Knight Therapeutics Q2 2024 Earnings Call Transcript

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August 8, 2024

Key Takeaways

  • Record 1H performance: 1H revenues of $180 M and adjusted EBITDA of $29 M, with Q2 revenues up 4% to $94 M and adjusted EBITDA up 10% year-over-year (per share EBITDA up 23% thanks to share buybacks).
  • Portfolio growth: Oncology and hematology revenues grew 28% to $36 M, while other specialty products rose 22% to $20.6 M, driven by key promoted products and new launches like IMVEXXY and BIJUVA.
  • Infectious disease revenues declined 17% to $37.8 M, largely due to timing of Ambisome orders under Brazil’s Ministry of Health contract and lower IMPOVITO demand.
  • Upgraded 2024 guidance: Revenue outlook raised to $355 M–$365 M (vs. $335 M–$350 M prior) and adjusted EBITDA expected around 16% of revenues, reflecting currency improvements and accelerated pipeline investments.
  • Strong financial position and pipeline: Completed an NCIB repurchasing 6 M shares and launched a new buyback for 5.3 M shares, held over $150 M in cash and equivalents, and maintain an 18-product pipeline targeting $150 M+ in peak sales.
AI Generated. May Contain Errors.
Earnings Conference Call
Knight Therapeutics Q2 2024
00:00 / 00:00

Transcript Sections

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Operator

Good morning, ladies and gentlemen. My name is Angeline, and I will be your operator for today. Welcome to Knight Therapeutics' second quarter 2024 results conference call. Before turning the call over to Samira Sakhia, President and CEO of Knight, listeners are reminded that portions of today's discussions may, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statement. The company considers the assumptions on which these forward-looking statements are based to be reasonable at the time they were prepared, but cautions that these assumptions regarding the future events, many of which beyond the control of the company and its subsidiaries, may ultimately prove to be incorrect. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether a result of new information, future events, except as required by law.

Operator

We would also like to remind you, questions during today's call will be taken from analysts only. Should there be any further questions, please contact Knight's Investor Relations Department via email to ir@knighttx.com or via phone at 514-484-4483. I would like to remind everyone that this call is being recorded today, August 8, 2024, and would now like to turn the meeting over to your host for today's call, Samira Sakhia. Please go ahead, Ms. Sakhia.

Samira Sakhia
Samira Sakhia
CEO at Knight Therapeutics

Thank you, Angeline. Good morning, everyone, and welcome to Knight Therapeutics' second quarter 2024 conference call. I'm joined on today's call with Amal Khoury, our Chief Business Officer, and Arvind Uchila, our Chief Financial Officer. I'm excited to report for the first six months of the year, we delivered record revenues of CAD 180 million, excluding hyperinflation, and Adjusted EBITDA of over CAD 29 million. Our innovative product-promoted portfolio delivered growth of 12% versus last year, primarily driven by the growth in LENVIMA, TRELSTAR, AKYNZEO, CRESEMBA, as well as the contribution from the recent launches of IMVEXXY and BIJUVA in Canada and MINJUVI in Brazil. Furthermore, we have expanded and strengthened our pipeline with the in-licensing of JORNAY PM, a novel formulation of methylphenidate for ADHD.

Samira Sakhia
Samira Sakhia
CEO at Knight Therapeutics

Jornay PM complements our growing neurology portfolio, along with IPX203 and Qelbree, which we in-licensed in the last nine months. I would like to add that earlier this week, Amneal announced the FDA approval of IPX203 and expected launch in September of this year. This allows Knight to continue on our plans for regulatory submission of this product next year. Now, moving on to our NCIB. Knight completed the NCIB launch in July 2023 and purchased a total of 6 million shares at an average price of CAD 4.87 per share. Subsequent to the quarter, Knight launched a new NCIB under which we can purchase for cancellation up to approximately 5.3 million common shares over the next 12 months. I will now turn the call over to Arvind to provide an update on our financial results.

Arvind Utchanah
Arvind Utchanah
CFO at Knight Therapeutics

Thank you, Samira. When speaking of our financial results, I will refer to EBITDA and Adjusted EBITDA, which are non-IFRS measures, as well as Adjusted EBITDA per share, which is a non-IFRS ratio. Knight defines EBITDA as operating income or loss, excluding amortization and impairment of non-current assets, depreciation, purchase price accounting adjustments, and the impact of accounting under hyperinflation, but to include costs related to leases. Adjusted EBITDA excludes acquisition costs and non-recurring expenses. Knight defines Adjusted EBITDA per share as Adjusted EBITDA over the number of common shares outstanding at the end of the respective period. Furthermore, my discussion on the operating results will refer to figures that exclude hyperinflation. For the second quarter, delivered record revenues of over CAD 94 million, an increase of CAD 3.7 million, or 4% versus prior year.

Arvind Utchanah
Arvind Utchanah
CFO at Knight Therapeutics

Our oncology and hematology disease portfolio delivered approximately CAD 36 million of revenues, a growth of CAD 7.7 million, or 28% compared to the same period last year. This was driven by the continued growth of our key promoted products, including LENVIMA, AKYNZEO, TRELSTAR, as well as the launch of MINJUVI in Brazil. Turning to our other specialty portfolio. During the quarter, the portfolio generated CAD 20.6 million in revenues, an increase of CAD 3.8 million, or 22% compared to the same period last year. This increase is a result of the transition of commercial activities of EXELON from Novartis to Knight in 2023. As a reminder, the revenues of EXELON were lower in the second quarter of 2023 due to advanced purchases by certain customers in the first quarter of that year.

Arvind Utchanah
Arvind Utchanah
CFO at Knight Therapeutics

Now, moving to our infectious disease portfolio. We generated CAD 37.8 million of revenues in the second quarter, a decrease of CAD 7.7 million, or 17%, compared to the same period last year. This decrease was primarily due to the timing of orders for AMBISOME under the contract with the Ministry of Health in Brazil, or MOH, as well as a decrease in the demand of Impavido. The decrease was partly offset by the growth of our key promoted products, including CRESEMBA, as well as timing of orders for certain products. During the quarter, we sold a total of CAD 8.9 million of AMBISOME under our MOH contract, compared to CAD 18 million in the same period last year.

Arvind Utchanah
Arvind Utchanah
CFO at Knight Therapeutics

As a reminder, during the first six months of 2024, we delivered a total of CAD 18.1 million of AMBISOME to MOH, compared to CAD 20.4 million in the same period last year. Now, looking at our gross margin. We reported CAD 45.3 million, or a gross margin of 48% of revenues in the second quarter of 2024, compared to CAD 40.2 million or 45% of revenues in the same period last year. The increase in the 2024 gross margin as a percentage of revenues was due to product mix, including a lower proportion of Ambisome sale to MOH. I will now turn to our operating expenses.

Arvind Utchanah
Arvind Utchanah
CFO at Knight Therapeutics

Our operating expenses, excluding amortization of non-current assets for the second quarter, were approximately CAD 30.1 million, an increase of CAD 3.3 million, or 12% compared to the same period last year. The increase in operating expenses was driven by an increase in our general costs due to our structure and higher compensation expenses, as well as development costs for our pipeline products. Moving to adjusted EBITDA. For the second quarter of 2024, we reported CAD 15.7 million of adjusted EBITDA, an increase of CAD 1.5 million or 10% compared to the same period last year, driven by a higher gross margin, which was partly offset by higher G&A costs and R&D investments for our pipeline. While our adjusted EBITDA increased by 10%, our adjusted EBITDA per share increased by 23%.

Arvind Utchanah
Arvind Utchanah
CFO at Knight Therapeutics

This additional increase in the adjusted EBITDA per share was driven by the decrease in common shares outstanding due to repurchases under our NCIB. Finally, on to our cash flows. During Q2 2024, Knight had cash outflows from operations of CAD 1.1 million, driven by our operating results, offset by an increase in working capital of CAD 11.9 million. As we had communicated at the end of Q1, the majority of this working capital increase is due to payments related to inventory that was purchased in Q1. As a reminder, on a year-to-date basis, Knight generated CAD 29.3 million of adjusted EBITDA and CAD 29.8 million of cash inflows from operations. I will now turn the call back to Samira for concluding remarks.

Samira Sakhia
Samira Sakhia
CEO at Knight Therapeutics

Thank you, Arvind. I would like to provide an update on our financial outlook for fiscal 2024. I would remind everyone that this guidance is provided on a non-GAAP basis, excluding hyperinflation, due to the difficulty in predicting Argentinian inflation rates. We are increasing our financial guidance on revenues and expect to generate between CAD 355 million and CAD 365 million in revenues, up from CAD 335 million to CAD 350 million. In addition, we are updating our guidance for adjusted EBITDA, which is now expected to be approximately 16% of revenues, which in dollars remains within the previous guidance range. The change in our financial outlook is primarily due to an improvement in forecasted LatAm currencies against the Canadian dollar, as well as an acceleration of investments in our pipeline products.

Samira Sakhia
Samira Sakhia
CEO at Knight Therapeutics

In addition, this guidance is based on a number of assumptions, which are described more in our press release. Should any of the other assumptions differ, the financial outlook and the actual results may vary materially. Over the last several months, we have announced 3 product submissions in multiple territories, 2 product approvals, 3 product launches, and we have added 3 pipeline assets from 3 new partners. We have a pipeline of 18 products that are expected to generate over CAD 150 million in revenues, should they achieve our estimated peak sales. This demonstrates not only our commitment, but also our ability to execute on our strategy.

Samira Sakhia
Samira Sakhia
CEO at Knight Therapeutics

We have a profitable and cash flow-generating business with a growing portfolio of assets and with over CAD 150 million in cash, cash equivalents, and marketable securities at the end of the quarter, we remain well positioned to continue to execute on our strategy to in-license and acquire innovative and branded generic pharmaceuticals, as well as to develop our own branded generic portfolio. Thank you for your support and confidence in the Knight team. This concludes our formal remarks. I'd like to open up the call for questions. Over to you, Angeline.

Operator

Thank you. Before we begin, may I please remind you, questions during today's call will be taken from analysts only. Should there be any further questions, please contact Knight's Investor Relations Department via email to ir@knighttx.com, or via phone at 514-484-4483. If you would like to ask a question, please press star followed by the number 1 on your telephone keypad. If you are using a speakerphone, please lift your handset before pressing any key. If you would like to withdraw your question, please press star 2 key. One moment, please, for your first question. Your first question comes from Michael Freeman, from Raymond James.

Michael Freeman
Michael Freeman
Equity Research Analyst covering Healthcare at Raymond James

Hey, good morning, Samira, Amal, and Arvind. Thanks very much for taking our questions, and congrats on the some solid results. I'm glad you mentioned the approval of IPX-203 by Amneal yesterday. I wonder if this approval came about in line timing-wise with your expectations and perhaps Amneal's expectations, and if there are any implications for perhaps an acceleration of timelines for approvals in jurisdictions in which you operate for Canada and LatAm? Thanks.

Samira Sakhia
Samira Sakhia
CEO at Knight Therapeutics

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

Michael Freeman
Michael Freeman
Equity Research Analyst covering Healthcare at Raymond James

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

Samira Sakhia
Samira Sakhia
CEO at Knight Therapeutics

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

Michael Freeman
Michael Freeman
Equity Research Analyst covering Healthcare at Raymond James

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

Samira Sakhia
Samira Sakhia
CEO at Knight Therapeutics

Sure. I'll ask Amal to answer that.

Amal Khoury
Amal Khoury
Chief Business Officer at Knight Therapeutics

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

Michael Freeman
Michael Freeman
Equity Research Analyst covering Healthcare at Raymond James

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

Operator

Okay. Thank you, Michael. Your next question comes from David Martin from Bloom Burton. Please go ahead.

David Martin
David Martin
Partner and Head of Equity Research at Bloom Burton

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

Samira Sakhia
Samira Sakhia
CEO at Knight Therapeutics

Not really. As you can imagine, when we're launching new products, it does take time for them to get to their peak sales, which is usually in the 3-5-year range. So even if we advance some launches by, you know, 3, 6 months, it's not really gonna have a bigger impact on what's going on in the BGX portfolio.

David Martin
David Martin
Partner and Head of Equity Research at Bloom Burton

And what about-

Samira Sakhia
Samira Sakhia
CEO at Knight Therapeutics

It really accelerates the timeline.

David Martin
David Martin
Partner and Head of Equity Research at Bloom Burton

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

Samira Sakhia
Samira Sakhia
CEO at Knight Therapeutics

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

David Martin
David Martin
Partner and Head of Equity Research at Bloom Burton

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

Samira Sakhia
Samira Sakhia
CEO at Knight Therapeutics

... So AMBISOME has not had patent protection for decades. And we know, for example, in the U.S., there is already two generics. As for the first part of your question, fungal infection is a issue in Brazil. It's not a transient issue. Prior to the government acquiring AMBISOME, they were acquiring a competitor's product, kind of a similar molecule, but not the same formulation. That competitor has been having supply issues for the last years, and that is really why they have switched to AMBISOME. And what this has been really great about for us is it's actually allowed us to establish a very good relationship with the Ministry of Health. We are working with them on AMBISOME.

Samira Sakhia
Samira Sakhia
CEO at Knight Therapeutics

We're also starting at a very small level, but still meaningful, even on CRESEMBA, and really expect to be able to continue with that great relationship, even if our competitor comes back and we no longer have AMBISOME shipments to them, this, the link is great.

Amal Khoury
Amal Khoury
Chief Business Officer at Knight Therapeutics

Okay. Okay. Thank you.

Operator

Thank you, David. The next question comes from Scott McAuley from Paradigm Capital. Please go ahead.

Scott McAuley
Scott McAuley
Head of Research and Equity Research Analyst at Paradigm Capital

Morning, everybody. Thanks for taking the questions. First, on Jornay and, you know, we saw that the other week, Ironshore got acquired, which I guess is a positive for the potential for that product. But in terms of your agreement with Ironshore and any kind of changing of control issues or questions, you know, that doesn't affect your license agreement for that product across, you know, Canada and Latin America?

Amal Khoury
Amal Khoury
Chief Business Officer at Knight Therapeutics

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

Scott McAuley
Scott McAuley
Head of Research and Equity Research Analyst at Paradigm Capital

That's great. And on the AMBISOME, the Ministry of Health contract, just maybe you said before, I don't recall, but how much is left on that contract for 2024? Because obviously there was some good, you know, I think it was over CAD 8 million this quarter. You know, do you have a sense of how much we can expect left on that contract for 2024?

Samira Sakhia
Samira Sakhia
CEO at Knight Therapeutics

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

Scott McAuley
Scott McAuley
Head of Research and Equity Research Analyst at Paradigm Capital

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

Samira Sakhia
Samira Sakhia
CEO at Knight Therapeutics

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

Arvind Utchanah
Arvind Utchanah
CFO at Knight Therapeutics

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

Scott McAuley
Scott McAuley
Head of Research and Equity Research Analyst at Paradigm Capital

Great. So yeah, continue to kind of expect some potential lumpy quarters and swings quarter to quarter, but longer term, you know, trending in the right direction?

Arvind Utchanah
Arvind Utchanah
CFO at Knight Therapeutics

Absolutely.

Samira Sakhia
Samira Sakhia
CEO at Knight Therapeutics

That's exactly right.

Scott McAuley
Scott McAuley
Head of Research and Equity Research Analyst at Paradigm Capital

Yeah. Great. That's all for me this morning. Thank you very much.

Operator

Thank you, Scott. There are no further questions at this time. I am now handing the conference over to, Samira Sakhia.

Samira Sakhia
Samira Sakhia
CEO at Knight Therapeutics

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

Operator

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

Executives
    • Amal Khoury
      Amal Khoury
      Chief Business Officer
    • Arvind Utchanah
      Arvind Utchanah
      CFO
    • Samira Sakhia
      Samira Sakhia
      CEO
Analysts
    • David Martin
      Partner and Head of Equity Research at Bloom Burton
    • Michael Freeman
      Equity Research Analyst covering Healthcare at Raymond James
    • Scott McAuley
      Head of Research and Equity Research Analyst at Paradigm Capital
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