Sumitomo Pharma America Holdings, Inc. (GUD) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Ludy, and I will be your operator for today's call. Welcome to Knight Therapeutics conference call. Before turning the call over to Samira Sakhia, President and CEO of Knight, listeners are reminded that portions of today's discussion may, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. 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 are 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 as a result of new information, future events, except as required by law. 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 e-mail to [email protected] or via phone at 514-484-4483. I would like to remind everyone that this call is being recorded today, Thursday, June 5, 2025. And I would now like to turn the meeting over to your host for today's call, Samira Sakhia. Please go ahead, Ms. Sakhia.

Thank you, Ludy. Good morning, everyone, and welcome to Knight Therapeutics conference call. I'm joined on today's call with Amal Khouri, our Chief Business Officer; and Arvind Utchanah, our Chief Financial Officer. As announced this morning, we have entered into exclusive agreements with Sumitomo Pharma to commercialize a portfolio of 6 products in Canada effective June 4, 2025. This transaction is not subject to closing conditions, and Knight will begin recognizing revenues immediately, while we transition logistics and commercial activities from Sumitomo, which we expect to complete in Q3. The portfolio includes the acquisition of certain mature products and the in-licensing of MYFEMBREE, ORGOVYX and vibegron, which are highly synergistic with our current Canadian portfolio in women's health with IMVEXXY and BIJUVA as well as in urology and prostate cancer with Trelstar. Both MYFEMBREE and ORGOVYX has recently been launched in Canada, while vibegron marketed in the U.S. under the brand name GEMTESA is a pipeline asset that will also fit very well within our urology and women's health portfolio. I will now turn the call over to Amal, who will provide an overview of the transaction and the products.

Thank you, Samira, and good morning, everyone. As Samira mentioned, this transaction adds a portfolio of 6 products in Canada and has a total consideration that includes an upfront of $25.4 million and future contingent payments of up to $15.75 million upon achieving certain sales milestones. In addition, Knight is expected to invest an estimated $7 million in inventory that will be acquired over the next 8 months. The portfolio includes 3 mature assets and 3 innovative products, namely MYFEMBREE, ORGOVYX and vibegron. In the 12-month period ending March 31, 2025, the portfolio generated $11.2 million in revenues. I will now provide additional color on the growth products. Starting with MYFEMBREE. MYFEMBREE is a fixed-dose combination of relugolix, estradiol and norethindrone acetate and is the first oral prescription treatment for both the management of heavy menstrual bleeding associated with uterine fibroids and the management of moderate to severe pain associated with endometriosis in premenopausal women. MYFEMBREE was approved by Health Canada in September of 2023 and was launched in February 2024. The total gonadotropin-releasing hormone receptor or GnRH agonist and antagonist sales for endometriosis and uterine fibroids in Canada is estimated based on IQVIA at $45 million and has been growing at a 5-year CAGR of 8%. According to IQVIA Canada, in 2024, the sales of MYFEMBREE were approximately $2.9 million. ORGOVYX, which is also relugolix, is the first and only oral gonadotropin-releasing hormone receptor antagonist approved by Health Canada for the treatment of adult patients with advanced prostate cancer. ORGOVYX was approved in October 2023 and was launched in March 2024. In February of this year, pCPA negotiations were concluded successfully and ORGOVYX has since received public listing in a few provinces, including Ontario and Quebec. ORGOVYX competes in the GnRH agonist and antagonist market for prostate cancer, which based on IQVIA is valued at over $200 million and has been growing at a 5-year CAGR of 8%. According to IQVIA Canada, the sales of ORGOVYX in 2024 were $1.2 million. As for vibegron, it is approved in the U.S. and Europe and is indicated for the treatment of overactive bladder, or OAB, with symptoms of urge urinary incontinence, urgency and urinary frequency in adults. Vibegron works by selectively targeting the beta 3 adrenergic receptors to reduce OAB symptoms through the relaxation of the bladder detrusor muscle to increase bladder capacity. The Canadian OAB market size is over $150 million and has been growing at a 5-year CAGR of 4%. We expect to submit vibegron for Health Canada's approval in 2026. This transaction is another example of the strong and consistent execution of our strategy. Since the beginning of this year, we have announced 3 transactions that will add over 50 products to our portfolio in Canada. We are extremely proud of our extended cross-functional team whose excellent performance is making this robust execution possible. I will now turn the call over back to Samira.

Thank you, Amal. This new transaction further demonstrates our focused execution in building a balanced portfolio that includes innovating -- innovative growing promoted products and mature cash flow generating assets. The addition to Knight's current Canadian business of the Paladin and now the Sumitomo transactions will add critical mass and change the growth trajectory to place Canada in a race with Brazil for the largest top line contributor over the next 2 years. As you know, Knight is both a transactional and commercial organization. We have a strong balance sheet, and we will continue to manage our capital structure to ensure that we have capacity to continue to transact and execute on our mission to acquire, in-license, develop and commercialize pharmaceutical products in Latin America and Canada. Thank you for your support and confidence in the Knight team. I'd now like to open up the call for questions.

And 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 e-mail to [email protected] or by phone at 514-484-4483. [Operator Instructions] And we do have our first question coming from the line of Michael Freeman with Raymond James.

Congratulations on this transaction and on continuing a good track record of M&A for your Canadian portfolio. I wonder first if we could talk about the -- how you negotiated the price of this transaction. Just doing some quick math on the Endo transaction versus this one, it appears that you paid a much higher multiple on the Sumitomo transactions. Just wondering how you're thinking about these multiples and also how you are -- and I guess, relatedly, how you're thinking about the growth prospects of these products?

I'm going to answer really quickly, and then I'll turn it over to Amal. The first thing that I'd like to say is there is a very big difference between the 2 portfolios. This is really between Sumitomo and Paladin. In the case of Paladin, it is majority mature assets, steady cash flows. In this case, very small mature assets and really about products that are growing. And as just a quick note, we're not acquiring any infrastructure with this portfolio. So there is a very -- the types of transaction and the type of portfolio is very different in that sense. Amal?

Thank you, Samira. Yes. No, it's really about the -- as Samira mentioned, like the growth assets. So when you really look at the overall portfolio, we did disclose what the sales were last year. This is a portfolio that we expect to grow overall. And as I'm sure you know, we run our valuations really based on DCF. So we are expecting this is again a growth portfolio.

Okay. And if I could fit one more in. It seems that we're seeing some large international organizations making some decisions this year or maybe over the last couple of years to step out of Canada. And it appears Knight's been there to carry on with their drugs. I wonder if this is a fair characterization? And if you are -- if you feel like you're benefiting from this, what seems to be a bit of a migration.

Amal?

Thank you. Yes. I mean, listen, we're always on the lookout, right? So we're -- this is really our business model is to acquire and in-license. So we're always on the lookout of what's available, and we're always making sure that if there is a -- if there are good opportunities for us to transact on that we are ready to do it. So that's -- again, that's a continuation of what we've always done. As you know, with [ BD ] in general, the timing is not all within our control. So again, that's why it's really a question of always being ready to transact when the opportunities are here. So if there are continued opportunities in the future, we'll be doing the same. We're here ready to act.

Got you. And quickly, just a bit of housekeeping. How -- what is -- what do you expect cash to be sitting at following the upfront from this transaction?

So as you saw, I think we reported around $140 million something at the end of the quarter. This is an upfront around $25 million -- that's -- and we are -- as you know, we did exercise line of credit that was for US $50 million. So we're set to be able to continue to execute.

And your next question comes from the line of Tania Armstrong with Canaccord Genuity.

A couple for me. So first off, given that you are not acquiring infrastructure and these are -- this is mostly just a licensing deal. Could you talk to how many people you might need to add, if any, to the women's health and urology prostate cancer sales team?

So across kind of the various different field forces, sales, medical, marketing, we're probably in the 4% to 6% range, and that's it. And we're not going to be -- we're going to be really looking at the Paladin team and retain more than may have been in our original plan.

Okay. And then when it comes to the gross profit margin profile of the portfolio acquired, is it safe to assume it's similar to the Canadian assets in the Paladin portfolio? Or are there any structural differences?

There is no differences.

And then lastly, maybe if you could dive into a bit more detail on the mature products acquired. Could you talk to what 3 products those are?

Sure, Tania. This is Amal. So it's really 3 mature assets. That have been -- 2 of the 3 have been genericized. So we're really looking at -- as we mentioned earlier, we're really looking at them as complementary in the sense of providing good cash flow that will help fund the investment behind the growth brands.

Okay. So can we safely assume then that the declines in those genericized assets will, for the most part, offset growth in some of those newer assets? Or do you think the growth from the newer assets will outperform, and we should see some growth in this overall portfolio.

Yes, definitely the latter. The growth in the growth assets will be much more than offsetting the decline in the mature portfolio. So again, overall, this is a growing portfolio.

Just to clarify that growth, the offsetting of the growth starts next year. This year, we're going to be pretty flattish over the last year. And then starting in '26, you really see the trajectory change.

Perfect. That makes sense. And actually, if I can just lob one more in there then. So what does this do to your guidance for 2025? Are you going to change those numbers?

Not materially. No.

And your next question comes from the line of Justin Keywood with Stifel.

Just on the combined portfolio of the new assets or the 6 products, what would be the peak sales potential?

So it's really on a product-by-product basis. If you take ORGOVYX, which is an antagonist in the market, this is a market that's over $200 million and growing. There is one other antagonist in this market, which is an injection, and it's extremely painful. Patients don't like it. It's not -- it is missing coverage in Alberta and B.C. It does about $8 million. So we think that this product will probably do better than that because it will take over this product, but also take some share from all of the agonists as well. When you look at MYFEMBREE, which has 2 separate indications, it's competing in a market that is about $45 million and growing. Orilissa, which is another oral product in this market, does about $9 million of sales. And it was launched in 2018. Our product has quite a few benefits over this. Again, we expect to take a large share from this product and also other products that are injectables in this market. GEMTESA is in a market that's made up -- that's about $150 million. MYRBETRIQ, which is the largest product in this market, does about $100 million in sales, but it is facing LOE in a couple of years. And depending on our time of launch, we expect to be able to take share from that product. The issue is in the case of the OAB market, it is majority public, even with MYRBETRIQ, except for British Columbia. And so we're forecasting this to be quite a bit smaller because we're only forecasting private sales.

Okay. That seems like a lot of opportunity. And then just on...

We are excited.

Yes, absolutely. On the mature portion of the business, any indication on what we should expect as far as the margin profile?

These products are small and declining rapidly. Like if you look at our entire business, they're not going to have a really huge impact.

Okay. And just on the balance sheet, I assume the Paladin transaction is on pace to close very shortly. You mentioned $100 million in cash and then the access of the credit facility. Do we have a pro forma leverage ratio? Or how should we be looking at just balancing the upcoming cash use with still potential pursuits for more M&A?

So -- and I said this -- we've said this in a couple of calls that we are open to having -- to adding more debt to our balance sheet. This working capital line is going to support us kind of -- for us, this is really short term as we have some payables, we have the Paladin transaction, but we are open to taking anywhere from 2x to 3x EBITDA. That would open us up to be able to get about $100 million of debt. But if we are looking at a transaction where we need to add debt, you have to remember that transaction is going to have its own EBITDA in that contribution, right? So when you're looking at that $100 million, that's only on the Paladin. There may be more capacity when you include the EBITDA from the target.

Understood. It seems like a very interesting transaction.

And your next question comes from the line of Scott McAuley with Paradigm Capital.

I think most have been touched on already, but maybe just a quick one on -- in terms of the milestone payment, the, I think, $15.75 million for the sales milestones. Is that a relatively near-term thing? Or is that something that probably won't be hit until kind of year 4 or 5 as you're ramping up the sales?

This is Amal, Scott. So it really depends. I mean, they really think of it as staggered, so self-funding. So as the sales come in, some of these milestones hit at different levels.

I see. So it's not one big payment, it's smaller payments along the road.

Exactly. So this would be a sales -- certain sales targets are achieved, there is a milestone. The cumulative amount of the milestones is the number that's in the press release. And it's one of those -- again, Amal also mentioned, we do a DCF based on our forecast. If we hit the milestones, we're very happy.

[Operator Instructions] Your next question comes from the line of Doug Miehm with RBC Capital Markets.

First question, and maybe you mentioned this, but I missed it. Was this a competitive process?

It was a formal process.

It was. Okay. Perfect. Second question, when I look at the products, the brief time that we've had this morning, one of them obviously has that black box warning. And it does look like it's had an impact in terms of the drug's penetration into the U.S. market when you compare it on the IQVIA numbers versus ORGOVYX and Gemtesa, certainly, it's multiple smaller than those 2 drugs. Should we read the similar sort of opportunity for the Canadian market when we look at the 3 individual drugs over time, thinking that ORGOVYX and GEMTESA, obviously different for you, different name, will have same profiles and opportunities relative to MYFEMBREE?

Sure. So I think the -- comparing to the U.S. market, you have to be really careful because there are very different dynamics that play in the U.S. markets when it comes to kind of incentives of prescribers and where the products are given versus what other alternatives like surgery, for example. So it's really -- I wouldn't necessarily be comparing to how specifically MYFEMBREE's performance in the U.S. I think the better way to look at it or get a sense of how the products would do is, as Samira mentioned earlier, if you look specifically for MYFEMBREE, for example, if you look at what's already on the Canadian market, so there is another oral antagonist that's a monotherapy. So MYFEMBREE is a fixed-dose combination with estradiol and progestin. The other oral antagonist that's a monotherapy does about -- based on IQVIA, does about $9 million of sales, and it only has 1 of the 2 indications that MYFEMBREE has. So you really have to -- I think that's a better way to get a sense of what the product will do rather than looking at the U.S.

Yes. I expected that. Okay. That's great. And then just to wrap up, when you think about -- and maybe you were contemplating this deal getting done when you gave your sort of outlook. But I'm curious, is this going to be accretive or dilutive to EBITDA margins? And then finally, when I think about the LatAm ops, is there any potential for you to do a deal with Sumitomo in those markets? And I'll leave it there.

Sure. I think your first...

Yes, go ahead, Samira, I'm going to take the second one. So go ahead.

So I'll take the first, and I'll let Amal answer the second. So on EBITDA in this first year, it's really going to be neutral, and it will be accretive starting next year.

Great.

And I guess on the second part of your question, again, we're entering into license agreements with Sumitomo. So we're going to be partners for a long time. And as with all of our partners, we always look to expand our partnerships, and we have been. As you know, we have been adding products with existing partners. So we would look to do the same with all of our partners to really expand both in terms of products and geographies.

And I'm showing no further questions at this time. I would like to turn it back to Samira Sakhia for closing remarks.

Perfect. Thank you, Ludy. Once again, I actually want to really congratulate Amal, Arvind as well as the entire management team that has been focused on the 2 large transactions that we've had, while continue to executing on all of our commercial operations. I want to thank our investors for having confidence in the Knight team and for joining today's conference call. Have a great morning.

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.