Medexus Pharmaceuticals Inc. (MDP) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Medexus Pharmaceuticals Second Quarter 2021 Earnings Conference Call [Operator Instructions]. At this time, it is my pleasure to turn the floor over to Ms. Tina Byers. Ma'am, the floor is yours.

Thank you, and good morning, everyone. Welcome to the Medexus Pharmaceuticals Second Quarter Fiscal 2021 Earnings Call. On the call this morning are Ken d'Entremont, Chief Executive Officer; and Roland Boivin, Chief Financial Officer. If you have any questions after the call or would like further information about the company, please contact Adelaide Capital at (905) 330-3275. I would like to remind everyone that this discussion during this call will include forward-looking information that is based on certain assumptions and is subject to risks and uncertainties that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information. Forward-looking information provided on this call speaks only as of the date of this call and is based on the plans, beliefs, estimates, projection, expectations, opinions and assumptions of management as of this date. There can be no assurance that forward-looking information will prove to be accurate, and should you not place undue reliance on forward-looking information. Medexus disclaims any obligation to update any forward-looking information or to explain any material difference between subsequent actual events and such forward-looking information, except as required by applicable law. In addition, during the course of this call, there may be also references to certain non-IFRS financial measures, including references to adjusted EBITDA 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-IFRS financial measures, including a reconciliation of adjusted EBITDA to net loss, please refer to the company's management discussion and analysis, which along with financial statements, are available on the company's website at www.medexus.com and on the corporate filings under SEDAR at www.sedar.com. I would now like to turn the call over to Ken d'Entremont to discuss the second quarter.

Thank you, Tina. Good morning, everyone. Thanks for joining us on this call today. We continue to make rapid progress and are advancing on a number of exciting initiatives that we believe will have a meaningful impact on the business going forward. During the second quarter of fiscal 2021, we achieved revenue of $23.6 million versus $16.4 million for the same period last year. Over $3 million in revenue from IXINITY sales, which was originally expected to be realized in September 2020, was instead realized in October of 2020 due to a delay in receipt of finished product from the company's contract manufacturing partner. The delay in receipt of finished product was a result of a common regulatory process that did not impact IXINITY but temporarily interrupted the company's partner's ability to release shipments for any of their clients. The product was shipped in October 2020, and the revenue has been recognized in the fiscal third quarter ending December 31, 2020. We continue to leverage our North American infrastructure in order to significantly scale revenues while only modestly increasing operating expenses. This is evidenced by the fact our selling and administrative expenses as a percentage of revenue decreased to 46.6% in the second quarter from 64.4% in the same period last year. The company's selling and administrative expenses for the second quarter increased just 4.3% versus the comparative period which is well below our revenue growth of 44.1% over the same period last year. All this translated to an adjusted EBITDA of $3 million for the 3 months ending September 30, 2020, compared to $500,000 for the same period last year. It is worth noting that had it not been for the delayed shipments of IXINITY product, our adjusted EBITDA would have been higher during the second quarter of 2021. For the second quarter, we achieved operating income of $600,000 compared to an operating loss of $1.3 million for the same period last year. In the last 12 months ending September 30, 2020, we achieved record revenues of $93 million and an adjusted EBITDA of $12.9 million. This growth only partially reflects the impact of our acquisition of IXINITY which closed in February of this year. With $9.8 million of available liquidity as of September 30, 2020, we are well positioned to further execute on our growth strategy and on certain product launches. Turning to our specific product lines. We continue to see strong demand for our core product -- portfolio of products with limited impact of the COVID pandemic outside of our Canadian over-the-counter products. Our commercial hematology product, IXINITY, is an FDA-approved intravenous recombinant factor IX therapeutic for use in patients 12 years of age and older with hemophilia B, a hereditary bleeding disorder characterized by a deficiency in clotting factor IX in the blood, which is necessary to complete -- to control bleeding. The hemophilia B market size in the United States alone is estimated to be in excess of USD 1 billion and continues to grow. In September 2020, The U.S. Food and Drug Administration approved our application to supplement the IXINITY biologic license application to add the indication for routine prophylaxis. This label expansion provides additional flexibility in the prescribed dosing regimen for IXINITY and may appeal to health care professionals who prefer this dosing regime. We believe this label expansion will help us further penetrate the market and enhance our ability to retain our existing base of business. We also continued to enroll patients in the ongoing Phase IV clinical trial to evaluate the safety and efficacy of IXINITY in previously treated patients under 12 years of age with hemophilia B. Once completed, this study may support a significant expansion of the indicated patient population for IXINITY as approximately 1 in 3 patients treated for hemophilia B in the United States are 12 years of age or younger. To date, the study is over 50% enrolled, and we are aggressively pursuing patients to complete the enrollment. We experienced a 2% increase in Rasuvo unit sales in the United States over the previous year, and we believe this reflects continued payer, prescriber and patient acceptance. Rasuvo is a once-weekly subcutaneous single-dose auto-injectable methotrexate indicated for the treatment of rheumatoid arthritis, psoriasis and juvenile idiopathic arthritis. We maintain a dominant position within the methotrexate auto-injector segment and expect continued strength as prescribers adopt the most effective and convenient form of methotrexate for their patients. Metoject realized a 48% year-over-year unit demand growth in Canada due in part to public reimbursement through provincial formularies in all provinces except British Columbia and Manitoba. Public reimbursement creates access for a large group of patients who previously could not get the product. Metoject is a prefilled syringe of methotrexate which is indicated for the treatment of rheumatoid arthritis and psoriasis. It is a highly effective and cost-efficient treatment for these debilitating diseases. Rupall, launched in Canada in January of 2017, is also experiencing very strong unit demand growth in its market with an increase of 45% over the previous year. Over the last year, Rupall has been one of the fastest-growing antihistamines in the Canadian prescription market. We continue to gain market share as physicians are switching patients from either the generic prescription antihistamines or over-the-counter products. We expect Rupall to be a leading prescription antihistamine in a total market valued at over $145 million. As mentioned in our previous earnings calls, the development of our reformulated rheumatology product remains on hold as we reallocate R&D dollars to the pediatric study for IXINITY. We believe that the opportunity to expand the IXINITY labels offers a more immediate return on capital. We plan to return to development of the rheumatology product once the pediatric study nears completion. On September 9, 2020, we announced that Gliolan was approved by Health Canada. Gliolan is used for guiding maximal surgical resection of high-grade gliomas and malignant brain tumors in adults. It assists neurosurgeons in order to better visualize and more completely remove gliomas by causing them to become fluorescent and glow under blue light. We are working towards a full commercial launch within the next few months. We expect to rapidly gain broader distribution based on the positive feedback we have received from the medical community to distribution via the special access program. In August of this year, Health Canada approved the trade name change from triamcinolone hexacetonide to Trispan. Trispan is glucocorticoid indicated for intra-articular, intrasynovial and periarticular use in adults and adolescents for symptomatic treatment of many chronic inflammatory joint diseases. Trispan is the longest-acting corticosteroid and -- for intra-articular injection, often lasting twice as long as competitive products. It is set to be reimbursed in Nova Scotia in the coming weeks. And now with broad reimbursement across the country, the company is executing on its commercial launch of the product. on September 10, 2020, Health Canada granted priority review for Treosulfan. The file could be approved as soon as May of 2021. Treosulfan is a medication given to people before they have a bone marrow transplant from a donor known as allogenic hemotopia stem cell transplantation. It is used as a conditioning treatment to clear the bone marrow to make room for the transplanted bone marrow cells which can then produce healthy blood cells. The company is currently negotiating the license in anticipation of a full commercial launch. In addition to our current product portfolio, We have a right of first refusal on current products from the previous owner of Medexus U.S., with whom we entered into the Medac GmbH supply agreement. We believe that several of these products represent a commercial opportunity in North America and are in the process of assessing the licensing of these drugs. We are also in discussions with several partners regarding other licensing agreements and believe that those products have the potential to materially contribute to revenue within the next few years. In order to better evaluate such opportunities, in September, we appointed Michael Pine to Senior Vice President of Business Development and Strategy, with a focus on identifying, evaluating, negotiating and acquiring new products to commercialize. Michael has served a variety of senior roles that -- at companies such as Lupin Pharmaceuticals, Aralez Pharmaceuticals, Novartis, Kos Pharmaceuticals, Organon Biosciences, Pfizer and JPMorgan Chase. Michael will undoubtedly be an asset as we continue to identify in-licensing opportunities and acquisitions of new complementary products that can leverage our North American sales force. Some of these products represent significant and material near-term commercial opportunities. We will continue to optimize our portfolio and leverage our resources with the goal of executing near-term accretive transactions to achieve our growth targets over the coming years. As we continue to build our U.S. platform, as of August 2020, we began trading on the OTCQX under the ticker symbol MEDXF, and continue to trade on the TSX Venture Exchange. It is important to note that we continue to actively review our trading platforms and evaluate opportunities for improvements in the future. In summary, we believe we have built a highly scalable business model which should provide significant incremental earnings potential. We continue to grow revenue, leverage our North American sales force across products, realize synergies of the combined entities and maintain strict financial discipline. We also have available liquidity from which to execute our business plan, including the launch of several new products. As I mentioned earlier, over the last year, we achieved record revenues of $93 million and adjusted EBITDA of $12.9 million. We believe that expected revenue growth and stable operational expenses will continue to keep the company in a positive adjusted EBITDA situation in the current and future fiscal years. Overall, we are more excited than ever about the outcome -- outlook for the business. We're off to a very strong start in the fiscal third quarter and remain highly encouraged by the outlook for the second half of fiscal 2021. I will now turn the call over to Roland, who will discuss the financial results in more detail.

Thanks, Ken. As Ken mentioned, we continued to experience strong demand for our core products in the second quarter. Total revenue reached $23.6 million and $51.1 million for the 3- and 6-month periods ended September 30, 2020, respectively, compared to revenue of $16.4 million and $32.5 million for the 3- and 6-month periods ended September 30, 2019. The increase was mainly due to the acquisition of IXINITY. As already mentioned, in September 2020, we experienced a delay in receipt of finished IXINITY product, which would have contributed more than $3 million of revenue to the quarter. These revenues were recorded in early October 2020 and will contribute to the third quarter of fiscal 2021. Gross profit reached $12.8 million and $27.8 million for the 3- and 6-month periods ended September 30, 2020, respectively, compared to gross profit of $9.6 million and $19.5 million for the same period last year. Gross margin was 54.4% for both the 3- and 6-month periods ended September 30, 2020, compared with 58.6% and 60% for the same periods last year. The lower gross margins for the current periods are due in part to the 2020 acquisition of IXINITY which has lower gross margin than the company's other key products. In addition to actual cost of goods and royalties paid to partners, gross profit and margins are impacted by amortization of product licenses, allowances for potential product returns, as well as warehouse and logistics expenses. Research and development expenses were $1 million and $1.9 million for the 3- and 6-month periods ended September 30, 2020, which related primarily to the IXINITY pediatric trial, whereas expenses of $182,000 and $585,000 for the 3- and 6-month periods ended September 30, 2019, reflected the development of the rheumatology reformulation which is currently on hold until the IXINITY pediatric trial nears completion. Operating income for the 3 month -- the 3-month and 6-month periods ended September 30, 2020, were $0.6 million and $2.2 million, respectively, compared to an operating loss of $1.3 million and $2.4 million for the same period last year. Adjusted EBITDA for the 3- and 6-month periods ended September 30, 2020, were $3 million and $8 million, respectively, compared to $500,000 and $1 million for the same period last year. As Ken mentioned earlier, our adjusted EBITDA would have been higher had it not been for the delay in receipt of finished IXINITY product. Net loss for the 3- and 6-month periods ended September 30, 2020, were $2 million and $6.8 million, respectively, compared to net income of $700,000 and a net loss of $1.5 million for the same periods last year. The difference can be largely attributed to the change in unrealized fair value of derivatives, which is a noncash expense. We also maintained a solid balance sheet with $8.6 million in cash and cash equivalents as at September 30, 2020. We have $9.8 million of available liquidity, which includes $1.2 million of undrawn credit available under our ABL facility. Operator, we will now open the call to questions.

[Operator Instructions] Our first question, Andre Uddin and Mackie Research.

Just had a couple of questions. I realize it's a little bit difficult to predict, but when do you think you'll be able to file for approval for the pediatric use of IXINITY?

Yes, good question. I mean, the whole COVID situation slowed down clinical programs, and we had the same impact. We adjusted for that by adding more sites, and so that's why we had a recent acceleration, and we think that will continue. So we think we'll have the trial completed certainly within 18 months, and then we'll file immediately.

And just looking outside of North America licensing, how are the licensing discussions progressing for IXINITY?

Yes, that's one of the main projects that Michael Pine is now taking on, the resource we added. So at last count, I think we have 3 or 4 territories including the big markets that you would expect. China, Western Europe and Latin America, they're ongoing discussions. So those things are moving along and so we hope to get something done soon. And then the Canadian application is moving along as well, we're getting prepared to put that in.

Can you also just provide a bit of a competitive landscape update for IXINITY or Rasuvo as well? That would be great.

Yes, so the competitive landscape hasn't really changed a whole lot for IXINITY. You probably saw the delay in gene therapy on the hemophilia A side. We've talked about that before, and that the gene therapy products look really interesting, but we know they're going to be hugely expensive. And so duration of effect is really important, how long will they last? And so they don't really have enough data to make a good pharmacoeconomic argument. So the one that was kind of in the lead on the hemophilia A side got delayed by FDA. So we don't expect to see them any time soon. And when they do come, they will probably be reserved for the most severe patients. Those are the patients that use the most factor and where you might be able to make an argument on the pharmacoeconomic side. For Rasuvo, continued to fight against Otrexup, which is the other auto-injector. We do expect to launch from Cumberland, which is a prefilled syringe. But we've competed very well. We've got a strong position in that marketplace. So we think we will fare very well against both competitors.

We'll take our next question from Tania Gonsalves at Canaccord.

First off, could you talk to gross profit? So the gross profit margin, I was anticipating it would have trended lower with the addition of IXINITY, but it seems to be staying quite robust. What can we expect from this margin going forward?

Thanks for your question, Tania. Yes, so gross margin, we expect gross margin to stay fairly flat to what you're seeing in Q1 and Q2. And as you know, there are a lot of things that are involved in the gross profit calculation, and some parts are fixed as would be amortization, for instance, of the licenses and all that. But yes, product mix on any given quarter can have some fluctuation on the gross margin for any given quarter, but we would -- there would be no reason for us to think that it would change very much from the first couple of quarters.

Okay, excellent. And then second, I think there was a little -- a write-up in your AIF about the litigation with Accord Healthcare. Could you provide any more color on when their product was launched and what you think the outcome of -- I know it's hard to say, but what you think the outcome of the litigation might be? I think you saw that there was a similar litigation with Accord and [ Medac ] in the U.K. back in 2016, and I believe Accord won that case. So what do you think the likelihood is of them -- of you not being able to get them out in the market?

Yes, great question. So the Accord product launched the quarter before last, so not this quarter that we're talking about today, but our fiscal first quarter. So we've been pushing them back and fighting aggressively on the commercial front and also now turned to a litigation because we believe they do infringe on the IP that protects Metoject. There's been mixed results. In some territories, Medac has won that battle. In others, they have lost. Obviously, in the U.S., we won against a different competitor, but same sort of litigation. So we've won in North America, and so it's a kind of toss up. We don't know who's going to win in Canada. We think we have a very strong case, and so we're pushing it to its full extent. Also point out that in Canada, it's a loser pays sort of setup. So any lost profits that we experienced, they would have to repay us because we're the ones that are -- would be able to claim damages.

Got it. And how -- do you think the litigation costs will get to a material number? Should we be adding this into our forecasts?

Not yet, no. It's going to probably drag out for some period of time. So it's not concentrated in any particular period. So it's kind of dragged out. And we're not bearing the full brunt of the cost. So it's being supported by Medac as well.

Excellent. Okay. And you did mention that you won the case in the U.S. Who was that against?

I'll have to get back to you because I don't want to give you the wrong name, but I'll come back to you.

[Operator Instructions] We will go next to Matthew Buckles at Stifel.

Just 3 quick ones for me. First off, if that $3 million shipment did contribute to the quarter, just wondering. I know you had said EBITDA would have been higher, but wondering if you could give a ballpark of just how much higher.

Yes, without going into many details, basically, these are orders that typically would have been shipped and recognized in September. And so there's very little additional cost associated with it. So basically, one could evaluate roughly the impact on EBITDA, roughly at -- looking at the gross margin of that product per se. But yes, that's probably as much direction as I can give on that. But hopefully, that's what you're looking for.