Medexus Pharmaceuticals Inc.

Good morning, everyone. Welcome to the Medexus Pharmaceuticals third quarter 2025 conference call. At this time, all participants have been placed on a listen-only mode. If anyone should require operator assistance during this conference, please press star zero on your phone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Victoria Rutherford, Investor Relations of Medexus. Over to you.

Thank you, and good morning, everyone. Welcome to the Medexus Pharmaceuticals Third Quarter 2025 Earnings Call. On the call this morning are Ken D'Entremont, Chief Executive Officer, and Brendan Bushman, 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 EBITDA and adjusted EBITDA margin, 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 reconciliations to net income and loss, please refer to the company's MD&A, which, along with the financial statements, are available on the company's website at www.medexus.com and on CEDARplus at www.cedarplus.ca. As a reminder, Medexus reports on March 31st fiscal year basis. Medexus reports financial results in U.S. dollars and all references are to U.S. dollars unless otherwise specified. I would now like to turn the call over to Ken D'Entremont.

Thank you, Victoria, and thank you, everyone, for joining us on this call today. We've had a busy and exciting month post-quarter. We saw the successful completion of the FDA review process for Grafipex, and we completed a $30 million Canadian dollar public offering of common shares just last week. Between the strong fiscal Q3 and the net proceeds of the offering, we believe we are in a great position as we prepare for the launch of Graphopex in the United States. I will speak more to these developments in a few moments, but I want to quickly hit on our financial highlights from the quarter. We're pleased with the fiscal Q3 25 results, particularly our stable revenue, positive net income, and strong adjusted EBITDA. which have allowed us to continue preparing for the launch of Graphapex in the first half of calendar year 25, meaning that we expect product to be commercially available by April 25. Our fiscal Q3 25 revenue was $30 million, an increase compared to $25.2 million for the same period last year. Our fiscal Q325 adjusted EBITDA was $5.8 million, an increase compared to $3.2 million for the same period last year. We continue to produce positive net income of $0.7 million for the quarter, an improvement of $1.2 million over the same period last year, and positive operating income of $3.8 million, an increase of $2.8 million compared to $1.6 million for the same period last year. These important metrics for fiscal Q3 continue to reflect the financial discipline initiatives we implemented last year in our operating cost and cost structure. They also reflect around $1.9 million of fiscal Q3 2025 operating expenses in support of Graphapex, which is a change from fiscal Q3 last year. Turning to our specific products, I would first like to talk about Graphapex, as this product will provide a substantial uptake to our growth profile over the coming years. On January 22nd, we learned that the FDA had approved Grafapex, which is our branded name for Triosulfan for injection in the US. Grafapex holds orphan drug designation under the Orphan Drug Act, meaning that the product will benefit from at least seven years of regulatory exclusivity in the FDA approved indication. We hold exclusive commercial rights to Grafipex in the United States under a February 2021 exclusive license agreement with our strategic partner, Medac. We are targeting a commercial launch in the first half of calendar year 2025 with product expected to be commercially available by April. We believe that annual product level revenue for Grafipex has the potential to exceed $100 million within five years after commercial launch. Given the FDA approval, we do now owe a regulatory milestone payment to our partners at MEDAC. The amount payable to MEDAC is based on the language of the product label approved by the FDA. We have determined that MEDAC has earned a $15 million regulatory milestone amount And we are working with med act to confirm that amount in light of the terms of our agreement. The milestone amount is payable in installments. So for a $15 million milestone, we would pay 2.5 million by June 30th, 2025 5 million by October 1st and 7.5 million by January 1st, 26. Although we have the right to temporarily defer some of these amounts in Canada, Unit demand for Tricondo grew by 55% over the trailing 12-month period ending December 31, 2024. This strong performance does not yet include the effects of our successful November 24 completion of negotiation process with the Penn Canadian Pharmaceutical Alliance and subsequent decisions by participating government organizations on public reimbursement of Tricondo. To date, BC and Ontario have executed listing agreements to reimburse to conduct in those provinces. Accinity unit demand in the United States decreased by 1% over the trailing 12 month period ending December 31st, 2024. We expect that unit demand will remain stable over the remainder of fiscal 25. This performance reflects the success of our efforts to maintain existing demand despite a reduction in allocated Salesforce resources to Xfinity since January 24. Our investments in Xfinity manufacturing process improvement initiatives have greatly had a positive impact on batch yield and manufacturing costs, now extending into fiscal year 2025. Glean-O-Land unit demand in the United States grew by more than 8% over the 12-month period period ending December 31st, 2024, as our commercialization efforts continue to result in new customers adopting the product. We continue to discuss the future of our involvement in commercializing glialand in the United States with our licensing partner, and we'll provide an update if and when warranted. Propel unit demand in Canada increased by 18% over the trailing 12-month period ending December 31st, 2024. RuPaul's market exclusivity, granted by Health Canada, expired in January 2025. We expect that RuPaul will now begin to face generic competition in Canada, and we have initiated a strategy to support the product in this context. The SUBO unit demand in the United States and MetalJet unit demand in Canada both remained strong during fiscal Q3 2025. although the factors we have discussed in the past have continued to affect product level revenue. On trabenafine hydrochloride, a nail lacquer to treat nail fungus infections, we recently received a notice of deficiency from Health Canada regarding our new drug submission for the product. The notice identified concerns and uncertainties associated with the design of the phase three trial submitted to support the requested indication and the interpretation of the efficacy results. We remain focused on building our North American allergy and dermatology franchise, but in the meantime, we have redeployed resources to support other portfolio products in this therapeutic area, including Lupal and NIDA. In sum, we continue to focus on maintaining stability in our base business and generating cash from operations as we prepare for the launch of Grafitex in the United States, and other potential revenue opportunities in the future. I will now turn the call over to Brendan, who will discuss our financial results in more detail. Brendan?

Thank you, Ken. This quarter, we were pleased to have generated $5.8 million of adjusted EBITDA from $30 million of revenue for an adjusted EBITDA margin over 19%. We also generated $0.7 million of net income. These results are due to a strong quarterly performance enhanced by in-quarter customer buying patterns for Xenity, successful execution of our targeted reductions in operating expenses, and a streamlined capital structure. We also continue to generate meaningful cash from our operating activities with operating cash flow of $6.7 million in the quarter. Turning to the full quarterly results, total revenue for fiscal Q3 2025 was $30 million, which represents an increase of $4.8 million compared to 25.2 million for the same period last year. The $4.8 million year-over-year increase was attributable in part to continuing growth in net sales of Group HAL and an approximately $2 million beneficial impact of customer buying patterns of Xfinity. Gross profit was $15.2 million for Q3 2025 compared to $12.7 million for the same period last year. Gross margin was 50.7% for Q3 2025, which is consistent with the 50.3% we achieved in the same period last year. Selling and administrative expenses were $11 million for Q3 2025 compared to $10.7 million for the same period last year. As Ken mentioned earlier, we have begun making more significant investments in personnel and infrastructure to prepare for the commercialization of Graphopex, which are reflected in SG&A expenses. These investments totaled $1.9 million in fiscal Q3 2025, and we expect this spending to increase to approximately $4 million in fiscal Q4 2025 and stabilize at around that level quarterly thereafter. Adjusted EBITDA was $5.8 million for fiscal Q3 2025, an increase of $2.6 million compared to $3.2 million for the same period last year. The increase in adjusted EBITDA was primarily attributable to the effects of our ongoing financial discipline efforts, together with the effects of customer buying patterns mentioned earlier, and partially offset by our Graphapex personnel and infrastructure investments. Net income was $0.7 million for fiscal Q3 2025, reflecting a $1.2 million increase compared to a net loss of $0.5 million for the same period last year. This is our fourth consecutive quarter of positive net income, and we look forward to striving for positive net income in the quarters to come. Cash on hand of $8.4 million at December 31, 2024 compares to $7 million at September 30, 2024 and $5.3 million at March 31, 2024. We continue to generate cash from our operating activities with quarterly operating cash flow of $6.7 million compared to $5.5 million for fiscal Q3 2024. As Ken previously mentioned, in January 2025, we completed a public offering of common shares for 30 million Canadian dollars of aggregate gross proceeds or 28.3 million Canadian dollars of aggregate net proceeds before expenses, which in U.S. dollars is approximately 20.9 million gross or 19.7 million net. As of December 31st, we had a combined $40.9 million outstanding under our two BMO credit facilities, consisting of $3.5 million drawn under our revolving credit facility and the remainder outstanding under our term loan facility. As always, there can be variability in quarter-to-quarter results, but we look forward to continuing to build the company and its portfolio in the coming quarters and beyond. Operator, we will now open the call to questions.

Thank you very much. At this time we'll be conducting our question and answer session. If you would like to ask a question, please press star 1 on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you would like to remove your question from the queue. For any participants using speaker equipment, it may be necessary to pick up your handset before you press the keys. Please wait a moment whilst we poll for questions. Thank you. Your first question is coming from Michael Freeman of Raymond James. Michael, your line is live.

Thank you. Good morning, Kevin, Brendan. First, congratulations. This was a high-action period here, so congrats on all your success, and looking forward to the launch of Graphopex. My first question is on Xfinity. Apparently we saw some strength in Xfinity purchases this quarter. I read in the MD&A that, you know, these were partially as a result of, you know, contractual purchase agreements entered into with your largest pharmacy partners. So I wonder if you could shed any light on, I guess, those contractual agreements and I guess what other sources of demand you might be seeing in Xfinity specifically. Thanks.

Thanks, Michael, and a good question. So, yeah, Xfinity was significantly stronger than expectations. The partners that we're referring to are specialty pharmacies that typically purchase this product based on what their needs are for the underlying customer demand. And it was just stronger than we had expected for that quarter. We do expect it to kind of pull back a little bit. And so I think what the guidance that we provided historically, you know, is more in line with our expectations going forward.

Okay. All right. That's helpful. Now, turning over to GLEOLAN, I wonder if you could give further color on the status status of that negotiation with the licensing partner. What would the partner need to see to continue on the agreement with you guys? And then is Medectus motivated to keep this asset and invest in sales if that was required?

Yeah, I think as we previously said, neither party is satisfied with the performance of the drug, even though we put significant effort behind it. It's responded, you know, with single-digit growth. As we pointed out this, you know, this quarter, we saw 8% unit growth over the generally 12 months, which is decent, but, you know, not sufficient for us to be excited about continuing to promote the product going forward. So, you know, the team's done a really good job on, you know, what has been, you know, kind of a mature product.

Okay. So, so to be, to be clear, um, you know, you've, you've put in a strong sales effort, um, and, uh, you're, you're seeing growth, but not, uh, not, not meaningful enough to motivate further investment in promoting this drug.

Yeah, I think that's, that's pretty well stated. So, you know, we, we were evaluating the various options with the partner. Um, and you know, once we have something to, uh, disclose, we, we clearly will.

Okay. All right, thank you. I'll pass it on for others to ask about the benefit and so on. Thank you.

Thank you very much. Your next question is coming from David Martin of Bloom Burton. David, your line is live.

Thanks for taking my questions and congratulations. You mentioned you're working to confirm the milestone amount with MEDAC. Have they commented on the milestone amount or your interpretation of what you owe?

No, not at this stage. I mean, obviously, we each are reviewing the agreement as it's described. It's our view when we do that, the $15 million milestone has been earned, and so we're waiting for a Med-X confirmation on that.

Okay. And second question, have you finalized pricing for Graphopex and do you expect reimbursement from Medicare by the time you launch in April?

So we are in the process now of those reimbursement discussions. So we haven't set the price yet. We do believe that there is a very strong cost avoidance when using our drug relative to busulfan. So we are in the midst of getting those in place. Not really sure of the timing of the various payers that will come into play. We've obviously said that we think that product will be available by April, which is a very short time frame. So some reimbursement will start to fall into place, but it's going to take a few quarters before we get everything lined up.

Okay, thanks. That's it for me.

Thank you very much. Just a reminder, if there are any remaining questions, you can press star 1 on your phone keypad now. Your next question is coming from Scott Henry of Alliance Global Partners. Scott, your line is live.

Thank you, and good morning. A couple questions. I guess you made a couple quick comments on terbenafine. That looks like a pretty significant roadblock. Is my interpretation of that correct that, you know, that's a pretty big delay would be my guess?

Yeah, so we're in negotiation with the partner who conducted the clinical study, but a notice of deficiency obviously is a significant challenge, so we will see what that means for the future of the drug. Uh, I think it's clear from our perspective that, you know, we won't, uh, be investing, uh, further in the drug. Uh, it's yet to be determined what the partner wants to do.

Okay. Fair enough. And then, uh, if we assume that you do the 15 million is the milestone payment, uh, you know, first of all, congratulations on the capital raise. Uh, I know you guys have, uh, I've been band-aiding it for a while, and that's a significant addition to your balance sheet. Do you think the capital you have now, does that kind of get you home to where you need to be to get through all of these milestones, assuming that things move somewhat in line with your forecast?

Yeah, great question, Scott. I'll turn it over to Brendan for that.

Yeah, the short answer is yes. With this equity raise, we've really strengthened our balance sheet. We've always been very mindful of making sure we have as much optionality and flexibility as possible. And so with this, I feel very confident in saying we've very adequately sort of de-risked our balance sheet, and we don't see any – we don't see ourselves in a position where we're going to have to do anything further to sort of satisfy those obligations.

Okay, that's great. That's quite an accomplishment for you all. Another question, and I don't even know, you know, kind of why I'm asking this question, but, you know, you sell product in Canada. You sell product in the U.S. These tariffs, they're not there. They were there. They're not there. In any way, if the tariffs come back into play, does that impact your business? If you have things that cross-border or go back and forth, is that an issue at all?

Yeah, that's a good question. Obviously, with the events of last weekend, everyone scrambled to try and figure out what the implications might be, as did we. So, Brendan's done some calculations in a worst-case scenario, and I'll turn it over to him just to describe what that would mean.

Yeah, no, perfect. So, and to be clear, we don't have any inventory that moves across the Canadian US border. our exposure would be if the tariffs were to be applied to Europe. We do bring in a number of our products from Europe. So, as a reminder, Xinity, our largest product, is manufactured in the U.S., but a number of our other large products that we sell in the U.S., Grafipex and Resuvo, are manufactured in Europe. So, in that case, there would be a modest expectation of tariffs. It would not be material, and we are very confident in our ability to kind of manage that without any sort of adverse impact on the business.

Okay, great. And then another question. Given that you have Graphapex approved, I think your experience with Tricondy is more important as it may be suggestive of what we could expect in the U.S. Could you talk about that experience and, you know, why you seem pretty optimistic based on your Canadian experience that this market could be ready in the U.S. as well?

Yeah, it's our view that the clinical practice patterns in the U.S. and Canada are quite similar. So when we look at the uptake of tricondive, you know, trisulfan in Canada, it's been really strong. particularly in pediatrics, which makes sense because organ toxicity is an even bigger issue in that group of patients. But it's also been quite strong in adults. And all of this is prior to having any reimbursement. And so, you know, that bodes really well for the U.S. in that, you know, the hospitals in Canada have taken up the product and paid for it out of their existing hospital budgets because, one, the outcomes are better. Clearly, you know, survival is much better. But also there's certain cost avoidance where the hospital saves money as a result of using our drug rather than the other drug. So, you know, we think all of those things bode very well for uptake in the U.S. And, you know, it's obviously very early going. We have the launch meeting. The tandem meeting is next week. It's the largest meeting of U.S. transplanters. So we'll get a lot of feedback there, but already we're getting inbound interest for the drug, and we're working to find a way to supply prior to commercial product being available.

Okay, great. Thank you for that, caller. Final question, and I apologize for the many questions. Q3, fiscal Q3, had a lot of positive variants. When we think to fiscal Q4, should we expect revenues to look more like the second quarter than the third quarter? Should we expect some kind of reversion to the mean? Thank you for taking the questions.

Yeah, that's a great question, Scott, and we're debating that now. We think it would be conservative to consider previous quarters as more normal revenues. This most recent quarter, it was really strong for Xfinity, and we're not quite able to put our finger on it exactly as to why. We certainly see the increased uptake by some of our specialty pharmacy partners, and we're trying to determine what's happening with the underlying demand. In our view, it looks like it's kind of flat, so it doesn't justify the increase in purchasing. But we don't get to see all of the demand. It's not 100%. It's probably more like 70% of the demand that we see. So there could be something happening in the other segment to the positive that is driving this, but we don't yet know. So I think to be conservative, we would guide more towards previous quarters rather than Q3.

Okay, great. Thank you for taking the questions.

Thank you very much. Your next question is coming from David Martin of Bloombergton. David, your line is live.

Thanks for taking the follow-up. You mentioned a large meeting of U.S. transplanters and inbound interest from the U.S. I'm wondering, have you reached out to potential KOLs in the U.S. to support the drug and work towards a plan of getting it into guidelines, or is that starting now?

Yeah, it's a great question, David. So yeah, if you remember, we had brought on a bunch of people at risk prior to the decision with the FDA. So a lot of that work had already started. So yes, absolutely. We've been working with KOLs to help support the commercial launch and where we want to go. So absolutely, that has been happening. It's in full force now. and we'll have a significant presence at the tandem meeting next week.

Okay, great. Thanks.

Thank you very much. Well, we appear to have reached the end of our question and answer session. I will now hand back over to Ken for any closing comments.

I just want to thank everybody for participating in this call. We're very pleased with the past quarter's results. Our core portfolio continues to provide Medexus with a solid foundation as we prepare for the next phase of our growth, specifically Graphapex. We look forward to the opportunities that lie ahead in fiscal 25 and beyond. Thank you, everybody, for joining the call today.

Thank you very much. This does conclude today's conference. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.