Knight Therapeutics Inc.

Good morning, ladies and gentlemen. My name is Angeline, and I will be your operator for today. Welcome to Knight Therapeutics' second quarter 2024 results conference call. Before turning the call over to Samira Ski, President and CEO of Knight, listeners are reminded that portions of today's discussions may, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statement. The company considers the assumptions in 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 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 ir at knighttx.com or via phone at 514- 484-4483. I would like to remind everyone that this call is being recorded today, August 8, 2024, and would now like to turn the meeting over to your host for today's call, Samira Sakiya. Please go ahead, Ms. Sakiya.

Thank you, Angeline. Good morning, everyone, and welcome to Knight Therapeutics' second quarter 2024 conference call. I'm joined on today's call with Amal Khoury, our Chief Business Officer, and Arvind Uchina, our Chief Financial Officer. I'm excited to report for the first six months of the year, we delivered record revenues of $180 million, excluding hyperinflation, and adjusted EBITDA of over $29 million. Our innovative promoted portfolio delivered growth of 12% versus last year, primarily driven by the growth in Lenvima, Trelstar, Akinzeo, Cresemba, as well as a contribution from the recent launches of Invexia and Bejuva in Canada and Minjuvi in Brazil. Furthermore, we have expanded and strengthened our pipeline with the in-licensing of JourneyPM, a novel formulation of methylphenidate for ADHD. Journey PM complements our growing neurology portfolio along with IPX203 and Calvary, which we in-licensed in the last nine months. I would like to add that earlier this week, Amniel announced the FDA approval of IPX203 and expected launch in September of this year. This allows Knight to continue on our plans for regulatory submission of this product next year. Now moving on to our NCIB. Knight completed the NCIB launch in July 2023 and purchased a total of 6 million shares at an average price of $4.87 per share. Subsequent to the quarter, Knight launched a new NCIB under which we can purchase for cancellation up to approximately 5.3 million common shares over the next 12 months. I will now turn the call over to Arvind to provide an update on our financial results.

Thank you, Samira. When speaking of our financial results, 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. NINE defines EBITDA as operating income or loss, excluding amortization and impairment of non-current assets, depreciation, purchase price, accounting adjustments, and impact of accounting under hyperinflation, but to include costs related to leases. Adjusted EBITDA excludes acquisition costs and non-recurring expenses. Knight defines adjusted EBITDA per share as adjusted EBITDA over the number of common shares outstanding at the end of the respective period. Furthermore, my discussion on the operating results will refer to figures that exclude high inflation. For the second quarter, we delivered record revenues of over $94 million, an increase of $3.7 million or 4% versus prior year. Our oncology and hematology disease portfolio delivered approximately $36 million of revenues, a growth of $7.7 million or 28% compared to the same period last year. This was driven by the continued growth of our key promoted products, including Lenvima, Akinzeo, Trelthor, as well as the launch of Minjuvin Brazil. Turning to our other specialty portfolio. During the quarter, the portfolio generated $20.6 million in revenues, an increase of $3.8 million or 22% compared to the same period last year. This increase is a result of the transition of commercial activities of Exelon from Novartis to Knight in 2023. As a reminder, the revenues of Exelon were lower in the second quarter of 2023 due to advanced purchases by certain customers in the first quarter of that year. Now moving to our infectious disease portfolio, we generated $37.8 million of revenues in the second quarter, a decrease of $7.7 million or 17% compared to the same period last year. This decrease was primarily due to the timing of orders for Ambisome under the contract with the Ministry of Health in Brazil, or MOH, as well as a decrease in the demand of Improvido. The decrease was partly offset by the growth of our key promoted products, including Presemba, as well as timing of orders for certain products. During the quarter, we sold a total of $8.9 million of Ambisome under our MOH contract, compared to $18 million in the same period last year. As a reminder, during the first six months of 2024, we delivered a total of $18.1 million of Ambisome to MOH, compared to $20.4 million in the same period last year. Now looking at our gross margin. We reported $45.3 million, or a gross margin of 48% of revenues in the second quarter of 2024, compared to $40.2 million or 45% of revenues in the same period last year. The increase in the 2024 gross margin as a percentage of revenues was due to product mix, including a lower proportion of ambisome sale to MOH. I will now turn to our operating expenses. Our operating expenses excluding amortization of non-current assets for the second quarter were approximately $30.1 million, an increase of $3.3 million or 12% compared to the same period last year. The increase in operating expenses was driven by an increase in our G&A costs due to our structure and higher compensation expenses, as well as development costs for our pipeline products. Moving to adjusted EBITDA. For the second quarter of 2024, we reported $15.7 million of adjusted EBITDA, an increase of $1.5 million or 10% compared to the same period last year, driven by a higher gross margin, which was partly offset by higher G&A costs and R&D investments for our pipeline. While our adjusted EBITDA increased by 10%, our adjusted EBITDA per share increased by 23%. This additional increase in the adjusted EBITDA per share was driven by the decrease in common shares outstanding due to repurchases under our NCIB. Finally, onto our cash flows. During Q2 24, Knight had cash outflows from operations of $1.1 million, driven by our operating results, offset by an increase in working capital of $11.9 million. As we had communicated at the end of Q1, the majority of this working capital increase is due to payments related to inventory that was purchased in Q1. As a reminder, on a year-to-date basis, NITE generated $29.3 million of adjusted EBITDA and $29.8 million of cash inflows from operations. I will now turn the call back to Samira for concluding remarks.

Thank you, Arvind. I would like to provide an update on our financial outlook for fiscal 2024. I would remind everyone that This guidance is provided on a non-GAAP basis, excluding hyperinflation due to the difficulty in predicting Argentinian inflation rates. We are increasing our financial guidance on revenues and expect to generate between $355 million to $365 million in revenues, up from $335 million to $350 million. In addition, we are updating our guidance for adjusted EBITDA, which is now expected to be approximately 16% of revenues, which in dollars remains within the previous guidance range. The change in our financial outlook is primarily due to an improvement in forecasted last-time currencies against the Canadian dollar, as well as an acceleration of investments in our pipeline products. In addition, This guidance is based on a number of assumptions which are described more in our press release. Should any of the other assumptions differ, the financial outlook and the actual results may vary materially. Over the last several months, we have announced three product submissions in multiple territories, two product approvals, three product launches, and we have added three pipeline assets from three new partners. We have a pipeline of 18 products that are expected to generate over $150 million in revenues should they achieve our estimated peak sales. This demonstrates not only our commitment but also our ability to execute on our strategy. We have a profitable and cash flow generating business with a growing portfolio of assets and with over $150 million in cash, cash equivalents and marketable securities at the end of the quarter, We remain well-positioned to continue to execute on our strategy to in-license and acquire innovative and branded generic pharmaceuticals, as well as to develop our own branded generic portfolio. Thank you for your support and confidence in the NITE team. This concludes our formal remarks. I'd like to open up the call for questions. Over to you, Angeline.

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 ir 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 one on your telephone keypad. If you are using a speakerphone, please lift your handset before pressing any key. If you would like to review your question, please press star two key. One moment, please, for your first question. Your first question comes from Michael Freeman from Raymond James.

Hey, good morning, Samira, Mal, and Arvind. Thanks very much for taking our questions and congrats on some solid results. I'm glad you mentioned the approval of IPX203 by Amniel yesterday. I wonder if this approval came right in line, timing-wise, with your expectations and perhaps Amniel's expectations, and if there are any implications for perhaps an acceleration of timelines for approvals and jurisdictions in which you operate with Canada and Latin.

Thanks. Hi. That's a great question. Actually, we knew when Amniel had submitted earlier this year, which was, I believe, sometime in February, and the FDA has a pretty standard time of review, so this is really around the time that they were expecting their approval. And it doesn't really change our timelines because we had structured our agreement to even start working on some portions of the submission while they were pending their approval.

Gotcha.

That's helpful. On the escalated guidance, you mentioned there's much to do with currency here, but also mentioned that you've been accelerating investments into your pipeline products. I wonder if you could describe what this acceleration of investment looks like.

So, as you know, we have 18 products in our pipeline. What we are really trying to do is see what we can accelerate, whether it's some development work in advance of submission, as well as launch, pre-launch activities. So we are behind Jarnay PM, which we may actually launch, which we're trying to see if we can't launch by the end of next year, as opposed to the following year. We have Minjuvi, which we are expecting approvals in other territories. We have also also expected for approvals in certain countries next year as well.

Okay, excellent. Very helpful. Just one very last comment. On Bausch Health's earnings call, they did mention for their international business that they are seeking to do some business development activities specifically in LATAM. I wonder if you could comment on how Bausch Health specifically figures into your competitive set across the jurisdictions in which you operate.

Sure, I'll ask them all to answer that.

Hi, good morning. So in terms of, I think if you were asking whether we have seen them competing against us for deals, we haven't really come across them as a competitive deal. On the flip side of it, in terms of, you know, depending on what they're looking for, if they would be to, again, what another company is looking to divest assets in our regions, as you know, that's one of the areas that we focus on, which is to look at acquiring assets from companies who are looking to divest or focus their portfolios.

Okay, thanks Amal and I'll pass it on now.

Okay, thank you.

My call. Your next question come from David Martin from Bloom, Britain. Please go ahead.

Good morning and congratulations on the quarter and the progress. I'm wondering, when you put this all together, the acceleration of the pipeline, previously you had been expecting a dip in revenues with increased generic pressure on some of your legacy branded generics. Do you see the situation being that that dip won't occur anymore?

Not really. As you can imagine, when we're launching new products, it does take time for them to get to their peak sales, which is usually in the three- to five-year range. So even if we advance some launches by three, six months, it's not really going to have a bigger impact on what's going on in the BGX portfolio.

It really accelerates the payment.

Sorry, there's a bit of feedback. What about M&A of some mature products with sales to backfill that gap? Is that still on your radar?

Absolutely. This is one where we are always looking for assets to be able to add. As you know, we acquired Exelon a lot for that reason. We added Akinzio. which actually not only added EBITDA immediately, but really was a great fit into our portfolio and is a growing asset. We are always mindful here between the quality of the asset and the valuation expected. It is a very competitive market, and we are very disciplined.

Got it. Also, I'm wondering, what's driving the Brazilian Ministry of Health to establish these contracts for Ambizome? Is there an outbreak in fungal infections that might be transient, or is this something that you expect to be long-term and renewed year after year? And what is the patent protection on Ambizome and Brazil?

So Ambizome has not had patent protection for decades. And we know, for example, in the US, there is already two generics. As for the first part of your question, fungal infection is a issue in Brazil. It's not a transient issue. Prior to the government acquiring Ambosome, they were acquiring a competitor's product. kind of a similar molecule but not the same formulation, that competitor has been having supply issues for the last few years. And that is really why they have switched to Ambosone. And what this has been really great about for us is it's actually allowed us to establish a very good relationship with the Ministry of Health We are working with them on Ambosome. We're also starting at a very small level, but still meaningful, even on Cresemba. And really expect to be able to continue with that great relationship, even if our competitor comes back and we no longer have Ambosome shipments to them, the link is great.

Okay. Okay. Thank you. Thank you, David.

The next question comes from Scott McCauley from Paradigm Capital. Please go ahead.

Scott McCauley, Paradigm Capital Good morning, everybody. Thanks for taking the questions. First, on Journée, we saw that the other week IronShore got acquired, which I guess is a positive for the potential for that product. In terms of your agreement with Iron Shore and any kind of changing of control issues or questions, you know, that doesn't affect your license agreement for that product across, you know, Canada and Latin America?

Hi, it's Amal. Yeah, no, it doesn't affect it. I mean, I'm sure you're... you know, this is a very common, this is something that we have to consider as a common possibility in all of our deals, and it's something that we do consider, so that the acquisitions not affect our rights.

That's great. And on the Amazon, the Ministry of Health contract, just maybe you've said before, I don't recall, but how much is left on that contract for 2024? Obviously, there's some good, I think it's over $8 million this quarter. Do you have a sense of how much we can expect left on that contract for 2024?

So right now, from what we have confirmed, there's only a small amount left. That being said, they do have an option to be able to acquire more than that, but we won't be knowing that until later into the second half.

That's great. And I guess lastly on the obviously the working capital, you know, some big inventory and big swing this quarter. Do you expect that to kind of level out for the rest of the year?

I'm going to ask Arvind to take that question.

So the working capital was really an expectation that we had from Q1 related to payment of invoices for inventory we purchased in Q1. I would say our working capital is lumpy in a quarter, in any given quarter, depending on purchases of inventory. So you really have to look at it on a year-to-date basis. And if you look at our cash flows on a year-to-date basis, we do have a solid cash flow to EBITDA conversion ratio, and it's really because of the solid business that we built, and that does very well.

Great. So, yeah, continue to kind of expect some potential lumpy quarters and swings quarter to quarter, but longer-term, you know, trending in the right direction. Absolutely. That's exactly right. Yep. Great. That's all for me this morning. Thank you very much.

Thank you, Scott.

There are no further questions at this time. I am now handing the conference over to Samira Sakia.

Once again, thank you for your confidence in the NITE team and for joining our Q2 2024 conference call. Have a great morning.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.