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spk00: Good morning, ladies and gentlemen. My name is Taryn, and I will be your operator today. Welcome to Knight Therapeutics' fourth quarter and year-end 2022 results conference call. Before turning the call over to Samara Sakiya, 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 conscience 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 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 knighttx.com or via phone at 514-484-4483. I would like to remind everyone that this call is being recorded today, March 23, 2023. and would now like to turn the meeting over to your host for today's call, Samara Zakiya. Please go ahead, Ms. Zakiya.
spk01: Thank you, Taryn. Good morning, everyone, and welcome to Knight Therapeutics' fourth quarter and URAN 22 conference call. I am joined on today's call with Amal Khoury, our Chief Business Officer, Arvind Uchana, our Chief Financial Officer, and Jeff Martins, our Global VP Commercial. I'm excited to announce that we delivered another great year in 2022 and reported record revenues of over $290 million, a growth of 21% over last year, as well as record adjusted EBITDA of over $54 million, an increase of 42% over last year. This growth was generated by the full-year effect of Exelon, the impact of our recent launches in Colombia, as well as continued growth from our key promoted products. We have also executed on all aspects of our portfolio strategy. We in-licensed at Kinzeo a product with existing sales in our key markets and further expanded our innovative pipeline with the in-licensing of Fosamatinib from Rigel. We also added three products to our branded generic pipeline, which include the rights to the two largest markets in LATAM, Brazil and Mexico. On the regulatory front, we continued to advance the pipeline and submitted tefacitamab, or Minjuvi, in Brazil, Colombia, and Argentina, as well as two branded generic products in each of Chile and Colombia, and obtained the regulatory approval of Palbosil in Argentina. In addition to delivering record results and advancing our pipeline, 2022 was very productive as we completed the integration of GBT and fully onboarded Exelon and Ekinzeo. Turning now to the NCID. During the year, we purchased approximately 5.6 million common shares for aggregate cash consideration of over $30 million. Subsequent to the quarter, Knight has purchased an additional 1.3 million common shares for aggregate cash consideration of $6.5 million. The average purchase price of the shares purchased through the NCIB launched in July 22 was $5.31 per share. I'm now going to turn the call over to Jeff to provide more details on our product results.
spk03: Thank you, Samira. In 2022, as Samira mentioned, we have delivered record revenues of over $290 million, an increase of over $48 million on a constant currency basis or 20% over prior 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 effect of Exelon. Now moving to our oncology hematology portfolio. During the year revenues, excluding hyperinflation, were $105.5 million, a growth of $16.4 million, or 18% versus the same period last year. This includes the contribution from our key promoted brands, including new launches of Limevima, Palavant, and Rembrandt in Colombia in the first quarter of 2022. The growth of our promoted products in all territories and the addition of Akenzeo in Brazil and Canada. This increase was partially offset by a decline in sales of certain branded generic products due to their life cycle and entrance of new generic competitors. As for our infectious disease portfolio, we delivered revenues of $116.5 million, excluding hyperinflation. Our portfolio grew by $29 million due to an increase in patient treatments as our markets reduced COVID-19 restrictions. Growth of our key promoted products and a one-time sales contract with the Ministry of Health in Brazil for Amazon. We recorded a $7.5 million in the quarter which represents 40% of the full value of the contract, and we expect to deliver the balance in the first half of 2023. This growth is offset by an estimated $14.2 million due to lower COVID-related demand for certain of our infectious disease products that were used to treat invasive fungal infections associated with COVID-19 and the planned transition and termination of the Gilead Agreement effective July 1, 2022. Now moving to our other specialty portfolio. During the year, revenues excluding hyperinflation were $69.8 million, an increase of $21.3 million compared to prior year. This increase is mainly due to the full year effective Exelon and the change in accounting treatment from net profit transfer to recognition of net revenues and related cost of sales. I will now turn the call over to Arvind to provide an update on our financial results.
spk08: Thank you, Jeff. In the course of this conference call, I will refer to EBITDA and adjusted EBITDA, which are non-IFRS measures. NITE 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 high penetration, but to include costs related to leases. I just said EBITDA excludes acquisition costs and non-recurring expenses. I will go directly to gross margin since Jeff has already discussed our revenues. For the fourth quarter of 2022, excluding the impact of hyperinflation, we reported gross margin of $41.9 million or 50% of revenue compared to $28.6 million or 51% of revenue in the same period last year. For the year ended December 31, 2022, gross margin excluding hybrid inflation was $150.3 million or 52% of revenue compared to $118.8 million or 50% of revenue in the same period last year. The increase in gross margin as a percentage of revenue is due to the change in product mix as well as the full year effect of the acquisition of Exelon. on our operating expenses, excluding high penetration, amortization, and impairment of intangible assets. For the fourth quarter, our operating expenses were $29.2 million, an increase of $4.6 million compared to the same prior year period. The year ended December 31, 2022, our operating expenses were $99.3 million, an increase of $15.2 million versus last year. As we return to normal commercial activities, we see an increase in our sales, marketing, and medical costs for our key promoted brands, including promotions spent behind the relaunch of Exelon and Akinzeo. In addition, we saw an increase in compensation expenses as we strengthened our structure including the management team and certain variable costs, such as logistic expenses, which rose as a function of higher sales. Moving on to adjusted EBITDA. For the fourth quarter of 2022, we reported $13.8 million, an increase of $8.1 million, or 143% compared to the same prior period. For the year ended December 31, 2022, our adjusted EBITDA was a record $54 million, an increase of $16 million, or 42% over the same prior year period. Moving on to impairment of non-current assets, which is not reflected in our adjusted EBITDA. For the year ended December 31, 2022, under IFRS, we recorded an impairment of $24 million, of which $21.6 million relate to PP&E and intangible assets in Argentina. The main reason for the write-down in Argentina is the increase in the value of non-monetary assets due to the hyperinflation adjustment under AFRS. Under hyperinflation accounting, the net carrying value of non-monetary assets, including PPE and intangible assets, is adjusted by the inflation index and converted back to Canadian dollar at the closing rate of the reporting period. During a period where the inflation index is higher than the devaluation of the Argentine peso related to the Canadian dollar, the net carrying value of the non-monetary assets will increase in Canadian dollar, which can lead to an impairment. Now, moving on to gains or losses on our financial assets, which are not reflected in our adjusted EBITDA. In 2022, we recorded $20.7 million of net unrealized losses on financial assets measured at fair value through profit or loss. The loss is driven by the mark-to-market adjustment of underlying assets as a result of a decrease in the share prices of the publicly-traded equities held by our strategic funds. Moving on to our cash flows, In 2022, Knight generated cash inflows from operations of $40.5 million, including a net working capital investment of just under $10 million, mainly due to the onboarding of Exelon and Akinseo. Finally, in December, we closed a loan with the International Finance Corporation for $52 million, denominated in Brazilian Real, Colombian Mexican, and Chilean pesos. Five-year loan has customary financial and non-financial covenants and is secured against certain assets of NITE as well as a restricted gas collateral of 35% on the loan balance. Depending on the currency, the interest rates on the loan range between 7.9% to 15.8% annually. As a result, NITE expects its interest expense to increase in 2023. The C loan further strengthens our balance sheet while providing a natural hedge against future currency depreciation in the key markets in which we operate. I will now turn the call back to Samara for concluding remarks.
spk01: Thank you, Arvind. Now turning to our financial outlook for 2023. Excluding the impact of IAS 29 or hyperinflation, Knight expects to generate revenues of 280 to 300 million dollars and adjusted EBITDA between 13 to 15% of revenues. I'd like to remind everyone that this guidance is provided on a non-GAAP basis due to the difficulty of predicting Argentinian inflation rates. The guidance is also based on a number of assumptions which are described in our press release. Should any of the assumptions differ, the financial outlook and the actual results may vary materially. Our team has been extremely successful executing on our Pan-American ex-US strategy and has built a profitable business with a unique platform and a strong foundation from where to continue growing over the long term. We ended 2022 by delivering record revenues and record adjusted EBITDA as a result of growing our current portfolio as well as adding new products that leverage our existing platform. Looking ahead, while we face headwinds, with the entrance of new competitors on certain of our branded generics products, as well as incur investments related to launch products, Knight is expected to continue to draw, to generate strong cash flows from operations, and with over $150 million of cash and $175 million of financial assets, we remain well positioned to execute on our mission to acquire, in-license, develop, and commercialize pharmaceutical products in Latin America and Canada. Thank you for your support and confidence in the Knight team. This concludes our formal remarks. I'd like to now open up the call for questions. Back to you, Taryn.
spk00: 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 via email to info at knighttx.com or via phone at 514- 484-4483. If you would like to ask a question, please press star followed by the number 1 on your telephone keypad. If you are using a speaker phone, please lift your handset before pressing any key. If you would like to withdraw your question, please press star 2. Again, that's star 1 if you'd like to ask a question. We'll take our first question from David Martin with Bloom Burton. Your line is now open. Please go ahead.
spk07: Good morning. A few questions. Great quarter. You mentioned facing generics in the upcoming year. I'm wondering, A, is this year expected to be more heavily genericized than in the past, or is this a pretty status quo as far as generic threats? And is Exelon one of the products where you anticipate generic threat?
spk01: Thank you, David. So there's a couple of different dynamics, whether it's on our innovative or our branded generics portfolio. When I look at our branded generics portfolio, it's kind of a life cycle issue. Some of the generics that have been the large contributors are facing more competition, more new entrants in that same molecule in the next year. When it comes to our innovative portfolio, including Exelon, we've known about generics on Exelon. We face already some generics. We do expect, depending on the market, either a new entrant or a couple more new entrants. For the year, we're still expecting it to be generally flattish as a brand.
spk07: Okay. Okay. Okay. And you mentioned the ambiosome one-time contract. I think you said 7.5 million received to date, which is 40% of it. Was that all in Q4? And then when do you expect to receive the remaining 60%?
spk01: So it was all in Q4, the 7.5 million related to ambiosome. And the second portion of that order is supposed to deliver in the first half.
spk07: Okay. And then lastly, can you give any commentary on your business development pipeline right now? Does it look as strong as ever? Have there been any changes that you've seen?
spk04: Good morning. This is Amal. Yes, the pipeline is very, the deal flow is very healthy. The team is very active. And we continue to look at opportunities along all three work streams, so acquisitions of products and portfolios, and licensing of innovative products, as well as growing our branded generics portfolio, so whether it's internal development or in licensing. So the team remains quite active along all three.
spk07: Okay, thanks. That's it for me.
spk04: Thank you, David.
spk00: We'll take our next question from Andre Leno with National Bank. Please go ahead.
spk09: Yeah, good morning. Thanks for taking my question. The first one is a bit more related to guidance, but what I wanted to ask is the products that are facing engineering competition in 2023, Is there any kind of new products that you can launch to counter some of that, be branded generics or new ones, or do we expect that generics impacts to continue throughout the year and into 2024? So basically, can you offset that with any new things?
spk01: So we are offsetting. So when it comes to our branded generics, portfolio, it's kind of as they mature, new entrants come in, so you see more of a price erosion and a margin erosion. And that's really what we're seeing going into 23. The way we're countering that is obviously through the promotional efforts on our innovative products that are growing. We're also launching some branded generic products ourselves, new products, so you see that in the new launches in our Presleys. The issue that we have is kind of a timing of when is the new launches happening versus the erosion, and this is why our BD team has been extremely busy on all three fronts, acquisition, in-licensing, as well as the generics portfolio. and we will continue to really strengthen the portfolio to be able to manage these waves that are normal.
spk09: Great. Thank you. Thanks for the answer. And in terms of then the cost, I mean, do you expect any increases in the cost, for example, versus what you did in 2022, in 23, or are they generally kind of more stable?
spk01: So when I look at kind of the dollars that we have in our OPEX this year, we expect 23 to be flattish.
spk09: Great. Thank you. And also there was a mention, a comment on the press release about investing more in 2023, doing some investments. Can you specify what those investments could be? I mean, are they more in personnel or are you adding any? manufacturing capacity or any new launches or anything like that?
spk01: Well, as you know, a lot of our products, when I look at the innovative portfolio, there is a relaunch of Exelon. There is a relaunch of the Congeo. We are doing planning and prep for Minjuvi. We have Linvima and Halavan in Colombia. Those are investments that are going to continue to be ongoing. As I said before, the total value of those dollars is not going to change between 2022 and 2023.
spk09: Great. And one last one for me. I'll jump in the queue. But the contract that you got from the Ministry of Health in Brazil, is there any reason, if you can characterize it and describe it a little bit, What is it for? Any reason why it could be only one time they found another product? Or is there a generic that's coming along or any kind of color there? And what's the probability that, let's say, it repeats again?
spk01: So I think in this case, the government had some experience with Ambosome during the kind of the public side of the business would have had some experience due to COVID-19. We suspect that they had shortages maybe on some of the competitor products that are cheaper, so we received this contract. We don't put a high likelihood of a renewal of this contract. So we will ship the second half. We don't expect it again.
spk09: Thanks. I'll jump in the queue. Thank you.
spk00: As a reminder, if you find that your question has been answered, you may remove yourself from the queue by pressing star 2. If you'd like to join the queue, you may press star one at this time. We'll take our next question from Scott McCauley with Paradigm Capital. Please go ahead.
spk02: Good morning, Samira. Congrats to you and the team on this strong quarter and finishing the year. Just one for me, the others I think have been answered. But on the outlook for 2023, just looking at the adjusted EBIT margins that you're expecting, My back of the envelope shows that the number would come down year over year relative to 2022, despite the growth in the top line. So just wondering what you could share in terms of what's contributing to that kind of margin pressure on the bottom line, despite the growth on the top line.
spk01: Sure. So as we said, where we're seeing the headwinds is really coming from our branded generics portfolio. As we manufacture those products for ourselves, we are able to – those are high-margin products. So when you see the impact of a decline in sales, it actually has a heavier hit to the bottom line, and the loss of margin on that product drops straight to the bottom line.
spk02: Got it. So it's more on the kind of gross, as I think you said, you expect kind of costs and other things on personnel to be flattish. It's more on that gross margin impact from the branded generics.
spk01: Exactly.
spk02: Got it. That's great. Thank you very much. And again, congrats on the great year.
spk05: Thank you.
spk00: We'll take our next question from Sahil Dhingra with RBC Capital Markets. Please go ahead.
spk06: Hi, good morning. Thanks. This is Sahil for Doug Lee. My first question is just wanted to confirm on Exelon. Is all the commercial rights being transferred tonight? And is Q4 fully burdened with Exelon costs in terms of SG&A? That would be my first question, please.
spk01: Sure, so in the case of Exelon, all of the MA transfers have been done. There is some smaller markets in Central America and Caribbean that remain and won't really have a major impact on our numbers when they do switch over to us. When it comes to SG&A, we don't really do it by brand, but as I said earlier, when it comes to the total OPEX, we really don't expect that to change going into 2023.
spk06: Okay, and the difference, and my second question would be the difference between the Delta for the guidance. It does imply on the lower end you will be probably, the revenue would decline, and that is mainly due to the branded generics, competition in the branded generics, or is there something else?
spk01: No, the real issue that we're dealing with is our, we face new entrants, the head-to-head competition in our branded generics portfolio. As that happens, what we see is that we have to lower our price. That's a straight margin hit that drops straight to the bottom line. It's really an issue of the portfolio. As we launch newer products, both on our innovative products portfolio as well as on our GX portfolio, we'll ride this wave out going into the future.
spk06: Okay. And my final question is, do you have certainty regarding the timing of these competitive products launching? So, like, will there be an impact in a particular quarter as you think about quarterly revenues, or it is uncertain at the moment?
spk01: It'll really depend on the country and the product, so it's kind of hard to predict right now, but we do expect them coming in.
spk05: Okay, thank you. Those are all my questions. Thank you.
spk00: Our next question will return to Indri Leno with National Bank. Please go ahead.
spk09: Oh, thank you. Two more questions for me. For the first one, it's more for the BT team, but when you're looking at new products, especially for 2023, are you looking at more at replacing some of the lost sales that you get from the branded generics or is the strategy still continuing to try and grow the footprint in Canada and in Mexico?
spk04: Hi Angie, this is Amal. It's really all of the above, right? So we look to bring in opportunities that would be immediately accretive. So that would be products or portfolios or M&A with existing sales and existing profitability. We're also looking at the same time to bring in pipeline. And that's both innovative as well as branded generics. So really it's full steam ahead on all of the above. So that again, as Samira said earlier, the phasing issue that we're facing this year with our branded generics portfolio maturing and the pipeline not yet coming in already this year to compensate for that, the work that the team is doing is to make sure that going forward, we don't really have that temporary dip, but we're kind of, you know, building both with existing and pipeline.
spk01: I'm just going to add, like, if you look at kind of what we did, so I'm just going to add to her, if you look at what we did in 21, we added Exelon, we added the Insight products, as well as continued on the development side of our branded generics portfolio. And you see that with some of the submissions that we have and the approval that we have this year. When you look at 2022, you have kind of the similar idea in licensing of BGX, in licensing of Innovative with Rigel's product, as well as the addition of a product with existing sales with Ekingeo. So there's really nothing that's changed in our BD strategy. We're going to continue to execute on the same strategy.
spk09: Great. And as a follow-up there, have multiple changed at all when you look at across your geographies or have they remained as they were?
spk04: So the deal landscape remains competitive. Of course, the level of competitiveness depends on on the type of deal and type of product, but we haven't seen anything kind of dramatically different in terms of valuations or multiple, but the landscape remains competitive. Okay.
spk09: Go ahead. Gotcha. Got it. Thank you. The last one for me is just more on the political side of things. Would you expect any impact, especially when it comes to Brazil and Colombia? Have there been any regulatory or access changes in 2023 that you anticipate?
spk01: That's a really great question. So one of the things that we know, similar to the rest of the market, and that's not really a political issue, it's more an economic issue, post-COVID, whether it's private payers or public payers or generally even individuals on cash pay products, due to economic issues and inflation, everybody is trying to control budgets and spend. So we do face that, and that's not just a night issue. I think it's a global pharma issue. When it comes to the political environment, there has been a lot of talk about pharma reform in each of Colombia's and Brazil. Colombia, for example, has issued a reform package that they submitted. It is being highly debated and may go into place, but probably not in the form that it's in today just because of the level of debate that we're seeing. In the case of Brazil, they've talked about it, but we really haven't seen anything. The one thing to remember is when it comes to the pharmaceutical industry, This is one where we know that our products are always going to be necessary. It's really a question of the pricing, the reimbursement, and one of the reasons why we want to maintain a diversified portfolio of innovative products as well as branded generics, because this way we are able to adjust and bring value to those payers.
spk05: Great. Thank you very much. That's it for me.
spk00: Once more, if you would like to ask a question, you may press star 1 on your telephone keypad now. Again, that's star 1 if you'd like to ask a question. It appears there are no further questions at this time. Ms. Zakia, I'd like to turn the conference back to you for any additional remarks.
spk01: Thank you, Taryn. Thank you for your confidence in the NITE team and for joining our Q422 conference call. Have a great morning.
spk00: This concludes today's call. Thank you for your participation. You may now disconnect and have a great day.
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