Medexus Pharmaceuticals Inc. (MDCX) Q1 FY2026 Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Medexus Pharmaceuticals First Quarter 2026 Conference Call. At this time, all participants are in a listen-only mode and the floor will be open for questions following the presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Victoria Rutherford, Investor Relations. Victoria, the floor is yours.

Thank you, and good morning, everyone. Welcome to the Medexus Pharmaceuticals First Fiscal Quarter 2026 Earnings Call. On the call this morning are Ken d'Entremont, Chief Executive Officer; and Brendon Buschman, 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 Canadian securities laws that is based on certain assumptions that Medexus believes to be reasonable in the circumstances, that is subject to risks and uncertainties. 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, adjusted EBITDA margin and adjusted gross 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, please refer to the company's MD&A which, along with the financial statements, is available on the company's website at www.medexus.com and on SEDAR+ at www.sedarplus.ca. As a reminder, Medexus reports on March 31 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 are now over 5 months into the commercial launch of GRAFAPEX with fiscal Q1 '26 being the first full quarter we are recognizing product level net revenue from GRAFAPEX in our total net revenues. We are extremely pleased with the progress we have achieved thus far. As of June 30, 9 large commercial payers and 14 individual health care institutions have made positive formulary inclusion determinations and an additional 29 commercial payers have added GRAFAPEX to their prior authorization list. Wholesaler data as of June 30 shows that 36 of 180 transplant centers, representing an estimated 24% of total allo-HSCT procedures performed in the United States annually, have already ordered GRAFAPEX. Earlier this month, we also secured approval from the centers for Medicare and Medicaid Services, a new technology add-on payment, or NTAP, reimbursement of GRAFAPEX for CMS in fiscal 2026. Starting October 1, 2025, eligible patients can receive up to $21,411 of additional NTAP reimbursement under Medicare. The initial adoption by major commercial payers and leading health care institutions has been highly encouraging and early indicators of patient-level demand continue to validate the value proposition GRAFAPEX delivers. To that end, product level net revenue from GRAFAPEX in fiscal Q1 '26 totaled $3 million, relative to $3 million of GRAFAPEX personnel and infrastructure investments. We anticipate that GRAFAPEX will begin contributing positively to quarterly operating cash flows by fourth quarter 2025, which is our fiscal Q3 '26 reinforcing its potential as a meaningful driver of long-term value. We expect that product level net revenue from GRAFAPEX in fiscal Q2 '26 will be $3 million to $3.5 million, taking into account wholesaler purchasing patterns and expected summer slowdown in procedures. Overall, our fiscal Q1 '26 results remained solid with positive net income, adjusted EBITDA and operating cash flows. Our results also reflect changes we are seeing in the product life cycle within our portfolio. The strong initial performance of GRAFAPEX is particularly important as other products in our portfolio shift into the later stages of their product life cycle. For instance, Rupall's revenues have experienced expected erosion after the loss of its exclusivity period in January 2025. We designed this portfolio approach to ensure Medexus' success over the long term. Our fiscal Q1 '26 revenue was $24.6 million, a decrease compared to $27.3 million for the same period last year. Our fiscal Q1 '26 adjusted EBITDA was $3.4 million, a decrease of compared to $6.1 million for the same period last year. We continue to produce positive net income with $0.5 million for the quarter, a decrease compared to $2 million for the same period last year and positive operating income of $0.9 million, a decrease compared to $4 million for the same period last year. Turning to our other products. In Canada, unit demand for Trecondyv, the brand name for Treosulfan in Canada grew 38% over the trailing 12-month period ending June 30, 2025. To date, BC, Manitoba, Ontario and Quebec have executed listing agreements to reimburse Trecondyv following a positive PCPA decision in November of '24. IXINITY unit demand in the United States decreased by 1% over the trailing 12-month period ending June 30, 2025. We continue to expect that unit demand will remain relatively stable with only slight continuing decreases in the near term. Rupall has now shifted to a later stage of its product lifestyle -- life cycle, excuse me, with the loss of regulatory exclusivity period in January 2025. Rupall now faces generic competition in Canada as a result unit demand over the 6-month period ending June 30 has decreased 29% when compared to the corresponding prior year. This pattern is typical of products at this stage so we anticipate this shift will have put typical -- and we have put typical generic defense strategies in place. Rasuvo unit demand in the United States and Metoject unit demand in Canada, both decreased by 5% in fiscal Q1 '26. The factors we have discussed in the past continue to affect product level revenue. In summary, we remain focused on delivering strong overall performance across our portfolio of products in both the United States and Canada, advancing GRAFAPEX in the United States and strategically positioning the company to capitalize on future revenue opportunities. I'll now turn the call over to Brendon, who will discuss our financial results in more detail. Brendon?

Thank you, Ken. We are pleased with our results for Q1 2026, which reflect the natural transitional changes of an evolving product portfolio. We are very pleased with the early performance of GRAFAPEX, which, as Ken mentioned, generated $3 million of product level revenue in our fiscal Q1 '26 and is expected to be contributing positive to operating cash flow by the fourth calendar quarter of 2025, which is our fiscal Q3 2026. Turning to the full quarterly results. Total net revenue for fiscal Q1 '26 was $24.6 million, this represents a decrease of $2.7 million compared to $27.3 million for the same period last year. The $2.7 million year-over-year revenue decrease was attributable in part to reduced net sales of Rupall and Gleolan in the United States. Rupall in Canada, Gleolan in the United States, partially offset by product level net revenue from GRAFAPEX. Gross profit was $13.8 million for Q1 '26 compared to $14.8 million for the same period last year. Gross margin was 56.0% for fiscal Q1 '26, which is an improvement on the 54.4% we achieved in the same period last year. We expect an increasing amount of profit level revenue from GRAFAPEX together with the absence of product level net revenue from Gleolan after fiscal year '25 to have a positive effect on company-level gross margin. These resulting changes in gross margin are expected to continue to emerge over fiscal year 2026. Selling, general and administrative expenses were $12.2 million for Q1 '26 compared to $10.3 million for the same period last year. The $1.9 million year-over-year increase in selling, general and administrative expenses was primarily due to the $3 million of GRAFAPEX personnel and infrastructure investments we incurred in fiscal Q1 '26. We expect these investments to stabilize at approximately $4 million per quarter, although individual future quarters could exceed this estimate. Adjusted EBITDA was $3.4 million for fiscal Q1 '26, a decrease of $2.7 million compared to $6.1 million for the same period last year. The decrease was mainly due to the effects of generic competition on product level revenue from Rupall. Net income was $0.5 million for fiscal Q1 '26, a decrease of $1.5 million compared to net income of $2 million for fiscal Q1 '25. Despite the decrease, this marks our fifth consecutive quarter of positive net income, and we look forward to striving for positive net income in the quarters to come. We continue to generate cash from our operating activities with quarterly operating cash flow of $3.9 million compared to $8.2 million for fiscal Q1 '25. Cash on hand of $9.3 million at June 30, 2025, compares to $24 million at March 31, 2025. The primary factor in this net decrease in cash was a payment of $15.5 million under our senior secured credit agreement, substantially reducing our outstanding principal amount and go-forward principal payments, which are now $1.1 million per quarter. As of June 30, 2025, our net debt was $12.6 million, a decrease of $0.6 million compared to $13.2 million as at March 31, 2025. I will conclude with a brief mention of recent tariff announcements based on our preliminary assessment, which remains ongoing pending new information, we anticipate a 15% tariff to be applied on branded pharmaceutical products from the EU into the United States, which will apply to our imports of GRAFAPEX and Rasuvo. We do not currently expect these tariffs to have a material impact on product level performance. As always, there can be variability in quarter-to-quarter results and the operating environment also remains variable. 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 analyst questions.

Thank you very much. At this time, we'll be conducting our question-and-answer session. [Operator Instructions] Our first question is coming from Andre Uddin of Research Capital.

Thanks, operator. Ken and Brendon, it looks like GRAFAPEX is off to a nice launch. Just looking ahead, you must be eyeing some new product opportunities. And I just was wondering what's the current environment for business development like what does that look like in terms of both prices and opportunities.

Yes. Thanks for the question, Andre. I think the environment is quite positive for us in that we've established ourselves as a significant player, we've got a good track record of successful product launches. So we've become an attractive partner for products that might be available. As you well know, the environment to fund some of these things is really challenging. So a company like ours is an attractive option. So we definitely are expecting to have some opportunities come into our portfolio. You look at the 3 therapeutic areas where we participate. We have 1 already in autoimmune disease that is in our pipeline. We've got 1 that we think will come into the allergy derm portfolio. And clearly, we're working on follow-up products for GRAFAPEX in the transplant area. So yes, we would expect that we'll have additional products as we go forward.

And are there any higher-margin drugs out there? I know those are usually harder to find. Are there any out there that you're seeing?

Yes. I mean, there certainly are. I mean, you just look at GRAFAPEX, it's a much better margin than the rest of our portfolio. So they are out there. it's challenge to find the right fit. And so clearly, we're very selective as to what we put into our portfolio is what we put our effort behind and spend money on, we want to make sure that it becomes a significant success.

Okay. And just can you also discuss like how your debt refinancing plans are progressing and I know that would also tie into future business development. So maybe you could just elaborate a little bit on how that's going.

I'll turn that over to Brendon.

Yes. No. Thanks, Andre. So our leverage right now is just a little over 1x adjusted EBITDA. I think on a net debt basis, it's well below 1 so very reasonable, very comfortable. We don't see any refinancing risk. We are just in the discussions right now with our current lender and some additional partners to just try to find the right facility that will sort of allow us to build on the GRAFAPEX growth, but more specifically to your point and what Ken was saying to execute on that BD strategy. So we are -- we see those 2 things as very intertwined. So we're making good progress on that.

Thank you very much. Our next question is coming from Michael Freeman of Raymond James.

Ken, Brendon, Victoria. Congratulations on a strong quarter. This is a great looking launch. I want to talk about GRAFAPEX. I wonder you provided some good information on your commercial payer coverage and institutional formulary inclusions. I wonder if you could just provide us an update on how your conversations have been going after the quarter, how we should expect, I guess, like coverage -- total coverage to trend over the next couple of quarters and formulary inclusion. And just give us a sense of, I guess, overall traction in that arena?

Yes. Great question, Michael. Thank you. So it's been very positive. As you saw, we put out the number of inclusions that we've already gotten, which was a little bit surprising, it happened so fast. And so those ones, I think we said 14 at the end of the quarter. It's obviously grown since then. And there are many multiples of that, that are under formulary review currently. So we would expect that those determinations will end up being positive. We haven't had a negative one yet for any clinical reasons. And so as those things become positive, we clearly see that those hospitals become significant purchasers of GRAFAPEX following a formulary inclusion. Remember, as we said before, that the early going was a lot of pediatric one-offs because the need in that category is so great. Now as we're getting formulary approvals in adult hospitals, the volume grows fairly significantly. So we're fairly bullish as we look forward. We think GRAFAPEX is off to a great launch and is performing at or beyond our expectations.

And I wonder with the NTAP reimbursement announcement, I wonder if you could provide any feedback so far from institutions. Like how should we expect this -- your inclusion in this program and this top-up payment to influence uptake by docs and ultimately, sales volumes.

Yes, it's a great question. So just remind everyone that an NTAP approval, reimbursement is for inpatient, we already have a J-code, which is for outpatient, 85% of these patients are treated inpatient. And the NTAP applies to the Medicare folks, which is we estimate 20%, 25% of total inpatient business. So it is significant. What it does is it allows the adoption of a new technology over the period of time that the DRG or the case cost will grow and so it allows hospitals to adopt a new technology much more quickly because they have confidence that they're going to be reimbursed. So obviously, it helps for the CMS patients but also helps for commercial payers because they see, "Hey, this product has received NTAP, it must be a valuable addition to treatment and patterns of care." So it's a very positive thing. There are only 13 applications for an NTAP. Only 5 were approved, we were one of the 5. So it's kind of a rare thing, but a very positive thing because it really validates our value proposition and the clinical benefit of our drug.

That's great. And then 1 last follow-up. Just I think I know the answer by the amount of, I guess, the amount of the NTAP top-up, but how would you describe how your target pricing for GRAFAPEX is holding in?

Yes. Excellent. We try to pick a price where we would get universal access and that seems to be working. We also picked the price at which we would qualify for NTAP, there is a certain floor that you have to be above in order to qualify, otherwise, why bother. So it looks like we picked a really good price that is being borne out. And as we've said before on these calls, the value that GRAFAPEX brings to the cost of treating these patients is a really positive thing. So having the reimbursement goal in place gives the institution even more confidence as they're looking at our cost comparisons and the various data that we provide to the P&T committee so it's a very positive outcome for us. And so we would expect that over time, we will get very broad coverage for GRAFAPEX. And obviously, that will drive revenue.

Our next question is coming from Scott Henry of AGP.

Thank you. And congratulations on the GRAFAPEX launch. I know it's been quite a journey to get to here. So it's good to see it's going well for you all. Just 1 quick follow-up on the NTAP program. Is that a 12-month program? Or is that something that you can renew after a year. Just trying to get a sense of how that works and how -- what the duration of that is?

Yes. I'll have to check on that for you, Scott. What I have seen so far, it's temporary. I'm not sure if we can renew. I think the intent of it is to cover the drug while the DRG catches up. And as you know, that takes 12, 18 months, sometimes 24. And so it's for a specific period of time. I'm not sure if you can renew it, but I will check on that for you.

And what is the specific period of time? Does it go for 12 months.

Brendon, you chime in if you've got different information, but I think ours is a period of 12 months. 12 or 18 months thing like that.

I believe it's 12 months.

Okay. Great. Just taking a step back, in general terms, I wanted to understand how exactly do you define product level revenue, meaning when is the revenue booked? Is it when the product is purchased by the hospital? Or is it when it's used by the patient? When does that delivery convert to a sale?

Yes. Yes, our way of recognizing in this case is when it is sold to the wholesaler. So there will often be differences between the pace at which the wholesaler purchases it from us versus when the hospitals will purchase it from the wholesaler and then there could be further gaps between when the hospital purchase it from the wholesaler and when it's ultimately used in a procedure. But for our purposes, it's -- from a revenue recognition standpoint, it's when the sale is made to the wholesaler.

And just to add to that, Scott. So when we say demand what we're referring to is movement from the wholesaler to the hospital. We obviously don't book those sales, but that's what we're referring to as demand. That's our indication of how much is being used in the territory.

Okay. And the $3 million to $3.5 million, that's what you're going to sell into the wholesaler, correct?

That's correct.

Okay. So my experience with drug launches is the second quarter of the launch often can be flattish if you're selling into the wholesaler because you sell a bolus right away. And then by the third quarter, you start to see the true demand trend as opposed to just wholesale trends, which should signal faster or accelerating growth after the next quarter. Is that the right way to look at it?

I'll just jump in here, Brendon and then if you've got more please add. In our case, we've only got 1 wholesaler with 2 sites. And so they're not carrying a lot of inventory. Inventory has been building as demand has been building. So there's not a big disjoint between x factory and patient demand. Obviously, as our volume goes up, the amount of inventory that they'll hold on to will increase because let's say they hold on to a month of inventory as our revenues going up, a month becomes a bigger and bigger number. But yes, there's not a big disjoint between x factory and patient demand.

Okay. As well, 1 just clarification. And it's my understanding just to be correct, but just wanted to clarify, when we talk about a 15% tariff on GRAFAPEX, we're talking about a 15% on the cost of goods sold. I mean I assume that -- or the transfer price, which you delivered in. So the 15% will be on a much lower number than the end user sales. Is that how we should think about that tariff?

Yes, that's correct. So the 15% that we are anticipating would be applied on the cost of goods as it crosses the border, not on the revenue or anything else?

Okay. Great. And final question, you estimate that it looks like about 24% of procedures have already utilized GRAFAPEX or ordered it or I believe procedures performed. Where do you think that number could get to in, say, 12 months? Is that a number where you could get to 80% of the procedures to have access? Or -- what is the target? Could you get to 100%? Just trying to get an idea of how to track that number and what's a realistic target for it.

It's a great question. I probably don't have a great answer. It's all dependent on the speed at which formulary inclusion happens. Remember, 80% of the procedures are done in 70 hospitals, not the 180. That's why we've got a higher percentage of procedures because we're selling more to the top 70 than we are to the smaller hospitals. So no, we're not going to get to 100%. I don't see that. But I think we'll get a very significant share. Our $100 million guidance, that's a 20% or 25% share of procedures. That's kind of at the low end of the scale internationally when you look at what Treosulfan has done in Western Europe in many countries, it's significantly higher than that. It can be as high as 60%. So we do expect significant uptake this year, next year, the following year, and then it will start to plateau. We've always said we think peak sales in 3 to 5 years, and that certainly seems to be playing out.

[Operator Instructions] Our next question is coming from David Martin of Bloom Burton.

Ken and Brendon. This is Gireesh on for David. We had a question just about the Canadian portfolio. Do you feel the full impact of the Rupall generics have been felt yet. And do you think there's any chance of a rebound on seasonality or stabilization in the Canadian portfolio?

Yes. Great question. It's early going in the Rupall genericization. So we would expect there to be some further erosion. We don't think it's hit the bottom yet. But what we do see is the molecule continues to grow, which obviously is a very positive thing. We are holding on to a significant share. So again, a really positive thing. But yes, I think over time, you've got to expect that Rupall is going to erode as you would expect with the generic. We're doing everything we can to maintain as much as possible various programs to keep people on Rupall rather than generic. In many cases, it's working. So we fully expect and we have forecasted that Rupall will erode. But Rupall is our fourth largest product. And the upside on GRAFAPEX is many multiples of that. So I think our focus is appropriately on GRAFAPEX because that's clearly where our opportunity is and then trying to maintain the best we can in the rest of the portfolio.

Okay. And just a follow-up on the 15% tariff question. You mentioned or Brendon mentioned that the 15% will be applied to the COGS. For any of the additional costs be passed on downstream? Or is this going to directly impact your gross margins on the product?

Yes. The impact on the gross margin because in the case of both GRAFAPEX, which we have called out specifically in this last quarter as having 85% gross margin so 15% cost of goods roughly and there's some royalties in there as well. So the impact of a 15% tariff is not going to be material. We don't see or expect to have a tariff-specific price increase as a result.

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 final comments.

I just want to thank everyone for participating in the call today. We're obviously very pleased with the performance this quarter, which underscores the strategic value of our product portfolio approach. The solid foundation positions Medexus well as we enter the next phase of growth, driven by the continued rollout of GRAFAPEX. We look forward to the opportunities that are ahead of us in fiscal year '26 and beyond and look forward to keeping you posted in future quarters.

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