Medexus Pharmaceuticals Inc. (MDCX) Q2 FY2026 Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Medexus Pharmaceuticals Second Quarter 2026 Conference Call. [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 Second 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, but 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 the 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 a 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 8 months into the commercial launch of GRAFAPEX. We are extremely pleased with the progress achieved thus far and product performance to date has exceeded our prelaunch expectations, with October 2025, representing the strongest month of patient demand we have seen since launch. The $6 million we have invested in GRAFAPEX launch to date through September 30 is already having a significant impact. As of today, we have engaged with 83% of all 180 U.S. transplant centers, 29% of U.S. transplant centers have already ordered GRAFAPEX for procedures in their institutions and 69% of those 52 institutions have reordered. For the 6-month period ending September 30, we recognized product level net revenue from GRAFAPEX of $6.2 million. We still expect that GRAFAPEX will begin contributing positively to quarterly operating cash flows by fourth calendar quarter 2025, which is our fiscal Q3 '26, reinforcing its potential as a meaningful driver of long-term value. 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 Q2 '26 totaled $3.1 million relative to $3 million of GRAFAPEX personnel and infrastructure investments. In fiscal Q3 '26, we expect that the underlying patient demand of GRAFAPEX will be approximately $3 million to $4 million. This compares to $2.2 million in fiscal Q1 '26 and $2.1 million in fiscal Q2. Considering the estimated 1 to 2 months of inventory on hand at our wholesaler at September 30, we anticipate patient demand in fiscal Q3 '26 will result in product level net revenue of GRAFAPEX of between $2.5 million and $3.5 million. Starting October 1, '25, eligible procedures under Medicare involving the use of GRAFAPEX are eligible for additional reimbursement through the NTAP program or New Technology Add-on Payment. As I have mentioned previously, this program is designed to provide temporary supplemental reimbursement to institutions that use designated new, higher-cost medical technologies, making it easier for hospitals to adopt products such as GRAFAPEX and thereby improving Medicare patient access to cutting-edge care. We believe that the NTAP program's objectives are being met here, and we expect that NTAP eligibility for GRAFAPEX has and will continue to adoption and utilization in our fiscal Q3 '26. Overall, our fiscal Q2 '26 results remain solid with positive operating income, adjusted EBITDA and operating cash flows. Our results reflect the continuation of portfolio dynamics we have discussed in the past quarters, coupled with continued growth momentum of GRAFAPEX, which we view as a continuing testament to our portfolio approach. Our fiscal Q2 '26 net revenue was $24.7 million, a decrease compared to $26.3 million for the same period last year. Our fiscal Q2 '26 adjusted EBITDA was $4.4 million, a decrease compared to $6 million for the same period last year, but our second consecutive fiscal quarter of adjusted EBITDA growth since the approval and launch of GRAFAPEX in fiscal Q4 '25. We produced a modest net loss of $0.3 million for the quarter, a decrease compared to positive $0.1 million for the same period last year, but we still produced positive operating income of $1.4 million in fiscal Q2 '26, a decrease compared to $1.6 million for the same period last year. But again, our second consecutive fiscal quarter of operating income growth since the approval and launch of GRAFAPEX. Turning to a few notes on our other products. In Canada, unit demand for Trecondyv grew by 69% over the trailing 12-month period ending September 30. In September 2025, Health Canada issued a notice of compliance in respect of generic version of treosulfan for injection in Canada. We intend to monitor for and evaluate the potential effects of this development for any future commercial launch of the now approved generic product. IXINITY unit demand in the United States decreased by 3% over the trailing 12-month period ending September 30, 2025. We continue to invest judiciously in our IXINITY manufacturing process improvement initiative, which has been ongoing for some years now. This initiative has resulted in a 30% decrease in product level cost of goods, comparing fiscal Q2 2026 to fiscal Q1 2021 being the first fiscal quarter following our acquisition of the product in February of 2020. This informs our choice to make modest further investments in this process, approximately $1.2 million of which we expect to pay in fiscal year '26. Rasuvo unit demand in the United States has decreased by 2% and Metoject unit demand in Canada decreased by 9% over the trailing 12-month period ending September 30, 2025. Regarding Rasuvo, during the last quarter, we learned that another product in the branded methotrexate auto-injector market had been withdrawn by its distributor. We expect increased unit demand for Rasuvo over time as inventory of the withdrawn product sells down and patients and health care professionals look for alternatives. Rupall continues to face generic competition in Canada following the loss of its regulatory exclusivity period in January 2025, and as a result, unit demand over the 3- and 6-month period ending September 30 decreased by 58% and 55% compared to the corresponding prior year periods. While the impact of generic erosion on product level net revenue appears to have slowed in fiscal Q1 '26, generic competition will continue to have an adverse impact on product level performance. We view this pattern as still typical of products in this later stage of product life cycle. 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.

Thank you, Ken. Our results for fiscal Q2 2026 were solid and continue to reflect the natural transitional changes of our evolving product portfolio. We are very pleased with the early performance of GRAFAPEX, which, as Ken mentioned, generated $3.1 million of product level net revenue in our fiscal Q2 '26 and is net of working capital changes expected to begin contributing positively to operating cash flows in the fourth calendar quarter 2025, which is our fiscal Q3 '26. Turning to the full quarterly results. Total net revenue for fiscal Q2 '26 was $24.7 million. This represents a decrease of $1.6 million compared to $26.3 million for the same period last year. The $1.6 million year-over-year net revenue decrease was attributable in part to reduced net sales of Rupall in Canada and the March 2025 return of Gleolan in the United States to the licensor. This was partially offset by product level net revenue from GRAFAPEX, among other factors. Gross profit was $13.8 million for fiscal Q2 '26 compared to $14.1 million for the same period last year. Gross margin was 55.7% for fiscal Q2 '26, which is an improvement on the 53.7% we achieved in the same period last year. We expect increasing product level net revenue from GRAFAPEX, together with the absence of product level net revenue from Gleolan post March 2025 to have a positive effect on the company level gross margin. These resulting changes to gross margin are expected to continue to emerge over fiscal year 2026. Selling, general and administrative expenses were $11.9 million for fiscal Q2 '26 compared to $9.7 million for the same period last year. The $2.2 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 Q2 '26. We expect these investments to stabilize at approximately $3 million to $4 million per quarter, although individual future quarters could deviate from this estimate. Adjusted EBITDA was $4.4 million for fiscal Q2 '26, a decrease of $1.6 million compared to $6 million for the same period last year. The decrease was primarily due to the effects of generic competition on product level net revenue of Rupall. Net loss was $0.3 million for fiscal Q2 '26, a decrease of $0.4 million compared to net income of $0.1 million for the same period last year. We continue to generate cash from our operating activities with quarterly operating cash flow of $3.3 million compared to $6.9 million for fiscal Q2 '25. Cash on hand of $9.4 million at September 30, 2025, compares to $24 million at March 31, 2025. The primary factor in this net decrease in cash is the company's aggregate payments of $16.6 million under our senior secured credit agreement, substantially reducing our outstanding principal amount. As of September 30, 2025, our net debt was $11.7 million, a decrease of $1.5 million compared to $13.2 million as at March 31, 2025. We are in the advanced stages of a process to refinance our credit agreement and have a high degree of confidence that we will be able to announce a long-term agreement well in advance of the current facility's maturity in March 2026. 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.

[Operator Instructions] Our first question is coming from Andre Uddin of Research Capital.

Just looking at Rasuvo, just wondering which branded methotrexate auto-injector was withdrawn from the market? And what market share did that product have?

Yes. Thanks, Andre. So it was Otrexup. If you recall, there were just 2 of us in the market. We had an 80% share and they had the rest.

Okay. And just in terms of looking at NTAP, can you discuss what -- in terms of influencing NTAP GRAFAPEX sales, like since October 1, about what percentage of patients have been treated under this program, do you think?

Yes, it's a great question. We estimate that the Medicare, Medicaid portion of this market is some place between 20% and 30% of total market. So obviously, the NTAP designation has a significant impact on access for those patients because it basically closes the gap between us and the generic competitive product. So it gives them early access to cutting-edge technology. So we would expect that uptake will accelerate for that group of patients.

Okay. And just one last question. In terms of your BD pipeline, how does it look at this point in time? And are you considering bringing in another product?

Yes, great question. Obviously, we're laser-focused on executing on GRAFAPEX. That is the future of the company. That's where we're putting the majority of our effort. But we're always scouting for additional business development opportunities in the therapeutic areas where we participate so that we can leverage the infrastructure that we have. And so we're always looking. And obviously, when we find something attractive, we'll share that with shareholders.

Our next question is coming from Michael Freeman of Raymond James.

A few questions here. So I wonder if you could give us an update on GRAFAPEX's formulary inclusion, insurance coverage dynamics and any feedback you're getting on the doctor and patient experience using GRAFAPEX so far?

Yes. Thanks, Michael. Great questions. So first, on the reimbursement front, I think we've described that we're ahead of expectations with the launch of the product. I mean we're reporting on 6 months in. We're now 8 months in, and the reimbursement situation has been very positive, both from the institutional level where P&T committees are including the product on their formularies, which gives the physicians access within the institution. And then commercial payers are putting positive recommendations in their plans where necessary to reimburse it. So we have not run into any significant issue with respect to getting access to the product. Obviously, it just takes time for institutions to go through the process of adding it to their formulary, and that's kind of what we're experiencing right now, but we're very pleased with where we are today. With respect to the second part of your question, which was feedback from clinicians, we've always known that this is a very important addition to their options for conditioning of patients undergoing transplant. Clinically, the evidence is very strong. And so we're seeing adoption in the places where we expected it. And so again, positive feedback, which emboldens our confidence that the drug is going to be a major part of transplant and we'll achieve that target that we've set, which is 100-plus by 5 years.

All right. Great. Now on IXINITY, it looks like sales have been holding in quite well despite competition. I wonder what you would attribute the durability of this product to?

Yes. Thanks for that. It's been a part of people's treatment for many years now. So we have a strong group of patients who are very comfortable and satisfied with the product, and they consistently use the product. And we've got a group of sales and marketing people in the field who are doing a great job at making sure those patients remain satisfied with the product. So I think it's a combination of both. Partially, it's the drug and it works really well. And we've got people who support it, who do a really good job.

[Operator Instructions] And our next question is coming from Scott Henry of AGP.

Ken, for starters, I didn't quite hear you had given some guidance for fiscal Q3 GRAFAPEX. Could you just repeat that? It chopped up a little on my end.

Revenue fiscal Q3, I think we said $2.5 million to $3.5 million. Brendon, do you have the number?

Yes. So we're also guiding to demand sales. So we've guided to $3.4 million in demand sales, and that compares to $2.1 million, I believe, for fiscal Q2. And in ex-factory, so that the wholesaler sales, we're guiding to $2.5 million to $3.5 million, which compares to $3.1 million in Q2.

And so the demand should be greater than the reported sales. Why would that be? I mean, typically, when a product is growing, the opposite is true. Could you give any color on that?

Yes, I can.

Yes, go ahead. Go ahead, Brendon.

So we have -- for the last 2 quarters, we have seen that be the case as the wholesaler has just held on to inventory on hand. So they're sitting at between 1.5 to 2 months of inventory right now, which is very consistent with industry norms. But we can't really control how much inventory they will have on hand at any time. So that's kind of why we're -- and just as aside, because we have a single wholesaler model, we don't necessarily have the gives and takes that we would have for some of our other products. So that's why we're really focused on guiding towards demand sales as well and then trying to bridge that to that ex-factory sales.

Okay. And you mentioned October was the largest month. Can you comment on the demand run rate in October, if you annualized October, what sort of level we would be at?

We're not really giving granularity down to that level. But clearly, with October coming in so strong, maybe partially due to reimbursement improvement, which started in the month, we don't know for sure. We will find out later. But yes, we're well on track to kind of what we've been guiding to and expecting on GRAFAPEX. Brendon, can you give a little more color maybe?

Yes. I mean, as far as the actual demand, what we can say is it's very much in line with supporting the $3 million to $4 million that we have guided to. And as Ken mentioned, it is the strongest month of demand that we've had yet.

Okay. Great. Yes. The launch has been very strong, in my opinion. One of the things -- I mean, I've seen a lot of launches over the last 20 years, every launch has its own curve, and with a product like this, how would you think about based on the early information you have, what kind of launch curve this would be? Obviously, it went way up in the beginning, but now would you expect gradual growth? Or do you think you might hit an inflection point and accelerating growth as reimbursement comes together? How -- my question is, based on what you've seen, how do you think we should think about this launch trajectory going forward based on the dynamics of this market?

Yes, it's a great question, and this is a very unique situation because as we've discussed previously, this is a drug that there's a lot of information out there about it. It's been launched in many other territories before it hits the U.S., which is not usually the case. So what we have observed is as expected in the early going in the first few months, we got a lot of pediatric use. There's a very strong need for it in pediatrics, and then now we're starting to get access to the adults which will really drive that revenue growth going forward. So it's almost like this 2-phase sort of a launch where a real quick update in the very beginning, plateaus now as we're seeing reimbursement come in place for adults, it starts to accelerate again. And so that's kind of what we expect. As you know well, Scott, the first year typically is a year spent on trying to get reimbursement, and we've seen strong uptake even while that effort has been ongoing. So we feel good about it accelerating into next year.

Okay. Final question, just on the Canadian sales. They were at a very high level in the first half of fiscal 2025. You had some competitive issues there, which brought it down to a new level. Where we are right now, do you see this as kind of a base for growth going forward? Or just trying to get a sense if this -- if the Canadian business has kind of bottomed out and we should start to think about sequential growth going forward?

There's a lot in that one. So obviously, we got a broad portfolio in Canada. So there's lots of ups and downs, Rupall being the major driver of that. We said in the comments that we see that erosion starting to slow. So we would hope that, that's the case. We expect some continued erosion on Rupall, but at a declining rate. So I guess that gets to your point about is it starting to trough, and that's possible. We've got other headwinds on Metoject, which showed some continued erosion, but again, at kind of a declining rate. So all these ups and downs, I think the Canadian business is flat to declining, continue for a few quarters and then trough.

Our next question is coming from David Martin of Bloom Burton.

This is Gireesh on for Dave. Can you provide a bit more color on the ongoing Rasuvo sales dynamics? Have you seen any early signs of market share gain with the competitor leaving? And have prices sort of stabilized in terms of gross to net adjustment?

Yes, great questions. So yes and yes. The -- we did see -- we are seeing increased unit volume uptake as a result of the competitor announcing they were withdrawing and then inventory starting to work down. So that is happening. And then yes, obviously, price kind of troughed, and we don't see any further declines.

And do you expect price to either increase going forward? Or would it be stable?

Most of this business is under contract. So you wouldn't expect to see anything happen in the short term, but as contracts expire and then get renegotiated, that will be the point at which we'd start to see some movement.

Well, we appear to have reached the end of our question-and-answer session. I will now hand back over to the management team for any closing comments.

I just want to thank everybody for joining us on the call today. We remain pleased with the business performance in this past quarter, which continues to underscore the strength and strategic value of our portfolio approach. This solid foundation Medexus -- positions Medexus well as we enter the next phase of growth, driven by continuing rollout of GRAFAPEX. We look forward to the opportunities that lie ahead in fiscal 2026 and beyond, and thank everybody for joining the call today.

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.