Medexus Pharmaceuticals Inc.

Greetings. Welcome to the Medexus Pharmaceuticals third quarter 2023 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Victoria Rutherford, Investor Relations with Medexus. You may begin.

Thank you and good morning everyone. Welcome to the Medexus Pharmaceuticals third 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, the 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, is available on the company's website at www.medexas.com and on CDAR at www.cdar.com. As a reminder, Medexis reports on March 31st fiscal year basis, so the quarter ended December 31st, 2022, was the company's fiscal Q3, 2023. Medexis reports financial results in US dollars. I would now like to turn the call over to Ken D'Entremont.

Thank you, Victoria. Good morning, everyone. Thanks for joining us on the call today. We are proud to announce another record quarter for Medexis. As one key indicator, we achieved revenue of $28.7 million for fiscal 2023. We saw growth across all of our leading prescription products this quarter, which was further complemented by the addition of Glioland net sales in the U.S. Our third quarter revenue of $28.7 million compares favorably to $21.3 million for the same period last year. or 35% growth year over year. The $7.4 million increase is mainly due to an increase in net sales across our portfolio and the contribution from Gleeoland in the U.S. Third quarter adjusted EBITDA increased to $5.2 million compared to $1.9 million for the same period last year. The $3.3 million year-over-year increase is mainly due to the increase in debt sales I mentioned and the reduction in research and development costs. I would like to highlight this is our fifth consecutive quarter of positive adjusted EBITDA, demonstrating strength and stability in our product portfolio as we close out fiscal 23 and look ahead to fiscal 24. We produced a net loss of $1.5 million for Q3 compared to a net loss of $1.2 million for the same period last year. Our adjusted net loss, which adjusts for unrealized losses or gains related to our convertible debentures that are included in that loss, was $0.9 million compared to $3.4 million for the same period last year. As at December 31st, 22, we had $9.3 million in cash and cash equivalents with $10.1 million in total available liquidity. We are actively evaluating options regarding our capital structure, including as it relates to our debt financing arrangements with a view to preparing for planned future growth. I will let Marcel comment on this project later in this call. Turning to our specific product lines, our core business is still growing, and we continue to work on potential additions to our product portfolio to generate additional growth momentum. Xfinity saw strong unit demand in the U.S. during the trailing 12 months ended December 31st, 22. This reflects new patient conversions on top of stable existing base of patients following the resumption of in-person selling earlier in the year. We continue to improve the Xcinity manufacturing process, which has had a positive impact on Xcinity manufacturing costs. Rupal continued to see strong unit demand, achieving 25% growth for the trailing 12 months at the December 31st, 22. This continues Rupal's trend as one of the fastest growing antihistamines in the Canadian prescription market. This strong performance reflects successful execution of our sales and marketing initiatives over the five years since launch. Turning to Resuvo, unit demand remained strong for the trailing 12 months ending December 31st, 22, maintaining the product's leading position in the moderately growing U.S.-branded methotrexate market with a limited sales force allocation. However, increasing competition in the U.S.-branded methotrexate market continues to negatively affect Resuvo product level revenue. On MetalJect, MetalJect saw unit demand increase in the trailing 12 months ended December 31, 2022. This was despite the ongoing impacts from a generic entry into the Canadian methotrexate market in calendar 2020, although product revenue was negatively impacted due to a decrease in effective unit level prices. The trial for the Patent litigation we launched against the generic competitor in 2020 completed in January 23. We anticipate that the federal court, which is the court overseeing this trial, will issue its decision later in calendar year 23. In March of 2022, we acquired the exclusive right to commercialize Glioland in the U.S. As I mentioned, September 22 was the first full month And December 31st, 22, was the first full fiscal quarter where we recognized 100% of GLEOLAND net sales. Sales have continued to be in line with expectations. This reflects our successful execution of a seamless transition to full U.S. commercial responsibility and puts us in a position to continue executing on our commercial plan. We also actively pursue opportunities to build our product portfolio by licensing and acquiring new products and by exploring additional indications within our current product portfolio. The advancement of any one of these pipeline opportunities would provide significant step up in our growth profile. We are also pleased to welcome Harmony Gargis, Chief Medical Officer for Veve Healthcare and Manasi Tedesse. previously a senior executive at Pfizer and Vietris, to the Medex's board of directors. Harmony's significant experience leading medical affairs and medical regulatory matters and Manassi's strong management experience and expertise in corporate finance will undoubtedly be assets as we grow our business. In particular, I would like to highlight Harmony's medical leadership for over a dozen new drug applications and new product launches. and Manassi's 26 years of experience leading large commercial and cross-functional organizations. I will now turn the call over to Marcel, who will discuss our financial results in more detail. Marcel?

Thank you. Thank you, Ken. Total revenue for the three-month period ended December 31, 2022, was $28.7 million. an increase of 7.4 million compared to revenue of 21.3 million for a three-month period ended December 31st, 2021, and a 1 million increase versus prior quarter. The year-over-year increase of 7.4 million was mainly due to an increase in net sales across our portfolio and the contribution from VLM. As a reminder, the three-month period ended December 31st, 2022, is the first full fiscal quarter in which we recognized 100% of ClearLand revenues. Gross profit was $15.9 million for the three-month period ended December 31st, 2022, compared to gross profit of $11.5 million for the same period last year. The gross margin was 55.4% for the three-month period ended December 31st, 2022, compared to 54%. for the three months period ended 31st, 2021. The increase in gross margin is a result of product mix and ongoing improvements to the Xfinity manufacturing process, which has had a positive impact on Xfinity manufacturing costs. Selling and administrative expenses were 11.9 million for the three months period ended December 31st, 2022, compared to 10.7 million for the three months period ended December 31st, 2021. Research and development was 0.7 million for the three-month period ended December 31st, 2022. This compares to 1 million for the three-month period ended December 31st, 2021. The decrease was primarily due to reductions in investment in the Xfinity Phase 4 clinical trial as it approaches its analysis and clinical study report stage. As a result, Adjusted EBITDA for the three months period ended December 31st, 2022 was positive 5.2 million compared to 1.9 million for the three months period ended December 31st, 2021. This is another all-time high quarterly adjusted EBITDA and the fifth sequential quarter of positive EBITDA, which we view as a significant achievement for our company demonstrating the durability of our operations. The net loss for the three months period ended December 31st, 2022 was 1.5 million compared to a net loss of 1.2 million for the same period last year. We believe that adjusted net income or loss provides a better representation of performance of our operations because it excludes non-cash federal adjustments on liabilities which may be settled for shares. Our adjusted net loss for the three months period ended December 31st, 2022 was 0.9 million compared to 3.4 million for the three-month period ended December 31st, 2021. Cash and cash equivalents was 9.3 million at December 31st, 2022 versus 9.6 million at September 30, 2022. Our available liquidity hasn't changed versus prior quarter and was 10.1 million at December 31st, 2022, which consisted of 9.3 million in cash and cash equivalents and an undrawn credit of $0.8 million available under our AVL facility. We saw an increase of our accounts receivable and inventory positions versus prior quarter and the beginning of the fiscal year, and we anticipate seeing the benefits in our cash flow in the coming quarters. We're also actively continuing to evaluate options with respect to our capital structure. We're making very good progress on securing options to manage our near-term liabilities. and are in advanced stages of a competitive process that has involved a number of highly interested capital providers. We've been consistent in executing our plan quarter after quarter with sequential revenue growth and improving profitability. Again, this is the fifth consecutive quarter demonstrating positive adjusted EBITDA, and we're looking forward to continuing to build that momentum in quarters to come.

Operator, we will now open the call to questions.

Thank you. At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys. One moment, please, while we poll for questions. And the first question today is coming from Andre Uden from Research Capital. Andre, your line is live.

Thank you. Hi, Ken and Marcel. Just looking at your Xenity pediatric trial, when When should that approximately read out? If we could have a bit of color on that, and if that data is positive, when would you expect to file a supplementary BLE? Thanks.

Hi, Andre. Yeah, thanks for the question. The affinity trial, we would expect to file it first half of calendar 23, and that would hopefully end up with a decision latter end of the year.

And when should we expect our data around? Is that this quarter or next quarter?

We haven't decided what to do in terms of releasing the data. We do believe it is sufficient to support an application. So we haven't really contemplated putting the data out.

Okay. Okay. Thanks, Ken. That's it. That's my only question. Thank you.

Thanks, Andrej.

Thank you. And once again, ladies and gentlemen, you can press star one if you wish to enter the Q&A queue at this time. The next question is coming from Rahul Saragasar from Raymond James. Rahul, your line is live.

Good morning, Ken Marcel. Thanks so much for taking our questions and congratulations on the revenue this quarter. So in your pre-announced earnings, you talked about TRIO, the timelines around TRIO, which sort of push it up minimum about a year. And you had talked previously about the cost structure associated with that Salesforce, which is obviously applicable to different parts of the business. So we see that the SG&A did come down by a million dollars, which netted out as a positive contribution to you, which is great. So how should we be thinking about your SG&A going forward and sort of a right-sizing of that cost structure?

Yeah, good question, Ralph. Thanks for that. The Xfinity expenses are all completely allocated elsewhere now. So there is no spending associated with TRIO. So there's no TRIO spending. So everything's allocated. The restructure that we did in October took out anything that was applied to TRIO and the rest of the infrastructure got applied to the new Glioland product. Obviously, it's the same institutional cell. So going forward, we would expect the SEG&A to be basically what you saw this quarter.

Great. That's very helpful. And then this is a housekeeping question. You noted that the improving gross margins on Xfinity is helping with the bottom line. However, we did see a net increase in cost of goods. Can you give us a little more color on that and how should we be thinking about cost of goods going forward and total gross margin?

I'll make a bit of a comment and then turn it over to myself for a more detailed answer. It's really got to do with product mix. Remember, we brought Glialand in without really deploying any capital. And in exchange for that, we gave a higher royalty than we might normally. So that's part of it. And so it's mainly product mix. And so I'll turn it over to Marcel to give a little more detail.

Yeah, that's really what, again, that's what's mainly driving. We've got multiple sort of forces that are coming to Cox and go through Cox. One of the the upside forces is the Xfinity continuous improvement project that we talked about a few quarters ago, which we had in the inventory. Now we see the benefit in Cox, for example. This quarter, this is counted a bit by the Xfinity acquisition, so to speak, from the license perspective, where we said this product is a, as a reminder, very low upfront, but we're having about a 50%, 60% hit into Cox. for this product, so a bit of a counter-stack there, but bottom line, very accretive, very quickly as an investment. And then there is other elements in Cox that usually flow there where we monitor ups and downs. So on the margin side, this is going to continue to be driven by these forces, but again, going forward, mainly on the product mix, we'll keep an eye on that and we'll see these ups and downs.

Perfect. That's really helpful. And just one quick last question. You made very specific mention about continuously looking for new products and expanding the product portfolio, and as a result, the top line. Could you give us a sense for your pipeline? How should we be looking at your new product acquisitions in this year?

Yeah, great question. So, the way we're looking at it, we have two things. We do have a pipeline of products, you know, already built, including triosulfan, Xfinity Pediatric, Lidoline Meningioma, Triamcinol and Hexacetamide US. So, we do have a pipeline. And then we're looking to build that, obviously. And so, you know, licensing options are always good options when we don't have a ton of capital to deploy. So, that's primarily what we're looking at. And there's good opportunities there. We're We're very active, and we hope we've got something to announce soon. Great. Thanks again for taking our questions.

We'll get back in the queue.

Thank you. And the next question is coming from Prasath Panduranjan from Bloomberg. Prasath, your line is live.

Hi. Good morning, Ken and Marcel. Thanks for taking my question. I have just one. In terms of the options for capital providers that you're looking at, you know, given those, how do you look at interest costs going forward?

Hi, Prasath. Yeah, good question. So I'll start to answer that question and turn it over to Marcel, see if he's got anything more to add. I think you need to start with the background. You know, clearly, MidCap's been a fantastic debt provider for us. They were there to support the acquisition of Xfinity. And in 2020, they expanded that facility by $5 million. I guess that was September 22. So they've been a great partner. Our debenture holders are many of the big blocks are long-term Medexus investors. So we know them well. So those two groups have been great support for us growing our business. Now, as we go forward, Marcel mentioned, we've had five quarters of strong revenue growth, strong positive EBITDA. That opens the door to other debt providers. We're in discussions with a Tier 1 institutional lender that we think will help us with our growth plans into the future.

Thank you. That's very helpful.

Thank you. And there were no other questions in queue at this time. I would now like to hand the call back to Ken D'Entremont for some closing remarks. Ken, actually, we did get a couple more questions. Are you okay to take a few more?

Yeah, absolutely. Go ahead.

Okay. The next question is coming from Tanya Armstrong-Whitworth from Canaccord Genuities. Tanya, your line is live.

Thank you. Good morning, gentlemen. Firstly, I wonder if you can speak to the investment in working capital this quarter. uh for instance receivables were were up pretty meaningfully what exactly does that like why is this uh the investment that you've chosen and what is it doing for your free cash flow in future quarters hi tanya i'll turn that over to marcel oh yeah yeah hi tanya uh can take that so um you've

as we've um as we've said in in previous quarter as we've uh as we've grown the business now this particular quarter we've seen we've seen um our our cash cash position relatively stable quarter over quarter uh because we we're growing revenue obviously our accounts receivable has grown with it we've we've we've invested so to speak in india on the inventory side uh specifically in our two lead products and these you've also seen that some of our payables came down quarter over quarter and since the beginning of the year. So one of the effects of bringing a new product on board is obviously that we're collecting these receivables. It's a bit of an administrative process to collect those, but we are monitoring our receivables very closely. We had a very good quarter for Clearline, for example. So we're monitoring our cash position going forward as we always do, but expect some of the benefits, as I said, in my prepared remarks in the future quarters as we collect these receivables, for example.

Okay, excellent. And then if I'm not mistaken, I believe GLEOLAND loses orphan exclusivity in 2024. Could you just remind me what kind of IP protection you have for that asset and how long that's going to provide protection for?

You're correct. The IP runs out in that timeframe you just described. There are no generic competitors worldwide. So the LA API is managed tightly by our partner. So we don't really expect a generic competitor. There are actions on foot that will provide, we hope, some additional protection, but I can't talk about those right now.

Okay, excellent. And then lastly here, if for any reason the outcome of the MediJet litigation is not in your favor, do you have any plans for that product different than current? For example, would you perhaps reduce your Salesforce allocation to it?

Yeah, we've already done that. So, you know, it's getting a pretty minor allocation at this stage. You know, we've got Gliolan and Triosulfan in Canada, so that's where the allocation's gone. In spite of that, the, you know, the unit volume of Metaljet continues to grow, even with the generic direct competitor in the market. So, you know, we're really pleased with the performance of the product. Should we lose? We wouldn't change anything. Should we win, you know, we would be in line for pretty substantial recovery of losses, and we probably would put some Salesforce allocation back on the product.

Okay, excellent. Thank you. That's all for me.

Thank you. And the next question is coming from Julian Hong from Stiefel. Julian, your line is live.

Hi. Thanks for taking my question. This is Julian speaking on behalf of Justin today. And I was wondering if you could provide an update on the milestone payments regarding triosulfan, whether there's any discussions on extending or perhaps adjusting these adjustments, and what's the most likely outcome?

Hi, Julian. Good question. There are none due. We owe nothing unless it gets approved or until it gets approved. There is a contractual obligation to renegotiate the financial terms of the agreement in April of this year should the product not be approved by that point in time. And we obviously don't think it will be approved by that point in time. So those discussions are ongoing. Can't really comment on the outcome.

All right. Thank you so much for taking my question.

Thank you. And there were no other questions in queue. I'd like to turn the call back to Ken Denchamont for closing remarks.

Thank you, everyone, for joining the call today. This was an excellent quarter for Medexis, demonstrating both the strength and stability of our product portfolio and our ability to generate consistent revenue growth and positive adjusted EBITDA. We remain excited about all the opportunities within our product pipeline and will continue to work in advancing these projects. We look forward to a strong full fiscal 23 and continue our momentum into fiscal 24. Thanks for your time.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.