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Good day, ladies and gentlemen, and welcome to the Medexus Pharmaceuticals Second Quarter 2022 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Tina Byers with Investor Relations. Ma'am, the floor is yours.
Thank you, and good morning, everyone. Welcome to the Medexus Pharmaceuticals Second Quarter Fiscal 2022 Earnings Call. On the call this morning are Ken d'Entremont, Chief Executive Officer; and Marcel Konrad, 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 (905) 330-3275.I would like to remind everyone that this discussion 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, projections, expectations, opinions and assumptions of management as of today's date. There can be no assurance that forward-looking information will prove to be accurate, and you should 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 also be references to certain non-IFRS financial measures, including references to adjusted net loss and 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 both forward-looking information and non-IFRS financial measures, including a reconciliation of each adjusted net loss and adjusted EBITDA to net loss, please refer to the company's management discussion and analysis, which, along with the financial statements, are available on the company's website at www.medexus.com and on the company's corporate filings on 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, and thanks, everyone, for joining us on this call today. Before I discuss the financials, I would like to remind everyone that during the year ended March 31, 2021, we changed our presentation currency to U.S. dollars from Canadian dollars. We applied the changes retrospectively and have restated the comparative financial information in our unaudited condensed interim consolidated financial statements for the 3- and the 6-month periods ending September 30, 2021 as if the presentation currency had always been in U.S. dollars.In the second quarter of fiscal 2022, we achieved revenue of $17.9 million compared to $17.8 million for the 3-month period ending September 30, 2020. As a reminder, over $2.5 million in revenue, which was originally expected to be realized in September of 2020, was instead realized in early October 2020 due to the delay in receipt of finished product from one of our manufacturing partners.So after adjusting for that event, which impacted the comparative period figures, we actually saw a drop in revenue compared to the prior quarter, mainly due to a drop in IXINITY net sales. This decline was partially offset by strong Rupall sales, which saw unit demand growth of 33% in the trailing 12 months ended September 30, 2021. Receivable Metoject remained relatively stable.Adjusted EBITDA decreased to a loss of $2 million compared to positive $2.3 million for the same period last year, due in large to an increase in research and development costs over the comparative period, the significant investments we made to improve capacity for future business development and the investments we made related to the plans for the commercialization of treosulfan in the U.S., which we will discuss later.Our net cash outflow was $2.1 million for the period compared to $1.1 million for the same period last year. Our net income was $10.1 million compared to a loss of $1.6 million for the same period last year. This included a noncash unrealized gain of $16.3 million in the current period on the fair value of the embedded derivatives in our convertible debentures, which was driven by a change in our share price at the end of the applicable periods.Our adjusted net loss, which adjusts for such unrealized losses or gains on the fair value of the derivatives, was $6.1 million compared to $1.3 million for the same period last year. As at September 30, 2021, we had $8.1 million in cash and cash equivalents with $9.6 million of total available liquidity.Turning to our specific product lines. We continue to see strong demand from our core product portfolios. Even with the changes to the selling environment brought on by COVID-19, our U.S. team has seen positive trends in the IXINITY patient unit demand, indicating continued patient conversions on top of a stable existing base of patients. In fact, IXINITY unit market demand in the United States grew 3% in the trailing 12 months ended September 30, 2021. While net sales for IXINITY continue to be lower in the comparative periods, we believe this trend is temporary.Over the last few quarters, we have been implementing changes to improve the supply chain and selling process that we believe -- and we believe that IXINITY sales are on track to recover to previous levels in the coming quarters and well positioned to grow in the future. We're also investing in a pediatric study that is successful. We'll facilitate the expansion of IXINITY product label to include the pediatric population. The study has now completed 100% of the patient enrollment, and we expect to finish the study by June 2022 and submit the full data set to the FDA by the end of 2022.Turning to Rasuvo, a once-weekly subcutaneous single-dose auto-injector of methotrexate indicated for the treatment of rheumatoid arthritis, psoriasis and juvenile idiopathic arthritis or JIA. Unit demand in the United States remained steady in the trailing 12 months ended September 30 and continues to reflect strong payer, prescriber and patient acceptance. Rasuvo continues to perform reliably in an increasingly competitive market. Unit sales were up as we lowered price to protect our strong market position in the auto-injector segment.As I mentioned earlier, Rupall is experiencing very strong unit demand growth in its market with an increase of 33% in the trailing 12 months ended September 30, 2021, as physicians are switching patients from either the generic prescription antihistamines or over-the-counter products. We expect Rupall will be a leading prescription antihistamine in a total market valued at $123 million, including $70.1 million from the prescription market, which is growing at an annual rate of more than 17%. During the 12-month period ended September 30, 2021, Rupall was one of the fastest-growing antihistamines in the Canadian prescription market.Metoject unit demand in Canada remained steady in the trailing 12 months ended September 30, 2021, but saw a unit demand growth of 16% for the 3 months ended September 30, 2021, compared to the same period in 2020. Metoject is a prefilled syringe of methotrexate, which is indicated for the treatment of rheumatoid arthritis and psoriasis. It is highly effective and cost-efficient treatment for these debilitating diseases. Public reimbursement creates access for a large group of patients who previously could not get the product. We have responded to a competitive threat to Metoject from a generic entry with a commercial response to protect its market share and a legal action to defend the product's IP.On August 28, 2020, we, along with our licensing partner, medac GMBH, jointly filed a statement of claim against Accord Healthcare regarding the launch of Accord Healthcare's generic version of Metoject in the Canadian market. The trial date has now been set for the beginning of 2023.During the year ending March 31, 2021, we entered into an exclusive license to commercialize treosulfan in the United States. Treosulfan is an innovative orphan designated agent developed for -- used as part of a conditioning treatment in combination with fludarabine as a preparative regimen for patients undergoing allogeneic hematopoietic stem cell transplantation or allo-HSCT.On August 2, 2021, we received the notice from medac, our licensing partner, that it had received a complete response letter or CRL from the U.S. Food and Drug Administration, with respect to the new drug application for use of treosulfan in the United States. The FDA has provided recommendations on how to address what they see as the outstanding issues primarily around provision of additional clinical and statistical data and analysis pertaining to the primary endpoint of the completed pivotal Phase III study.These recommendations are already covered by medac's existing development plan for treosulfan, which medac is contractually responsible to execute and fund. We are in active discussions with medac to meet the agency's request. It is our belief that the CRL provides a path to review and approval that does not require additional clinical studies provided we can satisfy the FDA's data requirements and post-marketing commitments. We are actively working with medac to address comments of the FDA and have scheduled a Type A meeting with the FDA on November 23, 2021.The resubmission plan will be discussed at that meeting, and we would expect to receive minutes from the meeting within 30 days. We continue to believe treosulfan could eventually overtake the current market-leading product, busulfan, which realized $126 million in U.S. sales prior to genericization.In the meantime, we do not expect to make additional payments to medac until we have received FDA approval. In fact, on September 30, 2021, the company and medac signed an amendment to the licensing agreement in which, among other things, medac agreed to credit the company in the amount of $2.5 million attributable to prior regulatory milestone payments made by the company to medac, which was used to offset certain existing invoices and payments the company owned medac. Upon FDA approval, such amounts would again become payable to medac.As Marcel will touch on later in the call, we did see an increase in cost over the comparative period, which increases related in part to investments the company made in connection with the anticipated commercialization of treosulfan in the United States. However, I would like to point out we had not yet hired the additional sales representatives for treosulfan, and we're reallocating certain new non-field sales hires to focus on activity, and that we otherwise acted quickly to defer or cancel any further significant expenses related to treosulfan launch after receiving notice of the complete response letter.On August 5, 2021, we held a webinar to discuss the complete response letter in full detail, which can be viewed on our media section on our website. On July 12, 2021, we also formalized our licensing agreement with medac for treosulfan in Canada and subsequently announced on September 21, 2021, that we initiated the first commercial shipment of the product under the brand name Trecondyv. The product is currently being used by a number of reputable centers, including Princess Margaret, the largest cancer center in Canada and one of the largest in the world.We believe that a key aspect of our growth strategy will be to continue to leverage and grow our infrastructure through the acquisition or partnership with new products. We are exploring a large number of opportunities including a portion of the deal pipeline in the negotiation phase in both the U.S. and Canada. We will continue to look at optimizing our portfolio and leveraging our resources with the goal of executing near-term accretive transactions to achieve sales growth targets over the coming years.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. With the available liquidity at the end of the second quarter, we are in a good position to execute our business plan, including the launch of several new products.I will now turn the call over to Marcel, who will discuss the financial results in more detail.
Thank you, Ken. Total revenue was $17.9 million and $35.2 million for the 3 and 6 periods ended September 30, 2021, respectively, compared to revenue of $17.8 million and $37.8 million for the 3 and 6 months period ended September 30, 2020. The company has demonstrated sequential growth quarter-over-quarter in 2021 going from $17.2 million in the previous quarter to $17.9 million.However, in the comparative periods for 2020, as Ken noted earlier, over $2.5 million in revenue from IXINITY sales, which was originally expected to be realized in September 2020, was instead realized in early October 2020 due to a delay in receipt of finished product from the company's contract manufacturing partner. After adjusting for that event, assuming that such revenue had been recognized in September, 3 and 6 months period ended September 30, 2021, saw a year-over-year decrease in revenue mainly due to a drop in IXINITY net sales.While patient unit demand for IXINITY continues to show positive indications, net sales were lower than in the comparative period in the prior year as pharmacy and wholesale customers continue to work through inventory on hand. As mentioned, this decrease was partially offset by strong Rupall sales due to a strong allergy season across Canada and further market share gain by the brand.Gross profit was $9.4 million and $16.3 million for the 3- and 6-month periods ended September 30, 2021, respectively, compared to gross profit of $9.7 million and $20.5 million for the same periods last year. The decline for the 6-month period ended September 30, 2021, was mainly due to a previously disclosed increase in cost of goods sold caused by additional expenses related to the IXINITY manufacturing issues.Selling and administrative expenses were $11.7 million and $23.5 million for the 3 and 6 months periods ended September 30, 2021, respectively compared to $8.3 million and $16.5 million for the 3 and 6 months ended September 30, 2020, respectively. Our selling and administrative expenses for the second quarter increased over the comparative quarter as we invested heavily in our personnel and infrastructure to support its anticipated growth going forward.Research and development was $1.8 million and $4 million for the 3 and 6 months periods ended September 30, 2021, respectively compared to $0.8 million and $1.4 million for the 3 and 6 months periods ended September 30, 2020, respectively, as we continue to accelerate the IXINITY pediatric study which is now 100% enrolled and expected to be completed in June 2022.Adjusted EBITDA loss for the 3- and 6-month period ended September 30, 2021, was $2 million and $6.9 million respectively compared to adjusted EBITDA gains of $2.3 million and $5.9 million for the 3 and 6 months period ended September 30, 2020.The 3 and 6 months periods ended September 30, 2021, saw a year-over-year decrease in adjusted EBITDA due to the significant investments of the company to prepare for the anticipated commercialization of treosulfan in the United States, the impact of the IXINITY manufacturing failures during the 3 months ended June 30, 2021, and an increase in the research and development costs over the comparative period.Net income for 3- and 6-month periods ended September 30, 2021, was $10.1 million and $3.6 million, respectively, compared to a net loss of $1.6 million and $5 million for the same period last year. Included in the 6 months net income is a $19.5 million noncash unrealized gain on fair value of our embedded derivatives in our outstanding convertible debentures, which are sensitive to, amongst others, the fluctuations of our share price.We believe that adjusted net income or loss, which excludes this impact of the unrealized gains and losses on the fair value of the derivatives provides a better representation of the performance of our operations because it excludes noncash fair value adjustments on these liabilities, which may be settled for shares.Our adjusted net loss for the 3 and 6 months periods ended September 30, 2021 was $6.1 million and $16 million, respectively, compared to $1.3 million and $2.1 million for the 3 and 6 months periods ended September 30, 2020. Net cash outflow was $2.1 million and $10.6 million for the 3 and 6 months ended September 30, 2021, respectively.As Ken noted, we have reacted quickly to defer or cancel any further significant expenditures related to the treosulfan launch after receiving notice of the complete response letter on August 2, 2021. And in another helpful step for cash preservation in light of the complete response letter, at the end of the quarter, we agreed to certain amendments to the existing agreement with medac.Notably, medac agreed to provide us with a $2.5 million credit, which amount was attributable to prior regulatory milestone payments made by the company. This credit was used to offset certain existing invoices and payments the company owed medac, and the amount will only become repayable upon FDA approval.We are comfortable with our current balance sheet with $9.6 million available liquidity as of September 30, 2021, which consisted of $8.1 million in cash and cash equivalents and an undrawn credit of $1.5 million available under the -- our ABL facility. As a reminder, no further milestone payments will be owed to medac unless and until FDA approval is obtained, so we have no immediate need for additional capital at this time.We'll now open to question. We will now open the call for any questions.
[Operator Instructions] Your first question for today is coming from Justin Keywood.
It's Justin calling from Stifel GMP. Good to see the improvement in EBITDA sequentially. Do you have an anticipated time line when the profits for the base business could turn positive and realize there's still the submission of treosulfan and potentially some increased costs?
I'll give some view as to the revenue line, and then I'll let Marcel speak to EBITDA. So we do think that the -- we're at the bottom of the trough with respect to the IXINITY channel correction. So revenues should start to climb the quarter we're working on now and then into the fourth quarter fiscal. So we do see the revenue line improving, which obviously will make a strong contribution to the bottom line. I'll let Marcel speak to EBITDA.
Yes, thanks for that question. We've made great progress in essentially, as I mentioned, stopping the sort of the variable spend on our treo launch. We still carry some fixed spend with us throughout this period, but we're heading towards a breakeven period. As I mentioned in earlier calls, it will depend a little bit on the uptick, obviously, on the revenue side, where we have a good view on the cost side, but we're heading towards breakeven territory in the next few quarters.
Okay. Good to hear. And then for treosulfan, we see that it was launched in Canada and is being used at one of the major hospitals here. Does that factor in at all for the meeting on November 23 with the FDA? Or is it completely separate? Assuming that if it's in use and providing a material health benefit to patients in Canada, that seems to bode well for an eventual FDA approval.
Yes, it certainly doesn't hurt. The more approvals the drug has throughout the world, the better. And the fact that it's not been rejected by any regulator in the world certainly does help. But the FDA is going to make their own decision. And I think the decision point is pretty straightforward. They've simply asked for confirmation of the primary endpoint to do their own assessment of that endpoint. So I think that the approvability issue is really just one, and it's that, that I just mentioned. And so I think it ought to be fairly straightforward, and we'll get some feedback on that on November 23.
And if you could remind us what are the expectations for revenue for treosulfan in Canada?
We haven't put out any numbers, but broadly, the range is probably $5 million to $10 million. The price is -- will be lower in Canada than U.S. and there's not as many transplants per capita done in Canada yet. It's growing. We're improving, but it hadn't been well funded historically. So the market is not as big in Canada as it is in the U.S.
And to reach that sales target, does it take a number of years? Or is it a bit different than your traditional drug launch, just given that the health benefits could ultimately save patients' lives here?
Yes. It's a pretty quick ramp to peak. I mean, traditionally, ramp to peak is between 3 and 7 years: 3 years for drugs that are highly concentrated in various specialty centers, which is the case here; 7 years for drugs that are more widely prescribed, in primary care, for instance. And so in this case, we think we'll go to peak fairly quickly once the key hospitals start to get some experience with it, which is already happening, obviously.We mentioned today that Princess Margaret is using it. SickKids Hospital in Toronto is also using it, one of the largest pediatric hospitals in the world. So the experience that they're generating with it will get communicated to other hospitals and other institutions. We've got a lot of other institutions who are already starting to use it, so I think the time to peak will be relatively quick.
[Operator Instructions] Your next question is coming from Andre Uddin.
Research Capital. Just wondering at your FDA meeting, I'm assuming you'll find out what your review cycle time will be, and just wondering if you're going to disclose that after your November 23 meeting.
Andre, yes, good question. So we don't find out the review time line, whether it's type 1 or type 2, type 1 being 60 days, type 2 being 6 months, until 30 days after resubmission. So we won't find that out in November. What we will hear in November is whether or not the resubmission plan is acceptable to the agency for review. So that's an important step, obviously. If they think it's acceptable for review, then obviously, they're going to have something that they want to review. So -- and we will communicate the outcome of that meeting and certainly will communicate the time line to approval once we know it.
Okay. And then how long -- like, let's say, how long would it take you to actually ramp back up your sales force and prepare for the launch? So I guess it could -- it varies depending on if it's a review cycle 1 or 2. Could you just talk a little bit about that in terms of what you would need to do to prepare for a treosulfan launch?
Sure. So all the management infrastructure is in place. That's being applied to IXINITY now. So the management's there. What's missing are the sales reps. So we do believe that we can hire the sales reps after approval -- shortly after approval, have the time to get them trained before we actually receive products. So it will be a couple of months after approval before product is available for sale. So during that period of time, we can certainly recruit, hire and train the sales force.
And can you also talk a little bit about the reimbursement plans for treosulfan and also pricing? I know it's still a little bit early because you still have to work things out with the FDA, but could you just talk a little bit about how that's proceeding?
Yes, it's a great question. So we had hired the field reimbursement agents. So those people are active in the field. You can talk about product with the accounts as long as you believe you're within 12 months of potential launch. So that work is ongoing, and we continue to refine our reimbursement strategy and our revenue forecast as we collect information from the field.Also remind you, the MSLs are out there actively talking to the KOLs as well. So we are gathering information. We do know it's going to be mainly part of a DRG. So it's a roll-up of all costs associated with doing a transplant. So it will be part of that bigger bill, which is positive for us because we obviously -- we improved survival. We reduced reoccurrence. We reduced GVHD, which were on the main side effects. So these are all costs associated with doing these transplants, which the institution can avoid if they use our drug.
Your next question is coming from Prasath Pandurangan.
Prasath from Bloom Burton. Could you talk about potential scenarios following the Type A meeting on November 23 in terms of what could be the best and worst case for your resubmission plan?
Yes. That's a good question, Prasath. So November 23 will be a review of the resubmission plan. So a dossier has already been submitted to the FDA. It's necessary to submit the dossier before they grant you the meeting date. So they have it. They're reviewing it. In that meeting, they will provide feedback and whether they accept the resubmission plan or not. So it will be a kind of a go, no go at that date. We are assuming that it will be a go because we believe that the plan addresses the question that they've asked.And so if they agree with that, then the resubmission will go in at some point, probably calendar Q1. So it's not going to go in immediately following the Type A meeting. There is a safety update that has to be provided. So it will go in likely in Q1 of next year, calendar. And then 30 days after that, they tell us whether it's a type 1 or type 2 review. So I would expect that by the end of calendar Q1, maybe early Q2, we'll know where the decision point is for approval.
Got it. And then on the operating expenses, is the roughly [ $14 million ] per quarter a good run rate for the upcoming quarters until we start building out for the potential treosulfan launch?
I'll let Marcel address that.
Prasath, I would say, yes, in terms of our expenses going forward up to launch, we will obviously not engage into any spend, any major spend up to the launch so it will be staying pretty steady up to this point. That's correct.
There are no more questions in queue.
Okay. Thank you, Holly, and thanks, everyone, for joining us on the call today. The last few quarters have been challenging, but we believe that we are now at a significant turning point in the business. We are pleased that the Type A meeting has been scheduled with the FDA in a few weeks' time, on schedule with what we had been anticipating. We have also made positive changes in the IXINITY supply chain process. We believe we are on the right path to resume growth in sales to meet the increased unit demand in the coming quarters.With treosulfan's Type A meeting with the FDA less than 2 weeks away, we are looking forward to providing shareholders with an update shortly thereafter. We believe that we will get further clarity on the pathway and time line to approval and we are now well positioned to launch a product when that time comes.We see tremendous opportunity across the rest of the product portfolio. We'll continue to see new business development opportunities that have the potential to be very accretive. We have historically generated very strong organic growth, and we anticipate that in the coming quarters, we will begin to reflect this. We have a number of exciting new opportunities ahead and are determined to keep building our company into a globally recognized business. Thanks, everyone, for joining us today.
Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.