Medexus Pharmaceuticals Inc

TSX:MDP

Greetings. Welcome to the Medexus' First Fiscal Quarter 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the call over to your host, Victoria Rutherford. Ma'am, you may begin.

Thank you, and good morning, everyone. Welcome to the Medexus Pharmaceuticals' First Fiscal Quarter 2025 Earnings Call. On the call this morning are Ken d'Entremont, Chief Executive Officer; and Brendon Bushman, Chief Financial Officer. If you have any questions after the conference call or would like further information about the company, please contact Adelaide Capital at (480)625-5772.

I would like to remind everyone that this discussion will include forward-looking information as defined in securities laws. Actual results may differ materially from historical results or results anticipated by the forward-looking information. In addition, this discussion will also include non-GAAP measures, such as adjusted net income and 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 the company's forward-looking information and non-GAAP measures, including reconciliations to net income and loss, please refer to the company's MD&A, which along with the financial statements, is available on the company's website at www.medexus.com and on SEDAR+ at www.sedarplus.ca. As a reminder, Medexus reports on March 31 fiscal year basis and Medexus reports financial results in U.S. dollars.

I would now like to turn the call over to Ken d'Entremont.

Good morning, and thank you for joining us on the call today. We are pleased with our fiscal Q1 '25 results, particularly our positive net income and strong adjusted EBITDA, which allowed us to comfortably play down principal under our credit facility.

Our fiscal Q1 '25 revenue was $27.3 million, a decrease compared to a record $31.6 million for the same period last year. Rupall's outperformance during the allergy season was a notable contributor to revenue, combined with resilience from the rest of our product portfolio. We are proud of our fiscal Q1 '25 adjusted EBITDA of $6.1 million, a decrease compared to a record $6.6 million for the same period last year.

We are also very proud to have produced solid net income of $2 million for the quarter, an improvement of $1.3 million over the same period last year and positive operating income of $4 million, a decrease of $0.8 million compared to a record $4.8 million for the same period last year. These important metrics for fiscal Q1 '25 were all positively impacted by the financial discipline initiatives we have been working on such as the January '24 cost reduction initiatives we have discussed in the past. They have had a positive impact on operating costs and cost structure.

Turning to our specific products. IXINITY unit demand for the United States decreased by 6% over the trailing 12-month period ending June 30, '24. We will continue seeking to maintain existing demand, noting that our current view is that the trends we have mentioned in recent quarters have now stabilized and are now fully reflected in product level revenue. Again, our investments in our IXINITY manufacturing process improvement initiatives have had a positive impact on batch yield and manufacturing costs extending into fiscal Q1 '25, and we view this as a greater accomplishment following a lot of hard work from our dedicated team.

Rupall unit demand in Canada increased by 17% over the trailing 12-month period ending June 30, '24. As I mentioned, Rupall was a notable contributor to revenue for fiscal Q1 '25, reflecting both our successful execution of the product's typical seasonality, particularly in this past quarter. We continue to see topical terbinafine, which has been under regulatory review with Health Canada since December as a strategic fit with Rupall. If and when approved, this product will enter a market that we estimate to be CAD 88 million on an annual basis.

Rasuvo unit demand in the United States remained strong during fiscal Q1 '25. We are continually evaluating our pricing strategies for Rasuvo in light of evolving market dynamics. As part of our execution of these pricing strategies, we did reduce discounts offered to large customers in fiscal Q1 '25, which contributed to a dip in Rasuvo net sales for the quarter. This may have a moderate near-term effect on product level revenue.

Metoject unit demand was likewise strong, increasing 11% in the trailing 12-month period ending June 30, '24, in spite of direct generic competition. Given overall market dynamics, we have been implementing unit-level pricing strategies for Metoject as well with a view to defending the product's strong market position.

I will end this discussion of our leading products with a brief word on Gleolan. In late July, we initiated discussions to unwind our business relationship for Gleolan in the United States. While we have successfully grown the product, performance has remained lower than we originally expected based on our experience commercializing Gleolan in Canada. Unit demand in the United States did grow over the trailing 12 months ended June 30, '24, as our commercialization efforts continue to result in new customers adopting the product, but it is not expected to be a significant driver of growth in the future.

Given our revolving U.S. product portfolio and the growth opportunities we see ahead, we began discussions to return the product to our partner. As you can imagine, the substance of those discussions are sensitive. What I can tell you is that our conversations with our partner are going well, and we are confident the parties will come to a plan that works for all. We look forward to continuing to work with our partners on our successful business relationship commercializing Gleolan in Canada.

Finally, on treosulfan, we continue to eagerly await a decision from the FDA on medac's April 2024 resubmission of the NDA for treosulfan, which we still expect no later than October 30, '24. We continue to believe that treosulfan would make a substantial contribution to this therapeutic space as it has in Europe and Canada and the FDA's commitment to review the treosulfan NDA brings us a step closer to making the product a viable treatment option in the United States.

Our plan remains to target a commercial launch in the first half of calendar year '25. We have begun making judicious investments in personnel to prepare for a potential positive FDA decision in October. As we have said before, we think treosulfan would have a material positive impact on our total revenue. We currently believe that annual product level revenue in the United States has the potential to exceed $100 million within 5 years after commercial launch.

We would not expect to begin recognizing significant revenue from treosulfan until early fiscal year '26, meaning second quarter '25 at the earliest. Under the terms of our agreement with medac, we and our counterparts at medac are currently discussing the terms of a further amendment to our agreement with respect to any adjustments to the value of unpaid milestone payments. We are highly focused on quickly achieving clarity on the remaining contractual milestones under our agreement, and we are confident that the parties will ultimately arrive at a fair and commercially reasonable outcome.

In sum, we continue to focus on maintaining stability in our base business and generating cash from operations as we prepare for the revenue opportunities presented by our product pipeline.

I will now turn the call over to Brendon, who will discuss our financial results in more detail. Brendon?

Thank you, Ken. We are pleased to report our 9th consecutive quarter of positive operating income and 11th consecutive quarter of positive adjusted EBITDA, which speaks to the continued strength of our product portfolio and commercial execution. We are particularly pleased with our $2 million of positive net income for fiscal Q1 2025 and our $6.1 million adjusted EBITDA from $27.3 million of revenue.

These results are due to a strong overall quarterly performance, successful execution of our targeted reductions in operating expenses, and a streamlined capital structure. We also continue to generate cash from our operating activities with a record quarterly operating cash flow of $8.2 million, driving our positive cash flow in fiscal Q1 2025.

Turning to the full quarterly results. Total revenue for fiscal Q1 2025 was $27.3 million. This represents a decrease of $4.3 million compared to $31.6 million for Q1 2024.

As Ken mentioned, fiscal Q1 last year was a record quarter for us. The $4.3 million year-over-year revenue decrease was primarily attributable to reduced net sales of Rasuvo, declines in net sales of IXINITY when compared to Q1 2024. These trends have impacted our year-over-year results since fiscal Q3 2024, and as Ken mentioned, have largely stabilized.

The decrease was partially offset by continuing growth in Rupall net sales, which were also meaningfully affected by the product's typical seasonality in both periods and a slight year-over-year increase in Gleolan net sales. Gross profit was $14.8 million for Q1 2025 compared to $17.2 million for the same period last year. Gross margin was 54.4% for Q1 2025, which is comparable to the 54.6% we achieved in the same period last year.

Our gross margin for the first quarter of fiscal year 2025 has improved versus the last quarter of fiscal 2024, which was 51.2%. This improvement is driven by reduced IXINITY unit costs as well as the treatment of Gleolan cost of sales per IFRS accounting standards. We expect this improved gross margin to persist for the near term.

Selling and administrative expenses were $10.3 million for Q1 2025 compared to $11.9 million for the same period last year. The $1.6 million year-over-year decrease in this line item was primarily attributable to targeted reductions in operating expenses.

I want to pause on this point to note that we have now achieved the positive effects on our operating costs and cost structure that were the target of our previously discussed cost reduction initiatives. So we do expect that selling and administrative expenses have largely stabilized for the near term, pending the investments for treosulfan that Ken mentioned.

Adjusted EBITDA was $6.1 million for Q1 2025, a decrease of $0.5 million compared to our quarterly record of $6.6 million for the same period last year. The decrease in adjusted EBITDA was primarily attributable to the year-over-year decrease in revenue in fiscal Q1 2025, offset by reductions in operating expenses extending into fiscal Q1 2025 and improvements in IXINITY cost of sales attributable to our IXINITY manufacturing process improvement initiative.

Net income of $2 million for Q1 2025 reflects a $1.3 million increase compared to net income of $0.7 million for the same period last year. As Ken mentioned, we view this as a significant achievement and look forward to striving for positive net income in the quarters to come.

Likewise, our cash position was a highlight of this past quarter with $8.5 million of cash on hand at June 30, 2024, compared to $5.3 million at March 31, 2024, an increase of $3.2 million. We continue to generate cash from our operating activities with record quarterly operating cash flow of $8.2 million compared to $4.2 million for fiscal Q1 2024.

As of June 30, 2024, we had a combined $48.3 million outstanding under our 2 BMO credit facilities, consisting of $3.5 million drawn under our revolving credit facility and the remainder outstanding under our near-term loan facility. Both facilities mature in March 2026, and we will continue to pay down principal over the remaining term.

As always, there can be variability in quarter-to-quarter results, but we look forward to continuing to build the company and its portfolio in the coming quarters and beyond.

Operator, we will now open the call to questions.

[Operator Instructions] Your first question for today is from Andre Uddin with Research Capital.

Just wanted to get a bit of clarity in terms of what you're planning to do with Gleolan. Is it to return the product back to medac or find a new marketing partner. Can you just talk a little bit about that?

Yes. Hello, Andre, and thanks for the question. Yes. We're in discussions with the licensor and only the licensor. And so it will be their decision as to what to do with the product. We don't see any immediate effect and probably nothing in the near term. And so the -- obviously, these discussions have just been initiated. They are sensitive. So I really don't have anything to say beyond that.

And can you just remind us, I don't know if this was disclosed before, but how much did you pay to get the marketing rights to Gleolan?

I don't recall what was disclosed before, but it was a very small sum upfront with various time-based milestones over the life of the agreement. So it was a very small amount upfront.

And then just given some of the corporate changes you've made, could you just please discuss also which products your sales force is most focused on promoting to sort of strategically stabilize your sales?

Yes, it's a great question. So obviously, they're focused on the largest products and make the biggest contribution, so that would be IXINITY, Rasuvo, Gleolan, Rupall, and then in Canada, also the specialty products, which include treosulfan, Metoject, Gleolan. I think that's it.

Your next question is coming from Rahul Sarugaser with Raymond James.

So fully recognizing that the Gleolan discussions are quite sensitive, perhaps maybe you can just give us a sense of a timeline around it and when you think you might have some clarity on it.

Hello, Rahul. Thanks for the question. I think as I said in my earlier comment, they've just been initiated. And as they are sensitive, clearly, both parties want to come to some commercially reasonable resolution, and they will continue to be our partners on realignment in Canada. So I can't really speak to the timeline. But clearly, both partners want to see a resolution as quickly as possible. And we'll put that information out at the appropriate time.

Now pivoting to treo. You talked a little bit about it and your confidence and at this time seamlessly looking at the FDA review concluding before the end of October. Perhaps you could sort of reiterate what is different in this review and application that provides for that confidence relative to the previous events.

Yes. Great question. And so I think some clarity on this is important. Following the CRL, there were 2 attempts at a resubmission and each attempt was refused by the FDA. So this one is different in that the FDA did the screening and accepted the resubmission. And so it once again is an active review. So I think that's a big difference than what has previously happened and what bodes our confidence.

Your next question for today is from Stefan Quenneville with Ventum Capital Markets.

Sorry to belabor the point here on Gleolan, but I just want to understand this a bit better. Obviously, the product has sort of -- I mean, maybe in the U.S., maybe not in Canada, underperformed expectations. The dynamic here really has to do with you guys reorientating yourself around treosulfan and the opportunity there. Is that what this is primarily about or is there -- there's something else going on with the product in terms of its overall profitability to the firm or maybe upcoming milestones in the trade-off for profitability on those milestones?

Thanks, Stefan, and great question. Recall that we licensed Gleolan after the CRL on treo as an opportunity to gain experience in the institutions and promote a product that was similar to where we were going in institutional sales. So that was great. Problem was that we brought on a product that was mature. I think both parties believe that with additional resources, it would grow, and it did to some degree, but not to a degree that either party is satisfied with. So when we look at it, we say, okay, given our product portfolio and where we're going in the future, given what we expect from Gleolan, it just made better sense to invest our efforts in our product portfolio than continuing to try to support Gleolan. Remember, the margin on Gleolan was not as strong as the rest of our portfolio. And we made the true-up payment last year. So it doesn't deliver what we would want. And so I think it makes sense for us to negotiate this unwinding with our partner, and we're certainly going to keep you informed once we have something to announce.

And so I think the key focus now is preparation for the treo launch. Obviously, you've made some comments, you don't expect to have material revenue to Q2 of '25. So it sounds like you're being cautious in terms of hiring ahead of that to some degree. Although this sounds like what you're doing is just shifting resources within the company to prepare for the launch is what I'm hearing. Can you talk about what you're doing to prepare for the treo launch? So you hit the ground running and you make the most of the asset once it gets approved?

Yes. It's a great question, again. Two key things: One is, prepare the clinicians for the eventual approval, we hope. So adding the MSL that we talked about last quarter, is really important. So we have people who are sharing the clinical information, the most recent clinical information with the clinicians who are going to be using the product. So that effort is ongoing. And then secondly, preparing for the reimbursement of the product in the institutions, which is critically important. So obviously, enabling access to a drug that we think the clinicians will want. So those 2 efforts have been initiated, and we are judiciously adding people to support those efforts.

Your next question is from Justin Keywood with Stifel.

Nice to see the profitability on the lower revenue. And there was mention of some cost reduction initiatives, and there does seem to be some moving parts in preparing for treo. My question is, how should we look at the profitability and cash profile for the remainder of the year and going into next?

Thanks, Justin. I think that's an appropriate question for Brendon.

Yes. The way I would look at it is our margins at the gross margin level, at the EBITDA margin level that we're kind of seeing this quarter, we anticipate are repeatable. And so that -- our EBITDA -- or adjusted EBITDA, I should say, has historically quite closely tracked our cash flow from operations on a sort of average basis, and I would anticipate that to continue as well. Our financing costs, primarily interest on our BMO debts are stable. In prior years there was a lot of variability as a result of the convertible debentures. So those financing costs are a lot more predictable going forward than they have been. So it should be much easier to kind of estimate net income and free cash flow than it historically has been. I will also mention on our BMO debt, we are, I think we've disclosed this, we are paying quarterly payments of $3.3 million of principal from now until maturity in March of 2026.

And then for Rupall, I believe there was a bit of a delay in the allergy season this year, but there still seem to be pretty good results. Should we anticipate some stronger results in the next quarter for that product? And then also looking into 2025, as far as the potential generic entry, how are we looking at that revenue stream? Is it still expected to be relatively stable or is there a drop-off anticipated?

Yes. Great question. So yes, the allergy season had a bit of a different cadence this year, but was again very strong, I mean, as evidenced by the good performance of Rupall last quarter. So we would expect that last quarter was the peak quarter, but we would expect this quarter will be a good quarter for Rupall. And then, obviously, it -- typical seasonality kicks in, in the next couple of quarters, it declines a little bit. So for next year, loss of exclusivity, remember that we only have private reimbursement. We don't have public reimbursement. So there is no forced substitution. So our efforts will be on maintaining the product through various programs. But we would expect it to be -- it will kind of peak and then start to decline. We don't see a sharp decline like you would in a forced substitution kind of scenario, but we would expect a decline. And that's why terbinafine is important to us. We see the probable approval of terbinafine around the same time and then a possible launch if that decision is positive, which would keep the sales force occupied on a new product launch while continuing to maintain Rupall.

And then just finally, on the additional products, there is some mention of the ability for pharmacists to prescribe additional products in Ontario, and that could potentially have an impact. Are you able to quantify that at all?

Yes. It's a great question. Thanks for bringing that up. No, we can't quantify it yet, although NYDA's product you're referring to, a similar situation exists -- has existed in Quebec for several years. And NYDA is the leading product in Quebec with a very strong market share. Ontario, obviously, is the largest market for these products. And we don't have nearly as strong a market share in Ontario as we do in Quebec. So we think that, that change in legislation, which we believe is coming soon, will benefit NYDA. Clearly, we will put programs in place to take advantage of that.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.