Nuvo Pharmaceuticals Inc.

Good morning. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to Moravo Healthcare's Q4 2021 Results Conference Call and Audio Webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. Jesse Ledger, President and CEO, you may begin your conference.

Great, thank you. Good morning, everyone, and thank you for joining our call today. On the call with me this morning from Marabo is Mary Jane Burkett, Marabo's Vice President and Chief Financial Officer, and Tina Lucades, Marabo's Vice President, Secretary, and General Counsel. This morning's call makes reference to a presentation on our website that should be viewed concurrently. If you have not downloaded this presentation, I would invite you to do so now by visiting marabouhealthcare.com and scrolling down to the bottom of the page. You can then click on the link. Before we begin, I'd like to remind everyone that some of the statements made during this presentation may be considered forward-looking. The company cautions investors that results of future operations may differ from those anticipated. We ask you to review the cautionary statements and other information contained in the company's filing on CDAR, including the company's Q4 and full year 2021 financial statements and MD&A, and the annual information form for fiscal 2021 that were filed today, which identifies certain factors that could cause actual results to differ materially from those projected in any forward-looking statements made during the call. Copies of the annual information form and other filings are available online. The Moravo business boasts a diversified commercial product portfolio of over 20 products. We are continuing to see organic growth of our key promoted brands through market share expansion and have also recently launched or anticipate launching in the near future new products both in Canada and international markets. Our existing business has a proven track record and is well positioned for continued growth. Our financial results for the year and our strong cash position demonstrate the resiliency of our business in the face of the COVID-19 pandemic. Despite the challenges posed by the evolving COVID-19 pandemic, our diverse business remains well positioned for growth, and we continue to pay down our debt on a quarterly basis. Our commercial business segment continues to grow organically through the efforts of our commercial sales and marketing team. This business segment contributed $11.8 million or 67% of total revenue for the fourth quarter of 2021. Our three key promoted products, Blexton, Cambia, and Suvex, continued to demonstrate year-over-year prescription growth and generated $8.8 million in revenue for Q4. Overall, our commercial segment represents 67% of our total revenue for fiscal 2021. All of our promotional efforts remain focused on Blexton, Cambia, Suvex, and Neovisc. However, the remaining mature products in our commercial segment, highlighted on the next slide, continue to contribute in a meaningful way to our bottom line. These mature products have either lost market exclusivity to their competitors or are not in our core therapeutic focus areas. During the quarter, the revenue in our licensing and royalty segment was $2.7 million, or 15% of our total revenue. Royalty revenue is generated from licensing of our intellectual property and related products globally under exclusive licensing agreements. Our royalty revenue has been negatively impacted by continued reductions in net sales of Vamopo in the United States as a result of generic competition, which entered the market in 2020. As well as a stronger Canadian dollar against the U.S. dollar reduced the contribution from certain U.S. dollar denominated royalty streams. We do see continued growth potential for our licensing and royalty business as we remain focused on identifying new international partnering opportunities for our products in this segment. The production and services segment revenue for the fourth quarter was $3.2 million, or 18% of total revenue. The sources of revenue in this segment are from products manufactured by our facility in Varennes, Quebec, or from product contract manufactured for Moravo and supplied to Moravo Distribution Partners. I will now turn the call over to Mary Jane, who will take you through our financial results for the fourth quarter and fiscal year 2021.

Thanks, Jesse. Today's presentation includes references to non-IFRS financial measures, specifically adjusted total revenue, adjusted EBITDA, and cash value of loans. These measures are not recognized under and do not have standardized meanings under prescribed by IFRS. These measures should be considered as supplemental in nature and not a substitute for the related financial information prepared in accordance with IFRS. The company believes that shareholders, investment analysts, and other readers find such measures helpful in understanding and assessing the company's financial performance. For a description of how Mirabo defines these non-IFRESH measures, as well as the reconciliations of these measures to our financial statements, please refer to slides 26 through 28 of this presentation, which is posted on the Mirabo website, as well as management's discussion and analysis filed on CDAR. For your reference, slides five through eight outline the products and related revenue streams that comprise each of the company's business segments, which are referenced throughout the presentation. Adjusted total revenue was $17.8 million and $69.4 million for the three months and year ended December 31, 2021, compared to $17.3 million and $71 million for the three months and year ended December 31, 2020. The $1.6 million decrease in adjusted total revenue in the current year was due to a decrease of $6.7 million of revenue from the licensing and royalty business segment and a decrease in revenue of $0.7 million in the production and service business segment, slightly offset by an increase in revenue of $5.8 million from the commercial business segment. Revenue attributable to the commercial business segment increased during the year ended December 31, 2021, due to a $7.3 million increase in sales of the company's promoted products, Blexton, Cambia, Subex, and Neobix, offset by a $1.5 million decrease in sales of the company's mature products. The production and service business segment revenue decreased in the current year, primarily due to a decrease in Pensee 2% and results product sales, as well as a stronger Canadian dollar against the U.S. dollar, which reduced the contribution from U.S. denominated product revenue streams, mainly Pensee 2% for the U.S. market. The decrease in revenue in the licensed and royalty business segment during the year ended December 31, 2021, was primarily due to a $4.5 million reduction in U.S. Vamobo royalty revenue as a result of a competitor launching a generic version of Vamobo in the U.S. during March 2020, as well as a stronger Canadian dollar against the U.S. dollar, which reduced the contribution from U.S.-denominated royalty streams during the current year. In addition, the comparative year the company received a U.S. $1.8 million milestone payment net of withholding taxes related to the use of its Yosprela intellectual property in Japan. Adjusted EBITDA was $3.4 million and $22.2 million for the three months and year ended December 31, 2021, compared to $6.2 million and $28.4 million for the three months and year ended December 31, 2020. During the current year, a $5.5 million increase in gross profit from the company's commercial business segment, net a $1.4 million decrease in inventory step-up expense, was more than offset by a $6.7 million decrease in contribution from the company's licensed and royalty business segment, a $1.5 million decrease in gross profit contribution from the production and service business segment, and a $1.9 million increase in sales and marketing expenses. During the three months and year ended December 31st, 2021, the company repaid US $2.5 million and US $10.8 million of the amortization loan to Deerfield, reducing its cash value of loans outstanding to US $88.4 million. Since the inception of the Deerfield financing on December 31st, 2018, the company has repaid US $30.1 million towards the Deerfield loan, The interest rate for both the amortization loan and convertible loan is fixed at 3.5%. The company anticipates making a U.S. $2.8 million payment to Deerfield this week. As of March 25th, the company had 11.4 million shares outstanding. Attached to the company's amortization loan are 25.6 million warrants issued to Deerfield at a $3.53 Canadian strike price. of which 12.3 million are currently classified as flexible exercise shares. The company's convertible loan may be converted into common shares of the company at Deerfield Options at a U.S. $2.70 per share conversion. Bravo shares closed at $1.40 per share on March 25th. The company's amortization loan and convertible loan mature and outstanding warrants expire on December 31st, 2024. As at December 31st, 2021, the company had cash on hand of $30.9 million with an enterprise value of $97.5 million. Jesse will now continue with our business update.

Thanks, Mary Jane. Our growth strategy is driven by five components. First, we are focused on targeted in-licensing or acquisition of growth-oriented products which leverage the company's in-house commercial and scientific infrastructure. Second, We plan to further grow and expand our Canadian business with the continued organic growth of our existing products and the commercial launch of new products, like the two new line extensions of Neovisc, launched in early January of 2021, and the launch of two new pediatric formats of Blexton in the last month. Third, our international business continues to grow through our license and distribution partnerships worldwide, like our Suvex deals in Europe and Korea. We've remained focused on business development activities to monetize our international product portfolio. Fourth, we are working on opportunities to leverage the free capacity of our manufacturing facility in Quebec through international partnerships for Pencet 2% and other contract manufacturing opportunities. Finally, the company holds over 100 patents globally and has several patent applications pending, including new IP for a revised and improved reformulation of results. We continue to develop a strong patent portfolio to protect our products. Our executive management team has a proven history of successfully completing merger and acquisition and business development integration. Most of the products in our current portfolio exist because of business development or BD activities. And our current management team was involved in sourcing, closing, integrating, and or launching the products that came out of these BD transactions. As you can see from this current slide, our team has extensive experience in M&A and business integration, as well as commercial launch experience, both as part of the Marabo team and in previous roles. We have established relationships with a variety of partners worldwide. Partnering with global licensors, licensees, and distributors is an important component of our strategy for growth, and we continue to seek partners who are the best fit for promoting our key products. Our partners are big and small, global and regional. We know how to work effectively with partners and believe this helps differentiate us from many of our peers. Turning back to our commercial business segment, Suvex, our prescription medication indicated for the acute treatment of attacks with or without aura in adults, we launched this innovative and clinically differentiated treatment for acute migraine in the approximately $130 million Canadian market in September of 2020. According to IQVIA data, during 2021, over 11,500 prescriptions were written with approximately 0.8% of total prescription or TRX market share achieved as of year end 2021. While we are pleased with the results achieved so far, we acknowledge that the evolution of the COVID-19 pandemic continues to challenge the company's Suvex commercial efforts. In particular, despite the easing of many COVID-19 government restrictions within Canada and the uptake of people receiving COVID-19 vaccinations, many prescribers have not resumed to seeing patients in person at pre-COVID-19 pandemic levels. We anticipate that the gradual return of in-person patient physician visits over the coming quarters will provide enhanced opportunities for patient education and new prescription growth. We continue to advance our product pipeline towards commercialization. Earlier this year, we launched Blexton Pediatric after obtaining Health Canada approval in August 2021. Blexton Pediatric is indicated for the treatment of seasonal allergic rhinitis and chronic spontaneous urticaria in children as young as four years of age and includes two new dosage formats, a 2.5 milligrams per ml oral solution and a 10 milligram quick milk tablet. These new products will help to further strengthen our relationship with allergists, dermatologists, and primary care physicians who treat allergy and urticaria patients. Two of our key growth assets, Blexton and Cambia, have continued to grow in both revenue contribution as well as prescriptions during the quarter in spite of COVID-19 impacts. Blexton demonstrated continued year-over-year growth of total prescriptions or TRX and TRX market share. Blexton Q4 and full-year 2021 TRX increased 20% and 21% over the same periods in 2020. Blexton year-to-date prescriptions are growing at a rate three times faster than the entire prescription antihistamine market in Canada. Flexetin Q4 2021 TRX market share increased to 17.9% compared to 15.8% for the comparable period in 2020. Flexetin captured year-over-year market share from our number one competitor, cetirizine or reactin. Our sales force is back in the field in interacting with healthcare providers in person when they can. While we believe in-person and evidence-based interactions with healthcare providers is extremely important to supporting a brand, we will continue to embrace virtual promotional opportunities which enhance our Salesforce reach in a very cost-effective way. We expect ongoing year-over-year growth and market share gains in the prescription antihistamine market in the quarters to come. Blexton will enjoy market exclusivity in Canada through October 2024. Turning to our other second key growth product, Cambia, an innovative prescription treatment for acute migraine. Cambia is the only prescription NSAID approved in Canada to treat acute migraine. It acts fast and begins to work in as little as 15 minutes. Cambia Q4 and full-year 2021 TRX increased 3% and 8% over the comparative periods in 2020. Cambia year-to-date prescriptions are growing at a rate four times faster than the entire prescription migraine market in Canada. That's the prescription acute migraine market. Cambia Q4 2021 TRX market share was 5%, consistent with a comparable quarter in 2020. And Cambia will also benefit from patent protection in Canada through mid-2026. Slide 21 highlights how we are expanding the geographies where our proprietary products are commercialized and generating revenue. In July, Marabo Ireland entered into an exclusive license and supply agreement with SK Chemicals for the right to commercialize Suvex in the Republic of South Korea. Maravel Ireland will receive up to 1.1 million euros in upfront regulatory and sales-based milestone payments, as well as mid-high single-digit royalties on net sales of Suvex in South Korea, and revenue pursuant to the supply of finished product. The Korean FDA regulatory decision is expected in the fourth quarter of 2022, and subject to regulatory approval, the commercial launch is anticipated in early 2023. In December of 2020, Moravo Ireland entered into an exclusive license and supply agreement for Suvex with Orion Corporation for select EU markets, primarily in the Nordic and Baltic regions. Orion is responsible for obtaining and maintaining the marketing authorizations for Suvex and will also manage commercial activities for the European markets covered under the agreement. Moravo will earn royalties on net sales of Suvex in those territories. Finland regulatory approval decision, which is the first market that Suvex would be approved in, is expected in Q2 or Q3 of this year, but a commercial launch anticipated in the first quarter of 2023, obviously subject to regulatory approval. Moravo and our partner, Orion, anticipate that Suvex will enjoy at least nine years of market exclusivity in the Orion territories upon approval. In February 2021, Moravo Ireland entered into an exclusive license and supply agreement with the Mentholatum Company for the exclusive right to commercialize the results formula in technology in the United States under the brand Mentholatum Kids Headlights Removal Kit. The Mentholatum Company manages all U.S. specific commercial activities and Moravo Ireland earns revenue from the Mentholatum Company pursuant to the supply of finished product under this license agreement. The mental aid and company commercially launched results in the U.S. in October of 2021. Our licensee for PenCET 2% in Switzerland, Gibro Pharma, launched the product in early January 2021 and is receiving positive feedback from physicians and patients. PenCET 2% is currently available in pharmacies across Switzerland, and Morabo earns revenue from royalties on net sales, as well as the supply of finished product, which we manufacture at our facility in Corrine. While our business has had to adjust the way we operate in order to deal with the COVID pandemic, this adjustment has not slowed us down from completing the value creating activities we've set out to accomplish. In addition, we are hard at work bringing new products and opportunities to our pipeline through targeted business and commercial development opportunities. We evaluated over 100 opportunities in 2021 and have progressed a number of high potential deals into the term sheet phase. We are very excited about the products in our business development funnel and look forward to providing more details once we are in a position to do so. Beyond what I've already discussed, in May 2021, we filed a provisional patent application in the United States for a new improved formulation of our head lice treatment results. This is a formulation that was developed internally by our in-house scientific team. We have now completed sufficient additional development work to file the non-provisional patent application for our new results formulation, which we anticipate to submit to the patent authorities in the second quarter of 2022. We are in the process of preparing a resubmission for PENSED 2% increase, which is one of the historical markets for the original format of PENSED, and look forward to filing this regulatory submission also in the second quarter of 2022. That ends our formal remarks, and we are now pleased to answer questions that you may have with respect to the company, its financial results, and its operations.

If you would like to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, please press star one again. We'll pause for just a moment to compile the Q&A roster. Our first question comes from David Martin from Bloombergton. Please go ahead, your line is open.

Good morning. A couple of questions. The first one, your gross margin was quite a bit lower sequentially and year over year. I'm wondering what contributed to that. You know, will it be transient issues or do you believe going forward your gross margin will be in the range of where it was in fourth quarter?

Hi, Dave. Yeah, thanks for the question. It's a good question. primarily transient. But Mary Jane, do you want to address this more specifically for Dave?

Sure. So, Dave, I'll speak to the three business segments. So, the commercial business segment, first, we had one of our mature products where we provide a royalty. We had a trip to that royalty accounting, which was not material, but did create some noise in the Q4 margin. We also had one of the net sales milestones achieved for one of our key products. So that would have gone through the Q4 margin. Related to the production and service business segment, that segment continues to be impacted by foreign exchange. So if you think about the time for when we acquire raw materials, many of the inputs in Pensee 2% are denominated in US or Euro. So by the time those flow through the P&L, we see the margin squeeze on the material side. And then, of course, we didn't have the benefit of the stronger Canadian dollar in our 2021 results.

Okay, so where do you expect your gross margin will be in 2022?

So what I'll say is as the mature products end up being a smaller portion of our commercial business segment, we would see a margin improve. Our key products provide better contribution margin on the rest of the mature margin portfolio.

Okay, improved versus Q4 or improved versus fiscal year 21?

Improved versus Q4.

Q4, okay. Second question, what changes have been made to results, the product as a result of the new formulation? Is it easier to use? Is it a material change?

Yeah, I'll take that one. Yeah, it's enhanced efficacy. And obviously we can't disclose too many details until we get the final patent application filed, but it is a material change in the efficacy of the product and how it works overall. So stay tuned for more details. Once we're in a position to provide a little more color, we'll do that. But it is an interesting development.

My understanding was that it was already equally or more efficacious than competing pesticide-based products. Is that the case or has it been suffering in sales because it's not as effective?

No, the sales decline has been primarily as a result of COVID-19 pandemic restrictions and kids not interacting together. You're right from an efficacy standpoint that all of the head lice treatments our result has a favorable profile in terms of the time it takes for treatment. But there's another element to head lice treatment that we've been able to cover off with this new formulation, and that's the part that I can't really get into too many specifics yet, but it is an enhancement from an efficacy standpoint relative to whether it's pesticide-based products or pesticide-free products like results and other competitors in that space.

Okay. That's it for me. Thanks. Thanks, Dave.

We have no further questions in queue. I'd like to turn the call back over to Mr. Jesse Ledger for closing remarks.

Okay. Well, thank you, everyone, for listening into the call today. As always, if you have other questions, feel free to reach out to us through the Investor Relations link on our website. And with that, take care and enjoy the rest of your day. Thanks.

This concludes today's conference call. Thank you for your participation. You may now disconnect.