Knight Therapeutics Inc
TSX:GUD
Earnings Call Analysis
Q4-2023 Analysis
Knight Therapeutics Inc
The company has experienced a period of robust growth, celebrating a decade of consistently increasing revenues and setting new records in 2023, with revenues reaching $343 million, a notable 18% increment from the previous year. Alongside revenue, adjusted EBITDA grew by 11% to over $60 million.
The pipeline of products has seen significant expansion, with regulatory filings for five products, including approvals in multiple territories. Notable product launches in Canada and Latin America have bolstered the company's presence, with the introduction of Bijuva and Imvexxy promising a competitive edge in a market valued at over $90 million.
In a move signaling confidence in the company's valuation, 11.1 million common shares were repurchased at an average price of $4.82, amounting to over $53 million. This share repurchase underscores management's belief in the intrinsic value of the company.
The oncology and hematology portfolio generated $122.7 million, marking a 16% increase. The infectious disease portfolio was even more dynamic, delivering $141 million, a substantial 21% leap from the previous year. A noteworthy contract with Brazil's Ministry of Health suggests strong future demand for key products like AmBisome.
Gross margin for Q4 2023 stood at 48% of revenues, slightly down from the preceding year's 50%. However, adjusted EBITDA as a percentage of revenues increased to 18%, revealing efficient cost management and healthy profitability.
The company recorded an impairment of $9.3 million due to fluctuations in foreign exchange rates, specifically the appreciation of the US dollar against the Canadian dollar. Despite the impairment, the overall financial health of the company remains stable.
Operational activities generated a cash inflow of $36 million, despite significant working capital investment driven by the onboarding of key products and new product launches. Management has projected a revenue range of $335 million to $350 million with an adjusted EBITDA margin around 17% for the forthcoming period, showcasing leadership's confidence in sustained growth.
Three additional products have broadened the company's pipeline, targeting large market segments like ADHD treatments and oncology, with promising sales potential in markets like Brazil. With regulatory submissions and strategic licensing, management anticipates these products to significantly contribute to revenue growth.
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Good morning, ladies and gentlemen. My name is Sylvie, and I will be your operator today. Welcome to Knight Therapeutics Fourth Quarter and Year-End 2023 Results Conference Call. Before the 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 those forward-looking statements are based to be reasonable at the time they were prepared, but cautions that these assumptions regarding the future events may of which are -- many of which are beyond the control of the company and its subsidiaries, may ultimately prove to be incorrect. The company disclaims any intentions or obligations to update or revise any forward-looking statements, whether as a result of new information future events, except as required by law. We would like to remind you that 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 info@knighttx.com or via phone at (514) 484-4483. I would now like to remind everyone that this call is being recorded today, March 21, 2024, and I would now like to turn the meeting over to your host for today's call, Samira Sakhia. Please go ahead.
Thank you, Sylvie. Good morning, everyone, and welcome to Knight Therapeutics Fourth Quarter and Year-End 2023 Conference Call. I'm joined on today's call with Amal Khouri, our Chief Business Officer; and Arvind Utchanah, our Chief Financial Officer. Last month, we celebrated our 10-year anniversary, and I'm proud to say that we have delivered record revenues for each of those tenures and record EBITDA since 2019. In 2023, we reported record revenues of $343 million and record adjusted EBITDA of over $60 million, a growth of 18% and 11%, respectively, versus last year. While delivering on these record results, we have made significant progress in advancing our product pipeline in Canada and Latin America. We submitted regulatory filings for 5 products: Minjuvi, Pemazyre, TAVALISSE, Rembre and Karfib across multiple territories and received approval from Minjuvi in Brazil, for Palbocil and Xetrane in Chile and Karfib in Colombia. In addition to our regulatory submissions and approvals, we launched 2 products in Canada, Bijuva as well as Imvexxy, which competes in a growing market of over $90 million. Outside of Canada, we launched Minjuvi in Brazil and Palbocil in Argentina. Turning now to the NCIB. During the year, we purchased approximately 11.1 million common shares for aggregate cash consideration of over $53 million which represents an average purchase price of $4.82. I will now turn the call over to Arvind to provide an update on our financial results.
Thank you, Samira. When speaking of our financial results, I will refer to EBITDA and adjusted EBITDA, which are non-IFRS measures as well as adjusted EBITDA per share, which is a non-IFRS ratio. Knight defines EBITDA as operating income or loss, excluding amortization and impairment of noncurrent assets, depreciation, purchase price accounting adjustments and the impact of accounting under hyperinflation but to include costs related to leases. Adjusted EBITDA excludes acquisition costs and nonrecurring expenses. Knight defines adjusted EBITDA per share as adjusted EBITDA over the number of common outstanding shares at the end of the respective period. Furthermore, my discussion on the operating results will refer to figures that exclude hyperinflation. For the fourth quarter of 2023, we delivered revenues of over $88 million, representing an increase of $5 million or 5% versus prior year. In 2023, as Samira mentioned, we delivered record revenues of over $343 million, representing an increase of $51 million or 18%. On a constant currency basis, revenues increased by approximately $38 million or 12% versus prior year, driven by growth across all of our therapeutic areas. In 2023, our oncology and hematology disease portfolio delivered approximately $122.7 million, a growth of $17 million or 16% compared to last year. Our key promoted brands, including Lenvima, Trelstar, Palbocil and Akynzeo contributed approximately $27 million of incremental revenues. The increase was offset by a reduction in sales of our mature and branded generics products of approximately $10 million due to the life cycle and the entrance of new competitors. Our infectious disease portfolio delivered $141 million, an increase of over $24 million or 21% compared to the same period last year. The portfolio grew by $32 million, excluding the impact of the planned transition and termination of our Gilead agreement effective July 2022. The increase was driven by the growth of our key promoted products, including AmBisome and Cresemba as well as higher demand for Impavido. In 2023, we sold a total of $25.2 million of AmBisome under our sales contract with the Ministry of Health in Brazil or MOH, an incremental $18.2 million compared to the MOH sales in the prior year. In December 2023, we have signed a new contract for AmBisome with the MOH in Brazil. and we expect to deliver approximately $16.5 million in addition to the $2.5 million already delivered in Q1 2024. Moving to our other specialty portfolio. The portfolio generated approximately $80 million in 2023, an increase of $10 million or 14% compared to last year. The increase is primarily driven by the transition of commercial activities of Exelon from Novartis to Knight, which resulted in the change in accounting treatment from net profit transfer to revenues related cost of sales. Now moving on to gross margin. We reported $42.4 million for a gross margin of 48% of revenues in the fourth quarter of 2023 compared to $41.9 million or 50% of revenues in the same period last year. For 2023, we reported $166 million or a gross margin of 48% of revenues compared to $150 million or 52% of revenues last year. As a reminder, Exelon was recorded as a net profit transfer from Novartis for Brazil and Colombia in the first half of 2022. If Knight had reported revenues and related cost of sales for Exelon instead of a net profit transfer, the adjusted gross margin in both 2023 and 2022 would have been 48% and 50%, respectively. The decrease was due to the change in product mix. I will now turn to our operating expenses. Our operating expenses, excluding amortization and impairment of noncurrent assets for the fourth quarter were approximately $30.5 million, an increase of $1.3 million or 4% compared to the same period last year. For 2023, our operating expenses, excluding amortization and impairment were $108.6 million, an increase of $9.3 million or 9% compared to last year. The increase in operating expenses was due to an increase in our compensation expenses, certain variable costs, which -- such as logistic fees, which increased as expansion of higher revenues as well as an increased selling, marketing and medical activities related to our key promoted products. In addition, we accelerated our development activities related to our product pipeline. In 2023, Knight invested $2.5 million on 9 pipeline products, an increase of $2.2 million compared to the prior year. All costs related to development activities have been expensed. This cost includes regulatory submission, analytical method transfers, stability studies and bioequivalence studies. Moving on to adjusted EBITDA. For the fourth quarter of 2023, we reported $12.1 million of adjusted EBITDA, a decrease of $1.8 million or 13% compared to the same period last year. For 2023, adjusted EBITDA increased by $6 million or 11% to a record $60 million or 18% of revenues. Our adjusted EBITDA per share was $0.59, an increase of 23% compared to the prior year. Moving to impairment of noncurrent assets, which is not reflected in our adjusted EBITDA. For 2023, we recorded an impairment of $9.3 million. The net book value of the intangible asset of Exelon is accounted in U.S. dollars and revalued from U.S. dollar to Canadian dollar at the end of every reporting period. The appreciation of the U.S. dollar versus the Canadian dollar from the acquisition date of Exelon to the closing foreign exchange rate of 2023 has led to an increase in the value of the assets in Canadian dollars and the resulting impairment loss. Now moving on to gains or losses on our financial assets, which are not reflected in our adjusted EBITDA. In 2023, we reported a net loss of $10 million, driven by an unrealized loss of $22 million, mainly due to negative mark-to-market adjustment on our strategic funds. This was partly offset by a realized gain of $12 million due to the disposal of certain equity investments, including the Moksha8 warrants.
Moving on to our cash flows. During 2023, Knight generated cash inflow from operations of $36 million, including a net working capital investment of $28 million, driven by the onboarding of Exelon and Akynzeo as well as investments in inventory to support our new product launches and our growing promoted products. I will now turn the call over to Amal to provide more details on our product pipeline.
Thank you, Arvind. In the past year, we have expanded our product pipeline with 3 additional products. We have in-licensed the branded generic molecule and oncology hematology for Brazil. This is a branded generic of an innovative drug that today is estimated to have sales in Brazil of over $170 million according to IQVIA. In addition, as of today, there are no generics or branded generics that have launched against this innovative drug in Brazil. In addition, Knight in-licensed Qelbree for Canada. Qelbree is an extended release formulation of viloxazine, a multimodal serotonergic and norepinephrine modulating agent, a nonstimulant medication for the treatment of Attention-Deficit Hyperactivity Disorder, or ADHD. Qelbree is commercially available in the United States as a prescription medicine to treat ADHD in patients 6 years of age and older. Qelbree is the first new nonstimulant to enter the market in over 10 years and will represent a new auction in a segment that is valued at over $80 million according to IQVIA, and that continues to have significant unmet medical need. Knight expects to submit Qelbree for regulatory approval in the second half of 2024. Subsequent to year-end, we in-licensed IPX203 for Canada and Latin America. IPX203 is a novel, oral formulation of carbidopa/levodopa extended release capsules designed for the treatment of Parkinson's disease. IPX203 was studied in the RISE-PD clinical study that showed that treatment with IPX203 demonstrated statistically significant improvement in daily good on time with fewer doses of IPX203 compared with immediate-release carbidopa/levodopa. In that study, IPX203 was dosed an average of 3x per day versus 5x per day for immediate-release carbidopa/levodopa. IPX203 is expected to compete in a market value that over $50 million in Canada and over $120 million in Brazil, all based on IQVIA data. These recent deals illustrate our focused approach to building on the strong platform and capabilities that we have, specifically in oncology and central nervous system as well as our strategy to build a balanced portfolio that includes both innovative products as well as branded generics and therapies for acute conditions as well as chronic diseases. In the 4 years since the acquisition of Grupo Biotoscana, our team has added 13 new products to our portfolio, and we'll continue to build on that momentum to further rejuvenate our portfolio and accelerate the growth of our business. I will now turn the call back to Samira for concluding remarks.
Thank you, Amal. Now I'll cover our financial outlook for fiscal 2024. I would like to remind everyone that this guidance is provided on a non-GAAP basis due to the difficulty in projecting Argentinian inflation rates. This guidance is based on a number of assumptions, which are described in our press release, including foreign currency exchange rates, which would be exception of Argentina are currently forecasted to remain on average at similar levels as 2023. Considering the volatility of LatAm currencies, we will continue to monitor and revise our foreign exchange assumptions which may materially impact our results and forecast. Should any of the other assumptions differ the financial outlook and the actual results may vary materially. We expect revenues -- we expect to generate revenues between $335 million to $350 million and adjusted EBITDA of approximately 17% of revenues. On February 28, 2024, Knight celebrated its 10-year anniversary. In the past decade, we have made significant progress on our strategy of building a rest of world pharmaceutical company. Today, we are a profitable pan-American ex U.S. company with a unique platform and footprint commercializing both innovative and branded generic products. We have strengthened and built on our acquired platform by adding 17 new products, 13 of which came through partnering and 4 through our internal development capabilities. I'm incredibly proud of what we have accomplished to date, and I am excited about the future achievements that we will deliver to all our stakeholders. None of this would be possible without the fantastic team that we have in place across all our countries. Their unwavering commitment and dedication to serving patients across all our territories have been instrumental in shaping Knight as the partner of choice for Canada and Latin America. This concludes our formal remarks. I'd now like to turn the call back for questions. Sylvie, over to you.
Before we begin, may I please remind you that 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 info@knighttx.com or via phone at (514) 484-4484. [Operator Instructions] Your first question will be from Doug Miehm at RBC Capital Markets.
Samira and Amal, first question for me just has to do with the pipeline of opportunities that you're looking at right now. You've been quite successful, I'd say, over the last year in, in-licensing some unique products. Could you tell us what things look like for 2024 at this point?
Doug, yes, we are -- so in terms of what we're looking for, nothing has changed. We continue to look for -- to acquire products with existing sales. We looked to in-license innovative and branded generic products in our TAs and we look also to identify additional internal development opportunities. The outlook is -- again, we never had an issue in terms of deal flow. I think there is a lot of opportunities out there for all of our markets. So that continues to be -- we continue to look at a healthy pipeline of deals. It's just a question, as you know, of kind of the regular frequency of BD is not something that could be scheduled, but the deal flow is very healthy, and we're really looking to accelerate going forward.
Okay. That's great. And then, Samira, on the guidance, when you look at the potential headwinds that you may see, whether it be with Exelon or perhaps some other generics, is the strength in the outlook simply a function of delays in this competition? Or are you seeing, I'd say, stronger operations from the existing portfolio and new launches?
Well, it's a bit of both. I mean the headwinds -- we do continue to expect headwinds on our branded generic portfolio. As we had outlined during the beginning of '23, we expected headwinds coming in Colombia. Some of that came, not all of it came, and we expect it to come this year. The agency had been slower in approvals. We expect that to come. We -- when it comes to Exelon, we're expecting it to remain flattish. This was a base business type of acquisition. Yes, we know that there's other branded generic competition, but we continue to promote and have been holding. And then they're offsetting some of the branded generics and very mature product declines is really the new product launches. And the variance between the low end and the top end is when it comes to the decline of some of those generics is how fast or how slow is the erosion going to be.
Okay. And can you -- I know it's very early days, but some of the most recent launches, perhaps in Brazil, can you tell or give us any information on -- if you can't tell yet how they're going, if there's been anecdotal evidence in terms of how some of these may do in 2024.
For both Imvexxy and Bijuva as well as for Minjuvi, it really is too early to tell. What I can tell you, going back to its anecdotal, in the case of Minjuvi, there is very few alternatives for patients who are ineligible for transplant. So there is anticipation, that being said, it's going to be a slow uptake. In the case of Imvexxy, it's a simple product. It's easy to use in a market where there hasn't been innovation in over a decade. It's also publicly reimbursed across all Canada. So we have expectations that it will do well, but it's really too early to tell.
Next question will be from David Martin at Bloom Burton.
This is Gireesh on for David. We had a question about your specialty portfolio. Could you provide any clarity into what you guys claim more just differences in purchasing patterns of certain customers driving that slight decrease and does Exelon start to have any impact on this portfolio given the generics in Brazil.
What you have is some customers will place big purchase orders depending on the time of year. So that's really what is driving it. What we are seeing, for example, post -- a couple of years post COVID, some normalization, I'm going to say, seasonality and some buying patterns in Q4. We used to normally see that in Canada. It stopped during COVID. In Canada, it's come back. In Brazil, it's come back. In the case of Exelon, as I said earlier, it is a brand that we expect to stay flattish and it stayed flat between '22 and '23.
And just turning to like the recent product launches, mainly Imvexxy. Since the market is like largely controlled by 1 product, could you just give us any insight on like some advantages of Imvexxy or how you're planning to take some of that market share?
Sure. So Imvexxy is a soft gel pill that is inserted in the vagina without any devices. The Vagifem, which is the large computing product is a tablet. It does need a device. In the case of Imvexxy, there is never -- like there -- we don't have patient complaints in the studies related to any discharge or anything like that. In the case of Vagifem, there are some patient complaints about that. So we think it's a better product just from a patient comfort and ease of use. And on the second hand, it too is fully reimbursed across Canada.
Okay. And last question on that. Given the recent product launches, do you have any insight into which ones would be the main drivers for revenue growth of those 3 in the following year?
What we are expecting is each of Minjuvi and Imvexxy will be driving growth. Bijuva is in a smaller category of products. It too is a good product, but it's a smaller category.
[Operator Instructions] Your next question will be from Rahul Sarugaser at Raymond James.
So looking forward, as you've recently increased peak sale -- peak estimate from the pipeline to $120 million. Do you have a sense for approximately when -- in what year that peak would likely happen? So the duration on the assets? And as a part B to that question, are there any specific individual or 1 or 2 assets that we see representing 10% or more of those [indiscernible]?
I'm going to repeat your question because it was cutting in and out. So you're looking at our pipeline that is now $120 million to $150 million. And when is that actually going to land and which products is that coming from? Is that right?
Yes, yes, please.
Okay. So the -- we don't guide to any 1 product revenue. What you see in there is there is some products that are in oncology, some of them that are in CNS, some of them are in very big markets. So if you look at a product like Qelbree, a product like IPX, a product like Minjuvi, these are big contributors. I'm not going to get into the ones that are BGX because that would be providing a lot of information. The -- as far as timing, it's really coming on a phase -- it will come over those years. Some of these products are launched -- Minjuvi, Imvexxy are launching this year. We are expecting launches starting more launches next year, the year after, and it's going all the way to '28, '29. So this is really over all of those years.
Terrific. That's very helpful and fair enough. So my second question is on the competitive landscape. So given part of our business, compliance and controls that Knight has, how are you seeing your peers or competitors in LatAm performing with respect to winning bids on in-licensing high-value drugs and/or how are you seeing the pharma players who are out-licensing these assets and their appetite to out-license versus set up themselves in terms of their own sales and marketing.
Rahul, this is Amal. And again, I think you're cutting in and out. So I think your question is related to compliance and how does Knight position itself to winning deals based on compliance. I think that was your first question. Did I hear that correctly?
Close enough.
Okay. The -- so yes, so compliance is extremely top of mind and very important across the industry. And we see it in most deals that we look at, that companies are not just kind of looking at anybody to -- for any type of bid. They're also performing diligences on who they would be partnering with. So the fact that we are a Canadian publicly listed company, but also operating in Canada. We are members of the pharmaceutical industry associations. So IMC here in Canada and equivalent associations across our markets. And of course, we have quite a sturdy compliance program up to global standards. That's all something that is evident to whoever -- whatever prospective licensor is doing their diligence. So that -- we are seeing that as a very important aspect that prospective licensor are looking at. And it's kind of hard to imagine finding someone else with better standards than what we have in our markets. I think your second question was looking at big pharma out-licensing products and -- or other companies setting themselves in our markets. Was that correct?
Yes.
Yes. So it's really -- it's a mixed bag. Where you see companies looking to set up themselves, I think you can again, it's hard to generalize, but to give you generally speaking, if a company has a really kind of super rare orphan drug that is kind of -- they can -- you can have a very, very small number of patients in 1 -- like 10 patients in 1 country, a few more patients in another country, then they could consider either -- not so much setting up themselves, but maybe having kind of 1 person as a representative in the country and just helping with the import. So that's, again, hard to generalize, but just to give you a sense of who would be considering going kind of a direct market entry model. On the other end of the spectrum, when you're looking at big pharma, who already have presence in those markets in terms of out-licensing, it's -- again, it depends on the company, the country. We see some companies, for example, some big pharma giving up their -- part of their portfolio to a distributor. We're not seeing a massive exit is, let's say, we're just seeing kind of in general, some level of refocus where they choose which part of the portfolio they want to continue investing in and which part of the portfolio they'd rather "outsource" and outsource means different things.
And at this time, we have no other questions registered. So I would like to turn the call back over to Samira.
Thank you, Sylvie. And once again, I think this is the end of our call. Thank you for your confidence in the Knight team and for joining our Q4 and year-end 23 conference call. Have a great morning.
Thank you. Ladies and gentlemen, that does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.