's exported out and the revenues go to Colombia, Peru, Ecuador, Chile, Uruguay, Paraguay. So it's not all in Argentina.

Speaker 5: Okay, thank you.

Speaker 2: Again, if you have a question, please press star then 1.

Speaker 2: Next is Andre Leno with National Bank. Please go ahead.

Speaker 6: All right, yeah, good morning. It's 100 bottles sitting in for Andre.

Speaker 6: It's 100 bottles sitting in for Andre.

Speaker 6: With respect to public, I was hoping that we could get some insight on progress and performance of that early signs that you're seeing there.

Speaker 2: Sure, so Publizale was launched kind of a little bit later in the quarter. But if you look at it on our press release, what we do provide is the launches of the brand of generics and the queue. The performance you see is about, I think it's less than half a million in...

Speaker 2: change versus blaster and that's...

Speaker 2: So, the public is part of that contributor. So it's a nice brand, but it's not going to be, and as we've said, the issue that we have is that the lodges that we're having are not making up for some of the declines that we expect this year.

Speaker 6: Okay, maybe some color on the timeline and the next steps for Bathysil.

Speaker 2: It's probably closer to, so that the cell may launch in Chile. It's going to be in the back half of 2023 because there's more work to be done to produce for Chile. And then after that, it will be Columbia, but that'll be a couple of years away.

Speaker 6: How would you characterize margins on the M-Stone contract with the MOH in Brazil, relative to the rest of the portfolio?

Speaker 2: We don't disclose margin by product.

Speaker 2: and

Speaker 2: It's going to be in the range.

Speaker 2: The margins that we've had historically is the margins that we will continue to have.

Speaker 6: Okay, and then lastly, with respect to what you're seeing in competition, are you seeing that elevated or is that something that you're expecting in the later in the year with respect to branded generics?

Speaker 2: We are expecting them a little bit later in the year. It's a little bit hard to predict, depending on the country and the region, depending on the country and the product.

Speaker 2: Some of the agencies are moving faster, some of the agencies are moving slower, but we do expect kind of starting in the back half of Q2. And as I said earlier, we do have the generic, the brighter generic has launched versus Ex graph in Brazil. second.

Speaker 6: Are there any, it just has a follow up, are there any like particular countries which are moving faster than others?

Speaker 2: Not really. Again, we see that there is branded generics in the review pipeline. It's hard to predict when they will come out.

Speaker 2: Okay, great. Thank you so much. This concludes our question-and-answer session. I would like to turn the conference back over to Samari Sakiya for closing remarks.

Speaker 7: Thank you Debbie and thank you for your confidence in the night team and for joining our Q123 conference call. Have a great morning.