This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk10: Good day, ladies and gentlemen, and welcome to the Medexus Pharmaceuticals first quarter 2023 earnings call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Victoria Rutherford, Investor Relations at Medexus Pharmaceuticals. Ma'am, the floor is yours.
spk00: Thank you, and good morning, everyone. Welcome to the Medexus Pharmaceuticals first fiscal quarter 2023 earnings call. On the call this morning are Ken D'Entremont, Chief Executive Officer, and Marcel Conrad, Chief Financial Officer. If you have any questions after the conference call or would like further information about the company, please contact Adelaide Capital at 480-625-5772. I would like to remind everyone that this discussion will include forward-looking information as defined in securities laws. Actual results may differ materially from historical results or results anticipated by the forward-looking information. In addition, this discussion will also include non-GAAP measures such as adjusted net loss and adjusted EBITDA, which do not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies. For more information about forward-looking information and non-GAAP measures, including a reconciliation of each of adjusted net loss and adjusted EBITDA to net loss, please refer to the company's management discussion and analysis, which, along with the financial statements, are available on the company's website at www.medexas.com and on CDAR at www.cdar.com. I would now like to turn the call over to Ken D'Entremont.
spk06: Thank you, Victoria, and thanks, everybody, for joining us on the call this morning. We are proud to announce a regular first quarter for Medexus. Our base business continues to perform strongly and was complemented by recognition of a portion of revenue from glialand sales in the United States following our recent acquisition of glialand commercialization rights. During the first quarter, ended June 30th, 2022, We achieved revenue of $23 million compared to $17.3 million in the same period last year, or 33% growth year over year. The $5.7 million increase is primarily attributable to an increase in the net sales of Xfinity and recognition of a portion of revenue from Glenoland sales in the United States, plus a 22% growth in RuPaul year over year. First quarter adjusted EBITDA increased to $1.9 million compared to negative $4.9 million for the same period last year. The $6.8 million increase was primarily attributable to the increase in sales as well as an expected reduction in research and development costs. We are pleased to achieve this adjusted EBITDA while continuing to maintain appropriate investments in our preparations for the U.S. commercial launch of Triosulfate. We produced a net loss of $1.4 million for Q1 compared to a net loss of $6.6 million for the same period last year. Our adjusted net loss, which adjusts for unrealized losses or gains related to our convertible debentures included in net loss, was negative 3.6 million compared to negative 9.8 million for the same period last year. At June 30th, 2022, we had 7.3 million in cash and cash equivalents with 8.7 million of total available liquidity. Turning to our specific product lines, our core business is performing well, and we are excited about new and potential additions to our product portfolio, which we believe will generate growth momentum over the coming years. We are pleased to say that we have corrected the affinity channel. Pharmacy and wholesale customers have now returned to normal buying patterns that are better aligned with patient unit demand. We are continuing to invest in our manufacturing improvement initiative, and we expect the resulting operational efficiencies to improve the gross margins for Xfinity over the coming quarters. The clinical phase of our phase four pediatric study for Xfinity is now complete, and we are now preparing the analysis and clinical study report, which we expect to be completed in the first quarter of calendar 2023. A successful study could support a significant expansion of the indicated patient population for Xfinity to hemophilia B patients under 12 years of age, and we are exploring approaches to address this potential expanded market. Rappel continued to see strong unit demand growth, achieving 22% growth for the trailing 12 months into June 30, 2022, continuing its trend as one of the fastest-growing antihistamines in the Canadian prescription market. Again, this growth reflects a severe allergy season across Canada and successful sustained execution of our sales and marketing initiatives as physicians continue switching patients to Rupal from either generic prescription antihistamines or over-the-counter products. Turning to Resuvo, on a unit sold basis, Resuvo continued to maintain its strong market position and in fact increased its market share in the United States in the trailing 12 months ended June 30th, 2022. However, increasing competition in the US branded methotrexate market continued to negatively affect receivable product level revenue. We implemented effective unit level pricey reductions to defend our product strong market position. On metal deck, Even with a generic entry to the Canadian methotrexate market in calendar 2020, MedArchJet saw unit demand increase in the trailing 12-month period ending June 30, 2022. Again, product revenue was negatively impacted by a similarly motivated decrease in effective unit-level prices. We continue to work towards conclusion of litigation against the generic competitor, and a trial date has been set for calendar Q1 2023. We will continue to update shareholders on material developments in this matter. These existing products have primarily driven our performance to date. We also actively pursue opportunities to complement our existing product portfolio by licensing and acquiring new products. For example, in March of 2022, MEDEXIS acquired the exclusive right to commercialize glialand in the United States. As I mentioned, we recognize some Glialand revenue this past quarter, representing a portion of the quarter's product net, portion of the product's net sales, as per terms of the license agreement. We anticipate completing our agreed transition process in full within the current quarter. This will result in Medexis having full responsibility for commercialization of Glialand in the United States, which will allow us to begin fully recognizing product revenue within the three-month period ending September 30, 2022. Our U.S. relaunch of Glioland will complement our existing commercialization rights to Glioland in Canada, where we executed a full commercial launch of Glioland in February of 2021. As we have discussed in the past, we continue to be excited about Triosulfan, We expect that it will become a leading agent for use in conditioning regimens as part of allogeneic hematopoietic stem cell transplantation protocols, or alloHSCT, which is a therapeutic area of interest for Med-Axis. In June 2021, we received a notice of compliance from Health Canada to commercialize Triosulfan, which we currently market in Canada under the trade name Tricondin. We have now fully launched in the Canadian market and expect that the commercial experience we are gaining in Canada will serve us well if and when the FDA approves Triosulfan in the United States. Our partners at Medec recently resubmitted updates to data files and supporting information to the FDA to complete the resubmission of their new drug application for Triosulfan. The review clock for the FDA's review of the NDA resubmission will then start if and when the response is considered complete by the FDA, with final FDA decision expected two to six months thereafter. An FDA approval would allow for commercial launch of Triosulfan in the United States in the first half of calendar 2023. If the FDA approves Triosulfan, we will then be obliged to pay a milestone payment to MED Act that would range anywhere between $15 and $45 million. depending on the terms of the FDA's approval. Last week, we signed an amendment to our license agreement with MED Act. The amendment extended the date by which we would be obliged to pay this milestone amount to October 2023. This means that at the time of FDA approval, we would only need to pay immediately 2.5 million credit against our milestones that MEDAC had provided us in September of 2021. This will allow us to launch and begin commercialization well before these license payments must be paid. During the extended registration period, we have continued to work diligently with MEDAC to prepare for the launch. If approved by the FDA, we expect that commercialization of triosulfan would have a material positive impact on the company's total revenue as we estimate that the current market leading product in the United States generated $126 million at peak annual revenue before genericization. We also continue to regularly explore additional complementary product opportunities in both current and planned therapeutic areas and in both the United States and Canada, and regularly evaluate various other transaction opportunities based on our strategic plan. A key component of this growth strategy will be to continue to leverage our infrastructure through new product acquisitions and partnerships. We will continue to look at optimizing our portfolio and leveraging our resources with the goal of executing near-term accretive transactions to achieve our sales growth targets over the coming years. In the meantime, we continue working to increase revenue develop and leverage our commercialization infrastructure across products, and maintain strict financial discipline. I will now turn the call over to Marcel, who will discuss our financial results in more detail.
spk07: Thank you, Ken.
spk02: Total revenue for the first quarter ended June 30, 2022 was $23 million, which compares to revenue of $17.3 million for the three months ended June 30, 2021. and almost a $3 million increase versus prior quarter. The year-over-year increase of $5.7 million was primarily attributable to an increase in net sales of Xfinity and the addition of a portion of net sales of Clearland sold in the U.S. Even without that additional net sales of Clearland, the base business demonstrated a very strong performance this quarter. Clearline sales during the ongoing transition period, including fiscal Q1 2023, have been in line with expectations, and MedEx has recognized a portion of net sales in its revenue accordingly. We expect to continue that strong performance following our U.S. launch of this product over the coming months. Gross profit was $12.9 million for the three-month period ended June 30, 2022, compared to gross profit of $6.9 million for the same period last year. The gross margin was 56.2% for the three-month period end of June 30, 2022, compared to 40.1% for the three-month period end of June 30, 2021. The $6 million increase in gross profit is attributable to the increase in net sales, as well as the impact of the failed batches of Xenity during the three-month period end of June 30, 2021. Selling and administrative expenses were 12.1 million for the three-month period end of June 30, 2022, compared to 11.7 million for the three-month period end of June 30, 2021. Research and development was 0.7 million for the three-month period end of June 30, 2022. This compares to 2.2 million for the three-month period end of June 30, 2021. The 1.5 million decrease was primarily attributable to a reduction in investments in the Xfinity Phase 4 clinical trial as it approaches its analysis and clinical study report stage. We also continue to invest a moderate amount of additional capital in the Xfinity manufacturing process improvement initiative. As a result, adjusted EBITDA for the three-month period and the June 30, 2022 was positive 1.9 million compared to negative 4.9 million for the three-month period and the June 30, 2021. The net loss for the three-month period and the June 30, 2022 was 1.4 million compared to net loss of 6.6 million for the same period last year. Also included in net income loss is a non-cash unrealized gain or loss on fair value of the embedded derivatives in our convertible debentures, which is sensitive to, amongst other things, fluctuations in our share price. We believe that adjusted net income or loss provides a better representation of performance of our operations because it excludes non-cash fair value adjustments and liabilities, which may be settled for shares. Our adjusted net loss for the three-month period end of June 30, 2022 was 3.6 million compared to 9.8 million for the three-month period end of June 30, 2021. Cash and cash equivalents was 7.3 million in June 30, 2022, reflecting a decrease of 2.7 million during the first quarter of fiscal year 2023. The reduction is due to anticipated working capital fluctuations. Our available liquidity was $8.7 million at June 30, 2022, which consisted of $7.3 million in cash and cash equivalents and an on-ground credit of $1.4 million available under our ABL facility. We are excited about our quarterly performance and continue to explore various financing strategies to enhance our liquidity to support our business plan, which includes an eventual launch of ShearSolphin in the United States. we have been consistent in executing our plan quarter after quarter with sequential revenue growth and increasing profitability.
spk07: We're looking forward to building that momentum towards an eventual launch of pure solvent and beyond.
spk00: Operator, we will now open the call up to questions.
spk10: Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset, if listening on speakerphone, to provide optimum sound quality. Once again, please press star 1 if you have questions at this time. Please hold while we poll for questions. The first question is coming from Justin Keywood from Stiefel. Justin, your line is live.
spk05: Hi, good morning. Thanks for taking my call and nice to see the profit improve in the quarter. Just on the triosulfan resubmission, if I understand correctly, the FDA will communicate if the submission is considered complete, at which point there would be a communicated timeline if I'm interpreting this correctly. I guess I have two questions around this. One, when the FDA will communicate that it considers the application complete, and what determines the review to be a two-month versus six-month time period?
spk06: Thanks. Thanks for the questions, Justin. So first, typically the guideline is that they have 30 days to communicate whether or not they believe the application or the resubmission is is complete. The company filed it, I think we stated July 22nd, so a couple more weeks to go before we would expect to hear from the agency. Secondly, the timeline and what determines the two or six months, that's up to the agency. It's dependent on how much data they need to review and the timeline that they feel they need to do that. For our planning purposes, we're assuming the worst-case scenario, which is up to six months. And remember, it is up to six months, so it could be shorter than six.
spk05: Okay, thanks. That's clear. And then just on the Glioland sales in the U.S., there was some language in the press release that helped the growth in the quarter. Are you able just to detail what exactly those sales were within the quarter?
spk06: Yeah, I'll turn it over to Marcel for the number. But yeah, obviously, we're trying to communicate that we're not yet selling product labeled with the Medexis packaging. So we're not booking full revenue. So what you're seeing so far is only a portion of that. We'll start to book full revenue, we think, during this quarter, probably towards the end of this quarter. that we're working in. So it's not until really next quarter that you'll see the full impact of Glioland, but we're pleased that it is making an impact already.
spk02: Marcel? Yes, sure. So we've said that historically this product had generated about $3 to $4 million per quarter, so we're recognizing about half of that, and as Ken mentioned, next quarter will be we'll be heading into a more meaningful quarter and then can, you know, as of Q3, then recognize the full revenue. So we'll give more details on this product. But the first quarter has been really encouraging already for this. So we're setting the stage for good growth going forward and we'll provide more information as we go along with this product launch.
spk05: Thanks. Can you remind us what the peak sales estimates are for Glirland in both Canada and the U.S.? ?
spk06: I'm not sure we really stated them, but we did guide that the historical levels are 12 to 16 million current sales, and we think we could probably double that. There's a lot more potential. The penetration of this drug in other developed markets is about double what it currently is in the U.S., so we think there's a good sales lift possible. plus there is a new indication that they're working on, meningioma, which is a non-cancerous brain tumor, if successful in the clinical program, would significantly increase the potential of the drug.
spk05: Thanks for taking my questions.
spk10: Thank you. The next question is coming from Rahul Sargasar from Raymond James. Rahul, your line is live.
spk09: Morning, Ken and Marcel. Thanks so much for taking our questions and congrats on the strong quarter. So my first question is on Glio. GlioLand, you know, clearly its contribution helped to drive your cash burn to, you know, a much more modest number than it's been in previous quarters, so getting pretty close to being cash flow positive. So I guess my question is that, you know, next quarter, once we see a full contribution of Glio, Are we looking at the company getting even closer, potentially right into the cash flow positive territory? And or are there any other factors that you're looking at in order to drive towards cash flow positive?
spk06: Yeah, thanks, Will. Great question. So I'll start and then let Marcel fill in any gaps. So clearly, the strategy behind Glioland was to help us apply the infrastructure that we already built for Creel cell plants against a currently marketable product. And so that's been successful. And we think Glioland will continue to grow, one, as we book full revenue and get the full economics of the drug, and then two, organically grow it. Plus, the community continues to grow. The channel's been reset. Patient demand is growing. So that will help. So we do believe that we're going to see sequential quarter-to-quarter growth
spk02: uh as we move forward and that's really what we've been doing for the past several quarters um yeah maybe just maybe just to add um you know we talk about cash for for glialand versus our overall cash cash situation and strategy obviously glialand as i mentioned as a reminder we had a very very low low up front for this product we expect this product to be as we start selling it quite soon. So it's going to be a contributor very early on. Of course, you know, in the overall picture and also related to Clearland, we're seeing purchases in inventory, for example, that now is part of the reason why our cash slide has declined. We've got some working capital fluctuations that were expected for this quarter end. And we've been carrying a $10 million cash balance more or less over the quarters and continue to work diligently on the next six months towards the TrioSolve decision, which will be fundamentally changing the company's financials at this point. So we're very mindful about that. And then we're planning the long-term post-Trio decision as well. So we're looking at various financing options to bolster our cash and make sure that this period towards the launch we're heading towards is going to be affected positively for the launch curve. Of course, that is a very important element of the next six months from a planning standpoint.
spk09: Great. That's very helpful. Thanks, Kent. Thanks, Marcel. So that's a really good segue to my follow-on question, which is, as you mentioned, Kent, You've built out already a lot of the foundational structure for launching of TRIO, assuming it is approved. And so given that you already are absorbing these costs, that baseline cost is relatively well set, once TRIO does start to hit the market, what would be a reasonable estimate for the proportion of those sales contributing to the bottom line for Medex's?
spk06: It obviously depends greatly on the launch trajectory, so the launch curve. We think that if there's been any benefit to the CRL over the past year, it's been that we've gotten far better prepared for launch. Remember, the timeline when we first licensed this was extremely short. Now it's more normal. So we do expect a better launch trajectory. We will add 16 people, six of which we've already added due to Glioland. So we're only adding an additional 10 at launch. So the increase in spending is not great. And the margin on TRIO is better than our current margins. So it's got a really strong gross margin. So it'll start to make the contribution pretty early on. So, you know, certainly in year two, it makes a, year two of launch, it makes a very strong contribution.
spk09: Great. And if you allow me to just finish with one last quick question. Now, of course, while you and all of us are quite optimistic about a positive result from the FDA Ontario, you know, in the small chance that it does not come back positive, What are some of the risk mitigation things and the cost mitigation things that you're putting into place should that eventuality come to pass?
spk06: Yeah, that's a great question. So we're not going all in on approval. We certainly believe it will be approved. There's no reason to think it won't. But what if it doesn't? We do have plans that say, okay, in that scenario, Um, you know, clearly there's lots of strategies could go in place. You could sell some assets. Um, we, we obviously will focus down on, uh, you know, on the business that we have, which that case will be going to be Cleo at, uh, our Canadian business. And so, you know, we'll just get focused in on what we have. You know, you can clearly see that we are, you know, we did 23 million in revenue and didn't book full wheel and this quarter. So clearly, We're over $100 million in revenue now. And so we've got a much bigger business now than when we licensed the TrailSulfan. So that may not have been obvious to people because we went and reset the channel on Xfinity and took a hit for three quarters while we were doing that. But clearly the business is far stronger now than it's ever been. and we will focus on executing our plan, which is to find other drugs in orphan drug and rare disease space. So our business development work continues, and so if it's not TRIO, it'll be something else.
spk09: Okay, great. Thanks, Ken. Thanks, Marcel. Congratulations again on the quarter. Thanks, Val.
spk10: Thank you. And the next question is coming from Andre Uden from Research Capital. Andre, your line is live.
spk01: Hi, Ken and Marcel. Just wondering if you can just discuss what you're doing with respect to Xenity's manufacturing process in terms of streamlining and also how that would impact margins.
spk06: Yeah, thanks, Andre. Great question. I'm highly underqualified to comment on exactly what they're doing because it's complicated. It's a biologic product. There's a lot of steps in the process. and so we have people who are going through all those steps and making improvements to Expand the yield and we have seen it working so You know, we're part way through that process and we've seen substantial improvements in the yield so we do expect that to start to work through and to our financials as we start to sell that product that benefited from the higher yields. And as that continues to improve, it should just get better. As you know, when we first launched Xfinity, its gross margin was lower than the rest of our portfolios, so we've been working to bring it up to that level, and maybe we'll get it beyond our average gross margin.
spk01: That's great. So just in terms of if you look at new product opportunities, what does the landscape actually look like in terms of purchase prices and what therapeutic areas are you seeing the opportunities primarily in? And maybe you could also just talk a little bit about the competitive landscape right now in terms of purchasing products. Are you seeing a process or can you just go a little bit into what you're seeing right now? That'd be great, thanks.
spk06: Sure. Clearly, there are a lot of products development products that companies are struggling for cash and looking for alternatives to bring those things to market. So there's lots of products available for pretty low prices that could be acquired. That's not our focus right now. It may be in the future if we have a successful real estate plan approval. So what we're looking for is products near market that won't require a lot of our cash. I think Glioland was an excellent example, little upfront, current sales, and we can grow it with our infrastructure. We are seeing other products kind of like that, whereby the developing company will bring it through to approval, and then we would pick up and manage a commercialization. So even without a strong balance sheet like where we are right now, we are seeing opportunities and some things we hope to execute on. But I would also say that, you know, we're pretty much laser focused on getting Creosulfan approved and commercialized, and that will be a massive improvement in our organization just due to the sheer potential that the drug has.
spk01: That's great. And what about, if you look at MedAct's portfolio, I know you have that option to license different products. Is there anything else that, that you see that could potentially fit into your basket?
spk06: Yeah, there's a few things. There's nothing as big as TRIO. I mean, that was the best product in the portfolio. There are a few other things that they may be working on, but we're not counting on that for our licensing pipeline.
spk07: Okay.
spk01: That's great. Thanks.
spk07: Thanks, Andrej.
spk10: Thank you. And the next question is coming from Scott Henry from Roth Capital. Scott, your line is live.
spk08: Thank you and good morning and congratulations on the strong results. I did have a couple questions. First, on the model, gross margins were a little bit higher than they'd been trending at least in the last quarter. Do you think this is representative of what we could see for the rest of the year, or perhaps was it just a strong quarter?
spk06: Thanks, Scott. I'm going to turn that over to Marcel to reply.
spk02: Yeah, thanks, Scott, for that question. And I would say a lot on the gross margin depends on the product mix. But as we said, specifically one of the drivers will be as we come out of the Xenity production improvement process, so we should see an impact of that. When Glialand comes online, we'll see probably the counter to that because of the role people will have to book. But on an individual product basis, we should see an increase quarter over quarter, and we'll elaborate that as we go along and explain the dynamics of the gross margin, which generally is positive on a product level.
spk08: Okay, great. Similarly on SG&A, the $12.1 million that you did in Q1, I would imagine sequentially we would expect that to go up, certainly as glial land fits more into the equation. Is that a fair assumption that we should expect sequential growth in the next, I would say, three or four quarters based on that alone, and then triosulfan could add more?
spk02: I would say that's a fair assumption. We will increase that mindfully, moderately, obviously, according to our cash balances with, as I mentioned before, one of the sort of next few quarters planning will be the tree assaults and the launch. We will definitely not... thinking about not, not, not thinking about that, not impacting that. Uh, but again, we might mindfully spend, spend on that, on that front. And on the clear land side, yes, we'll be, uh, um, increasing those experts a little bit. We had embedded a lot already in, in, in Q1, we started already, obviously, uh, that, that, that, that span. So you should see, you should see, uh, an increase, uh, on the, on the operate on the operating side, but as well, as we mentioned on the revenue side, uh, uh, sequential growth expected. over the next couple of quarters, so we'll be in line with that.
spk08: Okay, great. And then as well, I think you talked about potentially sequential growth in 2Q versus Q1. Now, if we pull out GLEOLAND in the U.S., because obviously that's acquisitional growth, how is the organic business sequentially growing? Was Q1 a strong quarter or should we expect, I mean, it was a strong quarter, but should we expect the base business to continue growing through the year or just trying to get a sense of how to think of the quarterly progression?
spk06: Yeah, so the base business organic growth is, you know, primarily related to Xfinity and then Rupal also in Canada. So Xfinity year over year, is benefiting very strongly from the correction of the channel. But there is also underlying patient demand growth. I think the sales team in the US and the marketing team there are doing a very good job getting patient growth for Xfinity. So we've got both of those factors that are working in our favor. So, you know, I think sequentially, We do expect organic growth in addition to the addition of glial land, which is obviously related to licensing. Okay, great.
spk08: Final question on the balance sheet, on the liability side. I know it's a little confusing with the different debt and business obligations on that liability side. Any debt due in the next, say, 12 to 18 months?
spk06: Let Marcel handle that.
spk02: Yeah, talking about the debt, it is a bit difficult to read the notes in the financial statements between short and long term, so we have to The debentures that will be next year, October, they can be settled in cash or in shares. That's the large part. And then the facility we have in place, the term loan, the $10 million term loan, which we started to pay down, and then the ABL will become due in the next 12 to 18 months. So we will definitely also anticipate that, address that. We have some time to do so. And we're fully aware of that, of these sort of two 12 to 18-month timelines of these loans becoming due then.
spk08: Okay, great. Thank you for taking the questions.
spk07: Thanks, Scott.
spk10: Thank you. The next question is coming from Prasath Panjurangan from Bloomberg. Prasath, your line is live.
spk11: Hi, good morning. Firstly, to follow on the Xfinity manufacturing process improvements, could you talk about the timelines as to when they're expected to complete and start impacting margins?
spk06: Thanks, Prasath. Yeah, good question. We've been working on this since we acquired the drug, so they're starting to impact margins now. and we'll continue to do so as we go forward, and we do expect continuous improvement. So it's a longer-term project, and so we are starting to feel the impact of the work that we've done quite a long time ago, and we will continue to see improvements as we go forward.
spk11: Great. And then on the SG&A project,
spk06: line item the jump uh is it purely a function of new reps being hired or is wage inflation also a factor uh i'll i'll comment and then ask myself to fill in the gaps um a lot of it's due to the additional three reps that we took on when we uh licensed the glial land so if you remember we took on uh some of their infrastructure so that's already built into our results for the full quarter uh and then i i guess there is some uh uh price inflation and wages um myself can you comment on it uh yeah sure yeah i would say this is about three to four different different factors here yes glenn mentioned that as ken mentioned the um the
spk02: The legal and full quarter effects, both on the on the hiring front, but also on the variable spending we now we now have as a in the base, we see a bit of an inflation in fact from for this q1 quarter for us that that includes some of the increases. We do have also a little bit of seasonality, I would say. Q4 is typically a little bit lower, a little bit lower quarter in terms of the variable spend. So there are various factors coming together for this jump, which we don't expect to continue in Q2.
spk11: Oh, that's useful. Thank you.
spk10: Thank you. And once again, ladies and gentlemen, you can still enter the Q&A queue by pressing star 1 on your phone at any time. The next question is coming from Tanya Armstrong-Withworth from Canaccord Genuity. Tanya, your line is live.
spk03: Good morning, gentlemen. Thanks for taking my questions. Just a couple for me here. On the R&D expense line, so that's come down meaningfully, which is great to see. Just wondering if you could provide us like a cost estimate of how much is remaining to prepare that clinical report. And I'm assuming the Xfinity manufacturing process improvement costs are also based into that line?
spk06: Hi, Kenny. Yes, you're correct. So what's in that line now is primarily the process improvement. There's some costs associated with the clinical program, but most of it being process improvement at this stage. Marcel, you got anything you can add there?
spk02: Yeah, it's the process improvement, which will be continuous, which will continue moderately, as I mentioned. But that makes the bulk of our R&D spent and also going forward.
spk03: Okay, excellent. And then on Glialand, I think you talked about the potential to double revenue just based on increasing penetration to where we see it in international markets. I guess, what is the timeline for You think you can do that, and I might be mistaken, but I believe the orphan drug designation comes off in June 2024. So we have another year and a half-ish. Is there the potential to extend your exclusivity beyond this?
spk06: So you're correct. That is the exclusivity period for Glioland. We don't really expect any generic competition. It would be a challenging area. And there is none elsewhere in the world, even without exclusivity. So we don't think that's going to happen. Obviously, there is some work the licensee partner is doing in meningioma that might afford us some protection going forward. So, you know, back to your original question, which, you know, about the growth potential in it, we'll, start relaunching the product, you know, in sort of September sort of timeframe. With the expanded sales force, we did announce previously that we're going from three reps to six reps in the U.S. for this drug. And so we think that will start to have an impact, you know, pretty quickly. I mean, the time to adoption is fairly short, you know, once we convince the hospitals to use fluorescent guided resections.
spk03: Okay, excellent. That's very helpful. And then I guess to follow on that question a little bit, what I've seen in some of your peer companies, we haven't seen a full normalization of salespeople interacting with physicians face-to-face. I guess with respect to Atria Self and Launch, Red New Drug, you want your salespeople out there selling it. What are you seeing in the market? Have things normalized in... Physician offices and hospitals are your sales people able to get in there and sell face-to-face or are they still using alternative means of selling?
spk06: Yeah, it's a great question and it's difficult to answer it because it seems to be changing constantly and regionally It's gotten way better. I mean clearly people want to interact now and so regardless of the status of the pandemic seems like people want to get together and So that creates access for salespeople. I think the Xfinity improvement is partially related to the fact that our Salesforce can actually get out there for the first time since we've had this product. Remember, we licensed it in February and went into pandemic the following month. So this is the first time that we've had our Salesforce really out there interacting in a more normal fashion. Hospitals continue to be an issue because Obviously, there's a lot of patients going and requiring ICU beds and other specialized care as a result of the pandemic. The access to those physicians is okay. So it's more a question of getting patients in to see those physicians so they can get care. I will remind you that stem cell transplantation, although it sounds like a very serious procedure and is, is actually administered in a chair. It doesn't take an OR. It's really just infusing blood cells back into the patient through an aporesis procedure. So it's not like you need highly, highly specialized care. After the transplant, obviously the patient needs to be isolated, but it doesn't require an OR space, which should help. And clearly we're projecting what this might look like out in the first half of 2023 when we do plan to launch. We hope that there'll be at least access like there is today, and perhaps it'll get a little bit better.
spk03: That's really great, Collier. Thank you so much, Ken. That's all from me.
spk07: Thanks, Anya.
spk10: Thank you. And the next question is coming from Russell Pearson. Russell is a private investor. Russell, your line is live.
spk04: Hi, Ken and Marcel. Congratulations on the quarter. My question is, you've got $15 to $45 million in milestone payments coming up in October 23, and you're expecting triosulfan if approved, which I believe it will be too. The selling will start in the first half of 23. So with that large milestone payment, potentially the $45 million, let's look at it that way, plus the debentures and whatever other debt there is, How are you going to meet this? Will you sell enough of the Triosulfan and the other products to meet all this debt or what is your overall plan?
spk06: Thanks, Russell. It's a great question. Clearly, there's a lot of balls in the air. We think that as we move towards a Triosulfan approval and the eventual decision, that various forms of capital will become available to us. In the last iteration, prior to the CRL, there were significant debt providers that are interested in supporting the launch of a pretty significant drug. So that would be one avenue we would go. Who knows what the equity markets will look like at that time. There's always the option of selling non-core assets and so forth. There's various strategies, all of which we're considering to make sure that we meet our obligations as they come due.
spk04: Okay, great. So it's manageable then. It's just a matter of which direction you decide to go to make that happen.
spk06: Yeah, well, we're working on it now. So clearly the deferral of the milestone with MEDAC was a significant step in that direction in that it takes the pressure off of us It allows us to focus on the execution of the launch rather than worrying about raising capital to pay the partner. Both ourselves and MedAct are very focused on achieving peak net sales. Clearly, we all want the same thing. We want to see this drug successful in the marketplace. And so deferring the milestone payments, I think, was a nice gesture for MEDAC to allow us to focus on the launch, which will benefit them as well.
spk04: Yeah, and that is great. That is really good. And then one other smaller question, but how is Q2 looking so far? Like it sounded like you and Marcel were saying that, you know, gross margin will improve as the quarters go on here. How's the first month of Q2 looking?
spk06: We're not typically giving any guidance, and one month is not significant. I think that as we go through the quarter, we'll see another strong quarter where we've been talking about this sequential improvement for a while and we've been executing on that. So we do expect that to continue as we go forward.
spk04: Okay, great. Sounds really good. Thank you, Ken.
spk06: Thanks, Russell.
spk10: Thank you. And there were no other questions in queue at this time. I would now like to hand the call back to Ken Dentremont for closing remarks.
spk06: Well, I want to thank everybody for tuning into the call today and thank you for all the great questions. We're really happy to interact with our shareholder base. You know, our core base business has demonstrated incredible strength with Xfinity sales now normalized and the strong performance out of Resuvo, Rupel sales are benefiting from another severe allergy season. So our core business is doing really well. We're thrilled with the fact that Greenland is now generating revenue in the U.S., and it will continue to do that as we assume that full commercial responsibility for the product this quarter and begin to recognize net sales in full. Our partner, MedAct, has submitted that additional data and supporting files to the FDA, and we look forward to an FDA decision once that submission is considered complete. So we think we're going to have a really strong fiscal 2023, and we look forward to
spk10: updating shareholders as news comes in thanks for tuning in thank you ladies and gentlemen this does conclude today's conference you may disconnect your lines at this time and have a wonderful day thank you for your participation
Disclaimer