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spk05: Good morning and welcome to the Knight Therapeutics first quarter 2023 results conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Samara Sakia. Please go ahead.
spk06: Thank you, Debbie. Good morning, everyone, and welcome to Knight Therapeutics' first quarter 2023 conference call. I'm joined on today's call with Amal Khoury, our Chief Business Officer, Arvind Uchina, our Chief Financial Officer, and Jeff Martins, our Global VP of Commercial. I'm excited to report an impressive first quarter results, with revenues of over $82 million and 29% growth compared to the same period last year, and record adjusted EBITDA of over $18 million, representing growth of 37% compared to the same period last year. This strong performance is a testament to the hard work and dedication of our team and the continued success of our portfolio across all of our therapeutic areas. In addition to the continued progress of our marketer products, we launched PalbosaClub in Argentina and obtained the regulatory approval in Chile. PalbosaClub is an internally developed branded generic product indicated for the treatment advanced or metastatic breast cancer and is being marketed as Balpacil or Pablacil in our region. We also submitted Tafacitamab or Minjuvi for regulatory approval in Argentina for the treatment of DLBCL. Turning now to the NCIB. During the quarter, we purchased approximately 2.2 million common shares for an aggregate cash consideration of over $10.8 million. Subsequent to the quarter, Knight purchased an additional 1.1 million common shares for aggregate cash consideration of $5.4 million. With this additional purchase, Knight has completed approximately 73% of the July 22 NCIB at an average purchase price of $5.04 per share. I will now turn the call over to Jeff to provide more details on our product results.
spk00: Thank you, Samara. In the first quarter of 2023, as Samira mentioned, we have delivered strong revenues of over $82 million, an increase of more than $16 million on a constant currency basis, or 25% versus prior year. We grew across all of our therapeutic areas, mainly due to our innovative and promoted portfolio. Let me start with the performance of our oncology hematology portfolio. During the quarter, revenues, excluding hyperinflation, were $29.1 million, a growth of $5.3 million, or 22% versus the same period last year. Our key promoted brands included Halibut, Vema, and Trollstar, as well as the addition of Akenzio, contributing $7.6 million of incremental revenues, which was partially offset by a reduction in sales of certain mature and branded generic products due to their lifecycle and the entrance of new competitors. As per our infectious disease portfolio, we delivered revenues of $30.8 million, excluding hyperinflation. This portfolio grew by approximately $7.8 million, excluding the impact of the plant transition and termination of our Gilead agreement, effective July 1, 2022. This growth is due to our key promoted brands, the buying patterns of certain customers, as well as deliveries we made in relation to previously announced Amazon contract with the Brazilian Ministry of Health. Now moving to our other specialty portfolio. During the quarter, revenues excluding hyperinflation were $22.7 million. The portfolio grew by approximately $6.2 million, excluding the change in accounting treatment for Exelon. This growth is mainly due to advanced purchases of Exelon in certain countries due to the commercial transition from Novartis to Knight and the purchasing patterns of certain customers. I will now turn the call over to Arvind to provide an update on our financial results.
spk02: Thank you, Jeff. In the course of this conference call, I will refer to EBITDA and adjusted EBITDA, which are non-IFRS measures, as well as adjusted EBITDA per share, which is a non-IFRS ratio. NICE defines EBITDA as operating income or loss, excluding amortization and impairment of non-current assets, depreciation, purchase price accounting adjustment, and the impact of accounting under high inflation, but to include costs related to leases. Adjusted EBITDA excludes acquisition costs and non-recurring expenses. 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, NICE received an order for an additional $9 million from the Ministry of Health, which was also delivered in April 2023. In summary, in Q1, Knight recorded $2.4 million of Ambison 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 Ambison. 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. 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. For the first quarter, our operating expenses were $34.8 million, an increase of $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 variable costs such as logistic expenses, which rose as a function of higher sales. I also want to remind everyone that Q1 2022 In June 2022, we had limited infill activities due to the COVID environment, mostly specifically Omicron. Moving on to adjusted EBITDA. For the first quarter of 2023, we reported $18.2 million, an increase of $5 million, or 37% compared to the same period in prior year. In addition, NICE adjusted EBITDA per share was 17 cents, an increase of $0.05 per share or 45% over the same period in prior year. Now moving on to gains or 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. 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. Moving on to our cash flows. During the first quarter of 2023, Knight generated cash inflows from operation of $3.7 million, a decrease of $9.2 million compared to the same period in prior year. 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 ambisome in anticipation of the deliveries under the Ministry of Health contract, as well as timing from payments from certain customers, which were settled in April. I will now turn the call back to Samara for concluding remarks.
spk06: 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. We have revised our forecast and now expect to generate revenues of $300 million to $320 million, an increase of $20 million on the lower and upper range. In addition, we expect adjusted EBITDA to be between 14% to 15% of revenues. The increase in financial outlook is primarily due to an improvement in the forecasted last-time currencies against the Canadian dollar, primarily the Brazilian RAI, and the second MOH order for Ambosom in Brazil. 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. Considering the recent volatility in certain of our currencies, we will continue to monitor and revise our foreign exchange assumptions, which may materially impact our results and forecasts. Looking ahead, we remain committed to building a leading Pan-American ex-U.S. specialty pharmaceutical company. 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 product portfolio. 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. Debbie?
spk05: We will now begin the question and answer session. 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. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Doug Mime with RBC Capital Markets. Please go ahead.
spk03: Good morning, everyone. First question has to do with Exelon. And you do describe that there was buy-in, I'd say, a little bit 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?
spk06: 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 a 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, we don't manage to quarters, we're managing to the year. And we expect to continue to retain the brand.
spk03: 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 of months ago when you last discussed this point?
spk06: It's similar status in Brazil. There really hasn't been any updates. In Colombia, the reform has been published, but how the reform will be implemented is not clear, and there is a significant amount of debate in Congress about this, and the entire country is watching, as are we.
spk03: Excellent. Okay. Thanks, Samira.
spk05: The next question is from David Martin with Bloom Burton. Please go ahead.
spk04: Hi there. This is Antonia on the line for Dave. Just wanted to 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 branded generic business might be less than expected when you reported fourth quarter results? And also, when do you expect additional compensatory launches of your own branded generic pipeline?
spk06: 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 portfolio is 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 life cycle issues that we are dealing with. And if you look at our pipeline, we've expanded our pipeline dramatically, not just in the innovative portfolio with Tefacizumab, Akinzeo, Pemi, and Fosamatinib. We've also done a lot of work to in-license as well as continue the development of our own branded generics. The issue is really lifecycle 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.
spk04: And if I can just add an additional quick question, are there any strategies you have to help mitigate the hyperinflation impact?
spk06: So this is the revision of the forecast that we're talking about excludes hyperinflation. So this is really the majority of the change here that we're seeing is is we went from an expectation that there would be a slight decline in the Brazilian REI to a slight appreciation in the Brazilian REI. So that's not hyperinflation, that's just currency. And that's a macro issue between Canada, U.S., Brazil, and of how is the global environment working. 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. 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, Mexico, Uruguay, Paraguay, so it's not all in Argentina.
spk04: Okay, thank you.
spk05: Again, if you have a question, please press star then 1. Next is Andre Leno with National Bank. Please go ahead.
spk01: Hi, yeah, good morning. It's Andre Votto sitting in for . With respect to Publisher, I was hoping that we could get some insight on progress and performance of that early signs that you're seeing there.
spk06: Sure. So Publisher was launched kind of a little bit later in the quarter. But if you look on our press release, what we do provide is The launches of the brand of generics in the queue, the performance you see is about, I think it's less than half a million in change versus last year. And that's, Palbasil 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 launches that we're having are not making up for some of the declines that we expect this year.
spk01: Okay, maybe some color on the timeline and the next steps for BAPACIL?
spk06: It's probably closer to, so BAPACIL 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 Colombia, but that'll be a couple years away.
spk01: Okay. How would you characterize margins on the Mstone contract with the MOH in Brazil relative to the rest of the portfolio?
spk06: We don't disclose margin by product, and it's going to be in the range. The margins that we've had historically is the margins that we will continue to have.
spk01: 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?
spk06: We are expecting them a little bit. Later in the year, it's a little bit hard to predict. It's depending on the country and the region, depending on the country and the product. 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 brand of generic has launched versus Exelon in Brazil.
spk01: Are there any, just as a follow-up, are there any particular countries which are moving faster than others?
spk06: Not really. Again, we see that there is branded generics in the review pipeline. It's hard to predict when they will come out.
spk01: Okay, great. Thank you so much.
spk05: This concludes our question and answer session. I would like to turn the conference back over to Samari Sakia for closing remarks.
spk06: Thank you, Debbie, and thank you for your confidence in the NIC team and for joining our Q1 2023 conference call. Have a great morning.
spk05: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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