Q3 2024 Knight Therapeutics Inc Earnings Call
Chester: Good morning, ladies and gentlemen. My name is Chester and I will be your operator for today.
Welcome to NYE Therapeutics third quarter 2024 results conference call.
Chester: Before turning the call over to Samira Sakhia, President and CEO of Knight, listeners are reminded that portions of today's discussion may, by their nature, necessarily involve risk and uncertainties that could cause actual results to differ, but merely from those contemplated by the forward-looking statement.
Chester: The company considers the assumption on which these forward-looking statements are based to be reasonable at the time they were prepared, but cautions that this assumption regarding the future events, many of which are beyond the control of the company and its subsidiaries, may ultimately prove to be incorrect.
Chester: The company disclaims any intention or obligation to update or revise any forward-looking statements, whether a result of new information, future events, except as required by law.
Speaker Change: We would also like to remind you, questions during today's call will be taken from analysts only.
Thank you for watching. I'll see you next time.
Should there be any further questions, please contact NITES.
Speaker Change: Investor Relations Department via email to iratnighttx.com or via phone at 514-484-4483.
Speaker Change: I would like to remind everyone that this call is being recorded today, November 7th, 2024. And would now like to turn the meeting over to your host for today's call, Samira Sakhia. Please go ahead, Ms. Sakhia.
Samira Sakhia: Thank you Chester. Good morning everyone and welcome to Knight Therapeutics third quarter 2024 conference call. I'm joined on today's call with Amal Khouri our Chief Business Officer and Arvind Utchanah our Chief Financial Officer.
Speaker Change: I am excited to report that for the nine months ended September 30, 2024, we delivered record revenues of over $271 million and adjusted EBITDA of over $42 million.
Speaker Change: During the same period our innovative promoted portfolio delivered growth of 17% on a constant currency basis versus last year primarily driven by the growth of LENVIMA, TRELSTAR, Akinzeu, Crescemba, as well as contribution from the recent launches of Invexin Bajuva in Canada and Minjuvi in Brazil.
Speaker Change: Furthermore, we have advanced our pipeline with regulatory approval of Minjuvi in Mexico and we expect to launch Minjuvi in the first half of 2025.
Thank you.
Speaker Change: I'll now move over to our NCIB. At the beginning of Q3, Knight launched an NCIB under which we can purchase for cancellation up to 5.3 million common shares over a one-year period.
Speaker Change: During the quarter, we have purchased 437,500 common shares under the NCIB at an average price of $5.65.
Speaker Change: I will now turn the call over to Arvind to provide an update on our financial results.
Arvind Utchanah: Thank you Samira. When speaking of our financial results, I will refer to EBITDA and adjusted EBITDA and financial results at constant currency which are non-IFRS measures as well as adjusted EBITDA per share which is a non-IFRS ratio.
Arvind Utchanah: Knight defines EBITDA as operating income or loss, excluding amortization and impairment of non-current assets.
Speaker Change: depreciation, purchase price accounting adjustments, and the impact of accounting under hyperinflation, but to include costs related to leases. Adjusted EBITDA excludes acquisition costs and non-recurring expenses.
Speaker Change: Knight defines adjusted EBITDA per share as adjusted EBITDA over number of common shares outstanding at the end of the respective period.
Speaker Change: In addition, revenues and financial results at constant currency are also non-GAAP measures.
Speaker Change: Financial results at constant currency obtained by translating the prior period results at the average foreign exchange rates in effect during the current period, except for Argentina, where we only exclude hyperinflation.
Speaker Change: Prior to discussing the results of our third quarter, I will provide a quick update on the foreign exchange rates for the Latam currencies versus the Canadian dollar.
Speaker Change: We saw relatively flat exchange rates from Q3 2023 to Q1 2024.
Speaker Change: Overall, we saw a foreign exchange depreciation in Q3 2024 versus Q3 2023 between 7 and 13% with Brazil at 12%.
Speaker Change: When we compare Q3-24 to Q2-24, we saw a depreciation between 5% and 9%, with Brazil at 7%.
Speaker Change: For more details on currency fluctuations, please refer to Section 7 of our Management Discussion and Analysis.
Speaker Change: For the third quarter of 2024, we delivered revenues of over $91 million, an increase of $9.8 million, or 12% versus prior year.
Thank you.
Our Oncology and Hematology Portfolio Delivered Approximately 70...
Speaker Change: 37 million dollars of revenues, a growth of 5.5 million dollars or 18%, or 6.7 million dollars or 22% on a constant currency basis compared to the same period last year.
Speaker Change: This increase was driven by the continued growth in our key promoted products, including Lanvima, Akinzeo, Trailstar, as well as the launch of Minjuvin Brazil.
Now moving to our infectious disease portfolio.
Speaker Change: We generated approximately $34 million of revenues in the quarter, an increase of $4.6 million or 16%, or $6.6 million or 24% on a constant currency basis, compared to the same period last year. The increase was mainly driven by the timing of orders for Ambison from the Ministry of Health.
Speaker Change: MOH in Brazil, and the continued growth of Crescemba, another one of our key promoted products.
Speaker Change: The increase in sales from Ambiso and Crosemba was partly offset by a decrease in the demand of Improvido.
Speaker Change: As a reminder, during the nine months in 2024, we delivered a total of $24.8 million of Ambisom II MOH compared to $20.4 million in the same period last year.
Speaker Change: Turning to our other specialty portfolio which includes Exelon, our women's health portfolio, as well as our GI portfolio and certain other products.
Speaker Change: During the quarter, the portfolio generated $21 million in revenues, remaining relatively unchanged compared to the same period last year. Now looking at our gross margin.
Speaker Change: The decrease in gross margin as a percentage of revenues was due to product mix, including a higher proportion of Ambisom sales to MOH.
I will now turn to our operating expenses.
Speaker Change: Our operating expenses excluding amortization of non-current assets for the third quarter were $30.5 million, an increase of $2.9 million or 11% compared to the same period last year.
Speaker Change: The increase in operating expenses were driven by an increase in marketing spend for launches of Minjuvi, Imbexi and Binjuva, pre-launch activities for joint APM in Canada, an increase in R&D costs mainly driven by medical activities related to key promoted products, and an increase in our G&A costs due to our structure and higher compensation expenses.
Speaker Change: Moving on to adjusted EBITDA. For the third quarter of 2024, we reported 13.5 million dollars of adjusted EBITDA, a decrease of 13% compared to the same period. Last year, driven by higher operating expenses behind new product launches, partly offset by higher revenues and corresponding gross margin.
Speaker Change: Our adjusted EBITDA per share was $0.13, a decrease of 10% over the same period last year, driven by a lower adjusted EBITDA, partly offset by a decrease in common shares, outstanding due to share repurchases under our NCIB.
Speaker Change: which resulted from an unrealized gain of $14.5 million recorded in our Decomprehensive Income and an unrealized loss of $2.8 million recorded in our Statement of Income.
Speaker Change: The unrealized gain of $14.5 million was due to the revaluation of our Synergy shares, which were at a carrying value of zero prior to Q3 2024.
Speaker Change: As a reminder, Knight owns 17% of Synergy, which is subject to a six-month post-IPO lock-up period.
Finally, on to our cash flows.
Speaker Change: During Q3 2024, Knight generated cash inflows from operations of $5 million driven by our operating results offset by an increase in working capital.
Speaker Change: Our working capital increased by $11 million, mainly due to an increase in inventory driven by the timing of purchases, as well as investments in our new product launches.
Speaker Change: On a year-to-date basis, NYE generated 42.8 million dollars of adjusted EBITDA and 34.8 million dollars of cash inflows from operations.
Speaker Change: I will now turn the call over to Samira for concluding remarks.
Samira Sakhia: Thank you, Arvind. Now looking at our financial outlook for 2024. 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 Change: In addition, our guidance is based on a number of assumptions which are described in our press release.
Speaker Change: Should any of the other assumptions differ, the financial outlook and the actual results may vary materially.
Speaker Change: Despite the currency headwinds and the launch of a branded generic of Lenvima in Brazil, we are maintaining our financial guidance and expect to generate revenues of between $355 million to $365 million and an adjusted EBITDA of approximately 16% of revenues.
Speaker Change: We continue to strengthen our business by advancing our portfolio and expanding our pipeline of assets.
Speaker Change: In 2024, we have announced one product submission, two product approvals, three product launches, and we have added two pipeline assets with commercial rights across all of our territories.
Speaker Change: We remain committed to advancing our pipeline products and securing regulatory submissions and approvals to grow our business in Canada and Latin America.
Speaker Change: We have a pipeline of 18 products that are expected to generate over $150 million in revenue should they achieve our estimated peak sales.
Speaker Change: This demonstrates not only our commitment, but our ability to execute on our strategy.
Speaker Change: We also have a profitable and cashflow-generating business with a growing portfolio of assets with over $150 million in cash, cash equivalents, and marketable securities at the end of the quarter.
Speaker Change: We remain well positioned to continue to execute on our strategy to in-license and acquire innovative and branded generic pharmaceuticals as well as develop our own branded generic product portfolio.
Speaker Change: Thank you for your support and confidence in the NAICC team. This concludes our formal remarks. I would like to open up the call for questions.
Chester
Chester: Thank you. Before we begin, may I please remind you, questions during today's call will be taken from analysts only.
Chester: Should there be any further questions, please contact Knight's Investor Relations Department via email to iratknighttx.com or via phone at 514-484-4483.
Speaker Change: If you would like to ask a question, please press the star button followed by the number one on your telephone keypad.
Speaker Change: If you are using a speakerphone, please lift your handset before pressing any key.
Speaker Change: If you would like to redraw your question, please press the star button followed by the number 2.
Thank you. Bye-bye.
Thank you very much.
Thank you.
Your first question comes from Scott McCauley from Paradigm Capital.
Your line is now open. Please go ahead.
Scott McCauley: Morning Samira and team. Congrats on the quarter. Thanks for taking the questions. Definitely a busy day out there in earnings.
So maybe just, you know, in terms of new products...
Speaker Change: and Investments in Sales and Marketing. You highlighted all the activities that you guys are working on, the new products that are either in the pipeline or have been launched. And you do highlight in the financials some increases in investments in sales and marketing. So maybe could you give any more color on some of those prelaunch activities, those investments that you are making, and any kind of expected investments down the road?
Thank you.
Speaker Change: Great, thank you for the question. So we are right now in launch mode.
Speaker Change: Behind Minjuvi in Brazil, so a lot of activity, physician education, conferences, working with nurses. This is a complex product.
Speaker Change: are working with HMOs on reimbursement behind this product, which will be a slow uptake. In the case of Minjuvi and Bijuva, we have our sales force, and again, the same standard activities, physician.
Speaker Change: Physician education, sales reps, going to conferences, all of that is happening. It will continue going into next year behind these products.
Speaker Change: We are already starting with preparing for Journey PM, meeting with physicians to understand their needs.
Speaker Change: Same thing with Minjuvi in Mexico and we will be continuing all of that effort going into next year and in both Mexico and Canada.
Speaker Change: We are not in ADHD today in Canada, we are not in hematology in Mexico, and we will be adding staff for both of those products.
Thank you.
Speaker Change: In terms of the Ministry of Health contract in Brazil, is that finished now over the past 12 months? Is there still more to deliver and is there any expectation that will be renewed for next year? Obviously, it's been chunky on the revenue side, but as you mentioned, a bit dragging on the margins. Any colour looking forward on that?
Speaker Change: So we do expect there is a potential for a small shipment in Q4.
Speaker Change: possibly between like the two to four million dollar range. As for next year, because we're not seeing any trade, any news in the trade about our competitor coming back
Speaker Change: We are hearing from the MOH that they would like to start discussions for 2035. That's very early and we don't know how much or when that will conclude.
Thank you. Thank you.
Thank you. Bye.
That's great
Speaker Change: And then, also, I guess, touching on the new product launches, you know, I highlighted the working capital, you know, investing in inventory for those new product launches, and I know some of that working capital can be, you know, can swing fairly substantially quarter-to-quarter.
Speaker Change: Looking forward to the next two to four quarters, should we expect ongoing expansion of inventory as you're preparing and in that early stages of new product launches?
Speaker Change: That's a great question. So, yes, we will have purchases of inventory behind the launches, but when you're launching, it's not really big purchases.
Speaker Change: where we see what we have been seeing as lumpiness in the quarter is actually kind of purchasing patterns behind our existing products. So you take a product like Ambiso, you take products like Lenvima, we have to make big purchases, all in one queue, we wind that down. You will see an uptick.
Speaker Change: but it won't be that dramatic and it will start, it'll kind of normalize very quickly.
Thank you.
Speaker Change: That's great. And lastly for me, on the financial assets, you know, great to hear the the Synergy IPO going well and
Speaker Change: starting to include some of the value for those shares in your financial assets.
Speaker Change: And you highlighted that those shares are locked up for six months, but just overall maybe touching on your thoughts on monetizing those assets in general, kind of expecting to extract that value and then being able to take that capital and reallocate it to help grow other parts of the business.
Thank you.
Arvind, I'm out.
Speaker Change: So, as I mentioned earlier on the call, we have a six-month lock-up with the IPO, so there's the whole period. Beyond the lock-up, obviously, we're looking at maximizing shareholder value, so we'll be looking at how to maximize the value of our synergies at that point.
Speaker Change: That's great. And I guess just over the financial assets overall, you know, in terms of liquidating those over the next, the coming years, is that something you expect to accelerate or is that something that, you know, we'll kind of see small changes quarter to quarter and it'll continue to provide some value but there won't necessarily be an acceleration of...
Thank you.
Speaker Change: So it's been cash flow positive. We don't have a lot of commitments left in terms of what remains to be contributed to the funds. The funds have an exit date and those are maturing over the next...
Speaker Change: It's three to seven years, I would say, and Azdeh Matruh will be collecting the cash from those funds.
Arvind Utchanah
Thanks everyone for taking the questions.
and Arvind Utchanah.
Your second question comes from David Martin from Bloomberton.
Your line is now open. Please go ahead.
Speaker Change: It sounds like your pipeline is very robust. I'm wondering if you can put some numbers around how many sales, marketing and support personnel you're going to be adding in Canada and in LATAM. How many you've added recently and how many more are yet to come?
Speaker Change: I'm going to give you kind of ranges, not really details, because again, that's really confidential.
Speaker Change: It's a really great fit with Crescemba, so we did not end up adding anyone. In the case of Minjuvi in Mexico, think between four to seven people.
Speaker Change: And you have to remember, the cost of teams in Canada is much more expensive than the cost of teams in LATAM.
Speaker Change: In the case of, we have added a women's health sales force and you're already seeing the impact behind that in our panel today.
Speaker Change: be follow-on a couple years later, we will be adding Salesforce. But at that point, the reason I'm a little reticent is because the portfolio will be shifting and we'll see how to maximize potential with the teams that we have.
Speaker Change: Okay, thank you. Another quick question. Hyperinflation, I know that affects the top line. Does it affect your margins too or because it's affecting the revenues and the expenses it kind of cancels out?
Thank you for watching.
Arvind Utchanah: I'm going to let Arvind answer that question. Hi David, so hyperinflation affects all the line items in your P&L.
Arvind Utchanah: especially your margin because you basically have to restate your cost of sales depending on when those inventory was purchased using the inflation index so there's a big impact on COGS and gross margin. That being said, if you look at our results like in our adjustment to EBITDA, we do exclude the impact of hyperinflation from those numbers.
Okay. Thank you.
Arvind Utchanah
Speaker Change: The next question comes from Michael Freeman from Freeman James. Your line is now open. Please go ahead
Michael Freeman: Hi, good morning. Thanks very much for taking our questions. Congratulations on a strong quarter. I apologize if I missed this during the prepared remarks. I was on another call.
But, I'm curious if you could share, you know...
Arvind Utchanah: as much color as you can on the generic entry scenario with Lendvima. Touching on Brazil and also what's going on in Chile, I'm wondering if you could explain
Arvind Utchanah: I wonder if you could expand on whether there is risk for generic entry in other geographies for this drug specifically.
Thanks.
Sure, so let me first start with that
Arvind Utchanah: the cliff that we see in Canada. So in Canada, you would go from a product losing share, 90% share within 12 months, if not sooner. In LATAM, the decline is much more measured and it goes over time because
The purchasers, the physicians
Arvind Utchanah: recognize kind of the value of the brand, they also see the other kind of activities that you have behind with education, patient support, all of that and the decline takes three to five years where you sit in kind of the 25-ish percent market share kind of as it kind of comes down.
Arvind Utchanah: So over the next couple, if I look at Len Vima and Q4, we expect...
Immaterial Impact in Q4.
Arvind Utchanah: As it goes into next year, we do expect it to start declining. We're going to continue to battle it out.
Arvind Utchanah: to retain and to have prescriptions and prescriptions filled with our product.
and you have to remember...
Arvind Utchanah: We're in, especially in a market like Brazil with Lendima, the majority of our business is private business. It's not public business. And the little that we have of public will wind down quickly, but the private business, we can continue to duke it out for a while.
Arvind Utchanah: Do we expect generics in other markets or let me just actually sorry with Chile We haven't we've seen the approval. We haven't seen the launch We are already in discussions with customers about our products why it's better
and why they should continue to acquire Lendima.
Arvind Utchanah: Again, same idea as what I described about Brazil, we will be seeing a downward curve, but it will take a few years.
Arvind Utchanah: In a market like Colombia, the product is not patented, it does have regulatory exclusivity for a couple more years.
Arvind Utchanah: That being said, the issue in Colombia that we're probably going to be dealing with...
Arvind Utchanah: likely in the back half of next year is potential pricing regulation where the government will reassess us, could reassess us, on our price and they would they would bring the list price down.
Arvind Utchanah: This is something that we had planned for and knew was coming and what we have done is really in the last since launch have been maximizing the profitability before pricing regulation.
Okay, thanks very much for that. I'm curious if you...
Speaker Change: could be able to quantify the overall revenue impact or like the proportional revenue impact of a scenario where you know generic entry unfolds as you know as it appears it will now and there is no successful litigation from your end.
Speaker Change: Is the potential revenue impact from Limbima going generic in the geography stat?
Arvind Utchanah: It appears to be going now, in respect to overall revenue.
Arvind Utchanah: So we don't provide information by our byproduct and as I said like in this year it's immaterial and we don't really expect a significant impact even next year.
Okay, thank you very much. I'll pass it on then.
Speaker Change: Again, as a reminder, if you wish to ask a question, please press the star button followed by the number 1.
Arvind Utchanah: Again, if you wish to ask a question, please press the star button followed by the number 1.