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

Good morning. Welcome to the SHARE Series Monday Management Update. I am Frank Candido, and I have the pleasure of speaking with Kenneth d'Entremont, CEO at Medexus; and Marcel Konrad, CFO at Medexus. [Operator Instructions] Ken?

Thank you, Frank. Thank you for the opportunity to present Medexus here to you this morning. Medexus is traded on the TSX under the ticker symbol, MDP, and on the OTCQX, under the ticker symbol MEDXF. I will just go to the next slide, please. This is our forward-looking statement. Our forward-looking statement can be found on our website at medexus.com, along with lots of other useful information for investors. Let's go to the next slide, and we'll start to describe the company. In a nutshell, Medexus is a commercially focused pharma company, with over $100 million in revenue, producing over $16 million in positive EBITDA. We're very much focused on the commercial aspects of the business. We're not an R&D company. We are really a commercially focused organization, taking either near-stage or existing molecules to market and driving revenues. We've got a really good compound annual growth of about 25%. That's spread across 17 different products in both U.S. and Canada. Four or five of them really drive probably about 70% or 80% of the revenue. The real, I think, attraction of this business for investors is that a lot of the hard work has already been done. Clearly, we've already built out the commercial infrastructure, both U.S. and Canada. So now as we add additional products or grow our product organically, at 60% gross margin, a lot of that value drops to the bottom line. It obviously creates a very, very good return. Management is very much aligned with shareholders, owns about 10%. Let's go to the next slide, and we'll talk about the business strategy. As I mentioned, we are a commercially-focused pharma company. We're very much focused on organic growth of existing portfolio. We've done that successfully over the past 4 or 5 years, with a compound annual growth of about 25%. So we're really, really focused on driving the existing portfolio. We built that portfolio through business development, either licensing or M&A. And so the portfolio that's been put together today that has been licensed or acquired, and we will continue to do that in the therapeutic areas that we're interested in, places where we have infrastructure and sales forces. And so we'll keep layering products on top of existing portfolio that will obviously create a good return for shareholders. I mentioned that we do not do basic research. We do some product development. And in our hands, that means taking existing products, doing research when necessary to improve the labeling that will create a better commercial opportunity for those products. So when you look at our R&D line, there is some spending there. It's not significant, but there is some work going on to improve label on several different product fronts. So let's go to the next slide. I'm going to talk a little bit about the product portfolio that we currently have. We're focused on certain therapeutic areas where we don't need a big commercial footprint. So we're really interested in places where it's either orphan drug, rare disease or a small commercial footprint that can assess us a significant market opportunity. So the areas that we're interested in is hematology, where we have a couple of products, IXINITY, which is for hemophilia B. That's commercially launched in the U.S. It is one of our top products. We're working on a pediatric indication for that same drug that will expand the label and the commercial opportunity in the U.S. Treosulfan is in the same sort of space. That's a conditioning agent to be used prior to stem cell transplantation. We have that product launched in Canada in the last year or so. And we are moving through the process with the FDA for the U.S. approval. In rheumatology, we have a product called Rasuvo, or it's called Metoject in Canada, is simply same product. That's the brand name, commercially available. And at this stage, it's mature in the U.S, and boasts about an 80% share in the market where it participates. It's used for rheumatoid arthritis. In the same space, we have a product called Trispan, which is commercially available in the U.S. -- in Canada, excuse me, and hope to have that available soon in the U.S. In the rare disease space, we have a product called Gleolan, which is for glioblastoma tumors, the most common form of cancer, it's a brain tumor, where it's commercial available in both the U.S. and Canada. And our partner is working on additional indications for that drug, which will be a pipeline opportunity. And then finally, in Canada, we have a slightly larger footprint in the sales force, commercial-facing organization, where we actually call on primary care. So we have a product called Rupall, which has done extremely well over the 5 or 6 years it's been in the market, growing extremely strongly and continues to do so. We're adding a product called terbinafine, which is for nail fungus, which we think be available in the coming years. So a nice, strong portfolio of products that we believe will continue to fuel organic growth into the future. Next slide, please. So this shows our financial results, which we've had in the last 5 or 6 years. You can see a really strong compound annual growth. You can see the most recent quarter was $31.6 million in revenue, producing $6.6 million of positive EBITDA. So that's 7 quarters of positive EBITDA. The last 2 quarters, it's been positive net cash flow. So we really are now starting to see acceleration of this business, but still significantly undervalued with respect to our peers, where our EV to revenue is less than 1, our EV to adjusted EBITDA is less than 5. So in comparison to our peers, we've got a lot of room to grow this business in terms of the share price. And the next slide, please. So if you have more information, you can talk to myself or Marcel Konrad, our CFO. And Frank Candido, who is on the line today, also has lots of information that for shareholders. So happy to take any questions that any investors might have. Frank, I can't hear you.

There we go.

Perfect.

Okay. There are a number of questions. So I'll start. You just announced a significant record Q1 a week ago. Where do you see Medexus in the next few years in terms of driving revenue growth?

Yes. We don't give any forward guidance, but we do obviously expect that we will continue strong -- to grow strongly organically. We've got several good opportunities. Gleolan is a product that we recently relaunched in the U.S. We acquired that from someone who didn't drive it as far as it can go. So last September, we relaunched it. We're starting to see some traction there. So that's going to make a significant difference. We've got a pediatric indication we expect coming through for IXINITY. So we've got lots of growth opportunities on top of a pipeline of products like treosulfan, like terbinafine. So we do expect that we'll continue to have strong organic growth. Plus, we will obviously continue to do business development to build the portfolio. I think that's really where we know a lot of our value, where we can take products in the therapeutic areas where we already have sales force and leverage that sales force by adding more products. Then the revenue goes up strongly. Good gross margin product, 60% plus. So a lot of that drops to the bottom line because we don't need to add a lot of incremental spending as we're adding that revenue. So that's really how we see the business evolving. And that's really what's been happening up until this point.

Okay. Next question. It seems that you have a fairly equal split of field staff in both Canada and the United States, yet your revenue is currently largely being driven by the United States. So can you explain why this breakdown?

Yes. The -- we just have a broader portfolio of products in Canada at this point. And so that's why we have more salespeople per capita. But the revenue growth, a lot of it is coming from the U.S. as we've been building portfolio. And so we would expect that the U.S. is going to continue to grow. Eventually, it ought to be like a 90-10 split. But right now, the Canadian business is very strong. We've got some very, very good product opportunities, a much broader portfolio. We're trying to continue to build the portfolio in the U.S., and that's where a lot of our growth is going to come from.

Okay. The next question is sort of an extension of the previous question. If you were to add any products to your current portfolio, would this require a significant bump up in staffing needs?

No. I think that's the beauty of our business. As I said in my comments with the slides, we've already got the infrastructure built out. We're about 100 people in the two territories. And so as we add products in the U.S. and Canada, in therapeutic areas where we're already participated, then we don't need to increase staff to launch those products. Perhaps we had a few here and there, but you don't have to build a whole sales -- a new sales force in order to launch that new product. So I think that's where the leverage comes. So we've got these people in place. We add a product to either hematology or rheumatology or rare disease, then we can use that infrastructure that's there, leverage that, and really generate significant incremental EBITDA.

Okay. The next question is in reference to treosulfan. So there are a few questions on this. I'm going to try to consolidate them all into one. I've read about the resubmission of treosulfan in the United States to the FDA. Can you give us some additional color? In addition to that, what's causing the long time line for the Medac resubmission if the FDA didn't require any new studies? And then lastly, what is the market potential in terms of revenue for this drug?

Okay. Let's start with that point first, why are we putting so much effort into treosulfan? It's a great drug. There is strong, strong need for this drug in the marketplace. If people are following our story, they would have seen a month ago we put out some information about a study that Princess Margaret Hospital in Toronto had conducted. And that study demonstrated a 30% improvement in overall survival at 12 months for patients using treosulfan instead of busulfan, which is a competitive product. So fantastic improvement in overall survival. So there's a strong clinical need for the product. That's why we are putting so much effort into trying to get treosulfan to the U.S. market. We were successful in doing so in Canada. Medexus filed the product and managed the application, got expedited review, and it was approved within 6 months. In the U.S., it's our partner, Medac, who is managing the file. And unfortunately, they received a CRL, which requested additional information. The request is for additional information related to the already concluded a pivotal Phase III study. But that study was 570 patients. So it was a pretty big study for this space. And the FDA is simply asking for additional information related to each one of those patients. And so it takes a long time to collect all of that information. As the question suggested, they didn't ask for a new clinical study. And so that's not necessary, which should take even more time. They're simply asking for additional information related to that particular study. Medac is in the process of collecting that information. I think we said publicly a couple of weeks ago that we do believe that we'll go in, in the first half of calendar '24. And then it will be up to the FDA to make a decision, we hope, and that would likely take about 6 months after we refile.

Okay. The next question is, why does Medexus seem so undervalued with your continued performance in the past few quarters? Are there any risk factors affecting the stock performance?

Great question. So I'll start -- the answer to that question, and then I'll pass it over to Marcel Konrad, our CFO. So I think we are significantly undervalued. There's been some overhang on the stock. Our financial performance has been excellent. You can see the consistent growth quarter after quarter of both revenue and EBITDA and now it's free cash flow. So we're building cash, but there's been a bit of an overhang with respect to a convertible debenture that we have in place. And I'll let Marcel speak to that.

Yes, certainly. If you look at the balance sheet side of the house, we have two main positions. We've just refinanced our term loan and a small ABL with BMO, Bank of Montreal. That's a $38.5 million facility, at fantastic rates. We're well below 10%, and we're really proud to have a partner that is believing in Medexus -- the Medexus story long term. Now at the same time, with that facility, we got a $20 million uncommitted accordion. Why is that important towards the debentures? We have, as Ken mentioned, a debenture facility maturity coming up mid-October. It's a 5-year-old maturity, CAD 42 million at a 25% premium. What we're expecting to settle in mid-October is roughly USD 38 million as a payment. Now we have an option to pay this facility -- this debenture facility in cash, in shares or a combination of that. So this is the little bit of the overhang we were talking about basically how and when we're going to settle this facility. So as I mentioned, we have the $20 million uncommitted accordion with Bank of Montreal, and we talked to the bank about as we speak. And we've publicly disclosed our cash position already has a little bit of an outlook that we're trending towards $20 million of cash ourselves. So with the combination of the two, we think we have a good chance to address the maturity of these debentures in cash, which is obviously a preferred way of payment as we don't really want to dilute our shares. So this is the debenture maturity that is coming up mid-October, $38 million in cash or shares or a combination thereof...

Okay. Thank you, Marcel. The last question, again, I'm consolidating from a couple of questions, pertains to a potential uplisting to a NASDAQ listing. As you know, we are currently listed on the big board in Canada on the TSX and listed in the United States on the OTCQX, so there are a number of shareholders wondering or potential shareholders wondering if there are plans for a NASDAQ listing?

Yes, Frank. So that's a good question we've been getting the last, I would say, probably 2 years. And for those who have been following the story for now a couple of years, the story actually hasn't changed. Even 2 years ago, before we got the CRL for treosulfan, we publicly said that we want to do a NASDAQ listing, getting from the TSX as a dual-lister into NASDAQ. The plan before we got the CRL was exactly that. We've been starting the application. We're very, very close. We don't have much to do in order to complete the application. The plan is still there, to go to NASDAQ. We are just waiting a little bit on a catalyst. We've always said that just for the NASDAQ listing by itself. We would like to have a catalyst with it. And as Ken mentioned before, we have a number of things that are coming up. including, obviously, treosulfan resubmission. So we're looking for a catalyst. But overall, that's still the goal, and we're still pursuing that goal and we're not really far away from that.

Okay. Thank you, Marcel. I think that wraps it up in terms of the questions. So thank you again for joining us today. Up next is -- on SHARE is security matters at 9 a.m., which is in about 10 minutes. Thank you once again.