Medexus Pharmaceuticals Inc

TSX:MDP

Earnings Call Transcript

[Operator]

Good morning, ladies and gentlemen, and welcome to the Medexus Pharmaceuticals Third Quarter 2021 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Tina Byers, Investor Relations. Ma'am, the floor is yours.

[Tina Byers, Executive of Investor Relations]

Thank you, and good morning, everyone. Welcome to the Medexus Pharmaceuticals Third Quarter Fiscal 2021 Earnings Call. On the call this morning are Ken d'Entremont, Chief Executive Officer; and Roland Boivin, Chief Financial Officer. If you have any questions after the conference call or would like further information about the company, please contact Adelaide Capital at [phone]. I would like to remind everyone that this discussion will include forward-looking information that is based on certain assumptions and is subject to the 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 in 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 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 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 will now turn the call over to Ken d'Entremont to discuss the third quarter.

[Kenneth d'Entremont, CEO & Director]

Thanks, Tina, and thanks, everyone, for joining this call today. We continue to make rapid progress and are advancing several exciting initiatives that we believe will have a meaningful impact on the business going forward. During the quarter of fiscal -- third quarter of fiscal 2021, we achieved record revenues of $31.5 million for the 3-month period ended December 31, 2020, compared to $16.2 million for the same period last year. As previously reported, revenue for this quarter included approximately $3 million in revenue for IXINITY sales, which was originally expected to be realized in September 2020, but was instead realized in October 2020, due to a delay in receipt of finished product from the company's contract manufacturing partner. This also had a positive impact on adjusted EBITDA, which was $5.1 million for the third quarter compared to $700,000 for the same period last year. We continue to leverage our North American infrastructure in order to significantly scale revenues while only modestly increasing operating expenses. This is evidenced by the fact that our selling and administrative expenses for the third quarter increased just 29.7% versus the comparative period, which is well below our revenue growth of 94.5% over the same period. We continue to generate solid growth while maintaining our expenses, and the $5.3 million improvement in operating income was a strong reflection of that. Our $82.7 million in revenue for the first 9 months of fiscal 2021 reflects a 70% increase over the previous year and achieved strong adjusted EBITDA performance of more than sixfold increase over the previous year. With a strong base of revenues from Rasuvo, IXINITY, Metoject, Rupall, we believe that the recent addition to our portfolio would become major drivers of growth going forward. With a significant share price appreciation in the quarter, the noncash fair value of the derivative associated with the conversion rights of the existing debentures increased materially to $16.5 million. This increase in fair value of derivatives was the primary driver for the reported net loss of $17.1 million compared to $2.6 million for the same period last year. On a year-over-year basis, the adjusted net loss improved by $4.7 million to $500,000 as compared to $5.2 million. As at December 31, 2020, we had $15.2 million of available liquidity. Subsequently, on February 23, 2021, we completed a bought deal public offering of units led by Raymond James and Stifel GMP at a price of $7.10 per unit. Due to overwhelming demand, the financing was oversubscribed, and the over-allotment option was exercised in full by the underwriters, resulting in the offering closing with aggregate gross proceeds to the company of approximately $32.5 million. The funds will be used for working capital and general corporate purposes as well as funding certain payments owed to medac GmbH as a result of our licensing deal for Treosulfan, which I will discuss in further detail later on. Turning to our specific product lines of business. We continue to see strong demand from our core product -- portfolio of products with limited impact from the COVID-19 pandemic outside of our Canadian over-the-counter products. Our commercial hematology product, IXINITY, is FDA-approved intravenous recombinant factor IX therapeutic for use in patients 12 years of age or older with hemophilia B, a hereditary bleeding disorder characterized by deficiency in clotting factor IX in the blood, which is necessary to control bleeding. The hemophilia B market in the United States alone is estimated to be in excess of USD 1 billion and continues to grow. In September of 2020, the U.S. Food and Drug Administration approved our application to supplement the IXINITY biologic license application and add the indication for routine prophylaxis. This label expansion provides additional flexibility in the prescribed dosing regimen for IXINITY and may appeal to health care professionals who prefer this dosing regimen. We believe this label expansion will help us further penetrate the market, enhance our ability to retain existing base of sales. We also continue to enroll patients in the ongoing Phase IV clinical trial to evaluate the safety and efficacy of IXINITY in previously treated patients under 12 years of age with hemophilia B. Once completed, this study may support a significant expansion in the indicated patient population for IXINITY as approximately 1 in 3 patients treated for hemophilia B in the United States are 12 years of age or younger. To date, the study is over 73% enrolled, and we are proactively pursuing patients to complete the enrollment. 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. Unit demand in the United States has remained steady in the trailing 12 months ended December 31, 2020, and continues to reflect strong payer, prescriber and patient acceptance. We believe we will remain a strong -- in a strong position within the methotrexate auto-injector segment. Metoject realized a 26% trailing 12-month demand growth in Canada due in part to public reimbursement through provincial formularies in all provinces, except BC and Manitoba. Metoject is a prefilled syringe of methotrexate, which is indicated for the treatment of rheumatoid arthritis and psoriasis. It is a highly effective and cost-efficient treatment for these debilitating diseases. Public reimbursement creates access for a large group of patients who previously could not get the product. In August of 2020, the company 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. The company and medac GmbH have jointly filed a statement of claim against Accord Healthcare regarding the launch of Accord Healthcare's generic version of Metoject in Canada. Rupall is also experiencing very strong unit demand growth in its market with an increase of 43% in the trailing 12 months ended December 31, 2020. Over the last year, Rupall has been one of the fastest-growing antihistamines in the Canadian prescription market. We continue to gain share as physicians are switching patients from either generic prescription antihistamines or over-the-counter products. We expect Rupall to be a leading prescription antihistamine in a total market value at $143.9 million, including the $61.7 million prescription market, which is growing at an annual rate of 15.4%. As mentioned in previous earnings calls, the development of our reformulated rheumatology product remains on hold as we reallocate R&D dollars to the pediatric study for IXINITY. We believe that the opportunity to expand the IXINITY label offers a more immediate return on capital. We plan to return to development of the rheumatology product once a pediatric study nears completion. On September 9, 2020, we announced that Gleolan was approved by Health Canada. Gleolan is used for guiding maximal surgical resection of high-grade gliomas and malignant brain tumors in adults. It assists neurosurgeons in order to better visualize and more completely remove gliomas by causing them to become fluorescent and glow under blue light. Just last week, we announced that we initiated commercial launch of Gleolan, replacing use under the Health Canada Special Access Program. We expect to rapidly gain broader distribution based on the positive feedback we received from the medical community thus far. On December 18, 2020, we entered into an exclusive agreement with Ethypharm for the rights to register and commercialize TH Injectable Suspension in the United States. There has been a long-standing drug shortage of Triamcinolone Hexacetonide in North America due to previous manufacturing issues. Through the commercialization of Treosulfan in Canada, we have witnessed the urgency of providing patients with the solution firsthand. Our work with Health Canada prompted the FDA to reach out to us, inquire about the possibility of Medexus providing a similar solution in the United States. We are committed to pursuing FDA approval for a commercial product launch in the near term. We engage -- we are engaged with the FDA's drug shortage staff in an effort to facilitate the import of finished drug product to address the ongoing drug shortage. On September 10, 2020, Health Canada granted prior review for Treosulfan. The product could be approved as soon as June 2021. Treosulfan is innovative orphan-drug agent developed for use as part of a conditioning treatment for patients undergoing allogeneic HSCT. It is used as a conditioning treatment to clear the bone barrow and make room for transplanted bone marrow cells, which can then produce healthy blood cells. We are currently negotiating the license in anticipation of full commercial launch following Health Canada's approval. Until then, we will continue to supply the product to the market through the Special Access Program. Subsequent to Q3, on February 2, 2021, we announced an exclusive license to commercialize Treosulfan in the United States with medac GmbH. If approved by the FDA, we expect that Treosulfan-based regimen will be first in a new conditioning treatment class, reduced toxicity conditioning, resulting in a unique combination of improved survival outcomes compared to reduced-intensity regimens and decreased toxicity compared to standard myeloablative regimens. A PDUFA date to review the initial NDA has been scheduled for August 2021. This transaction is expected to be highly accretive to Medexus with near-term launch potential and expected 7-year exclusivity under the Orphan Drug Act. Upon approval, we believe Treosulfan could eventually overtake the current market leading product, busulfan. Particularly considering busulfan is not approved for the indications that we are seeking. Additionally, as a higher margin product, we believe Treosulfan could have a significant impact on our bottom line. In addition to our current product portfolio, we have a right of first refusal on current products from the previous owner of Medexus U.S. with whom we entered into the Medexus U.S. supply agreement. We believe that several of these products represent a commercial opportunity in North America and are in the process of assessing the in-licensing of these drugs. We're also in discussions with several partners regarding other licensing agreements, and we believe that those products have the potential to materially contribute to revenue within the next few years. We believe that a key aspect of the company's growth strategy will continue to leverage and grow our existing infrastructure through the acquisition and partnership of new products. To that end, in September of 2020, and we added Michael Pine to our team as Senior Vice President, Business Development and Strategy with a focus on identifying, evaluating, negotiating and acquiring new products to commercialize. We're exploring a large number of opportunities, including a portion of the deal pipeline in negotiation phase in both 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 its sales growth targets over the coming years. As we continue to build our U.S. platform over the coming quarters, we expect to enter a period of increasing investment to take Treosulfan to commercialization. Specifically, we will be engaging in key -- engaging with key stakeholders to prepare for a successful commercial launch of the product. We believe that the return on investment in these products will be significant once these products are in market. Furthermore, with the closing of the most recent private placement, we feel we are in a strong financial position to support these initiatives. Given the strong growth that we expect from our U.S. product portfolio, we announced that we have submitted an application to list on NASDAQ. We believe that a NASDAQ listing in the near future will provide us much greater exposure to the investment community as we execute on key initiatives. The listing remains subject to the approval of the NASDAQ and the satisfaction of all applicable listing and regulatory requirements. 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 entity and maintain strict financial discipline. With the available liquidity at the end of the third quarter and subsequent financing, we are in a good position to execute our business plan, including the launch of several new products. Overall, we are extremely pleased with the company's progress over the last year and believe that the initiatives we have recently announced will be transformative for the company over the next 12 to 24 months. I will now turn the call over to Roland, who will discuss the financial results in more detail. Roland?

[Roland Boivin, Chief Financial Officer]

Thanks, Ken. As Ken mentioned, we continue to experience strong demand for our core products in the third quarter. Total revenue reached $31.5 million and $82.7 million for the 3- and 9-month periods ended December 31, 2020, respectively, compared to revenue of $16.2 million and $48.7 million for the same period last year. Significant increase was mainly attributable to the acquisition of IXINITY as well as unit demand growth of the company's key products in the market over the period. As already mentioned, in September 2020, we've experienced a delay in receipt of finished IXINITY product, which contributed approximately $3 million of revenue to this quarter. Selling and administrative expenses reached $12.1 million and $34.5 million for the 3- and 9-month periods ended December 31, 2020, respectively, compared to $9.4 million and $30.4 million for the same period last year. The company's selling and administrative expenses for the 3-month period ended December 31, 2020, increased 29.7% versus the comparative period, which is well below our revenue growth of 94.5% over the same period. Operating income for the 3- and 9-month period ended December 31, 2020, was $2 million and $4.2 million, respectively, compared to an operating loss of $3.3 million and $5.8 million for the same period last year. Adjusted EBITDA for the 3- and 9-month periods ended December 31, 2020, was $5.1 million and $13.1 million, respectively, compared to $0.7 million and $1.8 million for the same period last year. As Ken mentioned earlier, the delayed shipment of IXINITY, which was recognized as revenue in October, had a positive impact on our adjusted EBITDA in the third quarter. Net loss for the 3- and 9-month periods ended December 31, 2020, was $17.1 million and $23.9 million, respectively, compared to a net loss of $2.6 million and $4.1 million for the same period last year. The increase in net losses related primarily to noncash unrealized loss on fair value of the embedded derivatives of our outstanding convertible debentures, which are sensitive to, among other things, the fluctuations in the company's share price. These unrealized losses amounted to $16.5 million in the third quarter and $20.5 million in the 9-month period ended December 31, 2020. We believe that adjusted net income or loss, which excludes the impact of the unrealized gains and losses of the fair value of the derivatives, provides a better representation of our performance and our operations because it excludes noncash fair value adjustments on liabilities, which may be settled for shares. The adjusted net loss for the 3- and 9-month periods ended December 31, 2020, was $0.5 million and $3.3 million, respectively, compared to $5.2 million and $11.7 million for the same period last year. We also maintained a solid balance sheet with $15.2 million of available liquidity at December 31, 2020, which consisted of $11.9 million in cash and cash equivalents and an undrawn credit of $3.3 million available under our ABL facility. As Ken mentioned, in February 2021, we announced that we entered into an agreement with Raymond James and Stifel GMP, in which they agreed to purchase on a bought deal basis 2,817,000 units at a price of $7.10 per unit for aggregate gross proceeds to the company of approximately $20 million. Subsequent to this announcement and due to overwhelming demand, we were pleased to announce on February 23, 2021, that the financing was oversubscribed and closed on $32.5 million with the over-allotment granted to underwriters exercised in full. We intend to use the net proceeds to fund certain payments owed to medac under the commercialization and supply agreement dated February 2, 2021, for working capital and for general corporate purposes. Operator, we will now open the call to questions.

[Operator]

[Operator Instructions] Our first question today is coming from Justin Keywood at Stifel GMP.

[Justin Keywood, Director of Equity Research]

Nice to see the growth in the quarter. Just a question on increased investment to launch Treosulfan. I'm wondering how you balance that ahead of the PDUFA date, assume that you're anticipating approval. But what gives you confidence that, that will go through without any issues or without any delay?

[Kenneth d'Entremont, CEO & Director]

Thanks, Justin. We're highly confident that the product will get approved at the PDUFA date. What gives us that confidence? One, is that we've cleared the mid-cycle review. There are no issues that we're surprised. Everything was identified to us previously, and so working to conclude any additional request that the FDA might have. Further support of our expectation that it will get approved is the approval already occurring in Western Europe. And obviously, we are in regular contact with Health Canada. And again, no significant issues on an expedited review in Canada. So we feel confident that the product will get approved, and we're doing the necessary work in order to execute a good and successful commercial launch shortly after the PDUFA date.

[Justin Keywood, Director of Equity Research]

Okay. That's very helpful. And any indication on what the increased cost could be ahead of the PDUFA date?

[Kenneth d'Entremont, CEO & Director]

Yes. We're evaluating that now. Clearly, we're working on things such as investigator-initiated trials to get the experience within the marketplace. I would point out that already in the U.S., there's about 174 institutions throughout the U.S. that do stem cell transplantation, about 74 of those do 80% of the transplants. And of those, 41 already have experience with Treosulfan. So there's strong interest in getting access to this drug. So there is interest from investigators to do investigator-initiated trials to gain further experience in indications that we haven't yet explored. So there's strong interest there. So we will support those types of trials and do the expected work that's necessary in order to prepare for a launch in terms of promotional preparation.

[Justin Keywood, Director of Equity Research]

Okay. And then on the view that the Treosulfan could exceed the busulfan peak sales prior to when it went generic and then there is the potential to have a label that's more of an expansion form, any idea of what the peak sales could be? It seems like it could even be higher than what busulfan was.

[Kenneth d'Entremont, CEO & Director]

Yes, we certainly expect so. So there's 2 opportunities here. One is replacing the drug they currently use for stem cell transplantation, and that primarily is busulfan. Busulfan peak sales of USD 126 million prior to genericization. So we have clinical study, which was published in Lancet about a year ago that clearly demonstrates that this is a better drug. It has better outcomes. And so we think that we will strongly replace what busulfan did, but we also think that we will expand the market. So the market expansion piece is a harder piece to value because it's somewhat unknown. Clearly, part of the reason for wanting to have access to Treosulfan is that it will expand the market to patients who previously didn't qualify for a stem cell transplantation, people such as older individuals. In this case, we're talking about people 70 and older, where, obviously, the prevalence of leukemia is actually higher. So these people did not have access to stem cell transplantation because the conditioning regimens were too toxic. Also people with comorbidities, meaning people with any other disease states such as diabetes or cardiovascular disease or whatever didn't have access to this treatment protocol. So both of those groups with Treosulfan will have access to stem cell transplantation. So we believe it will be a market expansion, but it's difficult to value that piece. So, so far, we're saying we think we can do at least what busulfan did, but the potential is there that we could do much more.

[Justin Keywood, Director of Equity Research]

Absolutely. And then I just had one other question on the Gleolan that was just commercially launched. Any indication of what the peak sales could be there and how long it would take to reach that peak sales number?

[Kenneth d'Entremont, CEO & Director]

It's easier to announce how quick we'll get there because all neuro -- most neurosurgeons in Canada have already been trained to use the drug. So we've been doing that over the past 1.5 years while it's being sold under the SAP process. The question on what peak sales is more difficult because it really depends -- it's dependent on how broadly they use the drug in cancerous brain tumors. It's indicated for stage 3 and stage 4 glioblastoma. However, it's difficult to stage cancerous tumors, brain tumors prior to doing the resection. So it may end up getting used more broadly on the suspicion that it could be a stage 3 or stage 4. So it's a good question. We're estimated it's probably in the $5 billion to $10 billion range. I can tell you that we've just been the first partial month of uptake, and it's been very strong.

[Operator]

[Operator Instructions] We have no further questions in the queue at this time.

[Kenneth d'Entremont, CEO & Director]

Great. Thank you, everyone. Thanks for joining us on the call today. As I said, we believe Medexus has shown dramatic growth over the last few years, and it's a testament to our objective to continue that strong growth trajectory. We believe we are at a major inflection point in the company and that stakeholders will strongly benefit even further as we continue to focus on the U.S. and our upcoming NASDAQ listing. So we look forward to reporting additional good results to you in future quarters. Thanks very much for tuning in.

[Operator]

Thank you. We do have a question coming in from Salman Ahmad at Bloom Burton.

[Salman Ahmad]

Congratulations on the record quarter. I was just wondering when -- if you could speak to the label expansion on IXINITY, if you're seeing any impact of that yet or when you think that will -- what that might start to take off.

[Kenneth d'Entremont, CEO & Director]

Yes, it's a good question. So as I mentioned, we're 73% enrolled. So we've had pretty significant enrollment even through the COVID situation. So we do expect that, that will continue on at a good pace, which means we should conclude it in 12 to 18 months and then 6 months for the application and review of the additional expansion. So I would say 18 to 24 months before -- in the label, and then we can start promoting it.

[Operator]

We have no further questions at this time.

[Kenneth d'Entremont, CEO & Director]

Again, thank you, everyone, for the interest in Medexus.

[Operator]

Thank you, ladies and gentlemen. This does conclude today's event. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.