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Good morning, ladies and gentlemen, and welcome to the Valeo Pharma First Quarter Results Conference Call. [Operator Instructions] Mr. Frederic Dumais, you may begin your conference.
Thank you, operator. Good morning, everyone. Present with me today for our First Quarter '24 Financial Results Conference Call are Mr. Steve Saviuk, our CEO; and Mr. Pascal Tougas, our Chief Financial Officer. Before we begin our call, I'd like to remind everyone that this conference call may contain certain forward-looking statements regarding the company's expectations or future events. Such expectations are based on certain assumptions that are founded on currently available information. If these assumptions prove incorrect, actual results may differ materially from those contemplated by the forward-looking statements contained in this conference call. Company disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by security laws. I would now like to pass the call over to our CEO, Steve, please go ahead.
Thank you, Fred. Good morning, all, and thank you for joining us for our First Quarter '24 Results Conference Call. I will start by quickly reviewing our latest quarterly results, and we'll provide a brief commercial and operation [indiscernible] to pass the mic over to our CFO, Pascal Tougas, who will provide more details on our first quarter results. We are pleased to report that in Q1 '24, Valeo has resumed this trend of quarterly revenue growth, which had been interrupted in Q4 '23. Revenues for the first quarter reached $13.5 million, up 3% over Q1 '23 and Q4 '23. While this revenue increase may appear to be modest on the surface, the underlying growth of a number of our key brands remains robust. Our respiratory unit, which was -- that was the primary contributor to revenue growth in the quarter with Enerzair leading the way followed by Atectura and Allerject. Our ophthalmology unit was negatively impacted due to the loss of momentum associated with the Xiidra cease of promotion on our part that occurred towards the latter half of the quarter, and our hospital unit experienced a slight decline as it digested a particularly strong Q4 '23. Early results for Q2 '24, however, show that our hospital unit is rebounding and returning to expected growth levels. As we develop as an organization, our inventory management tools are becoming more advanced.
Unfortunately, our Q1 '24 results were once again negatively impacted by inventory write-offs totaling $1.1 million. This is a manageable issue that we have addressed for the future and is related to a small number of product SKUs. My colleague and CFO, Pascal Tougas, will provide more color on this in his comments. Excluding this charge, adjusted gross profit would have returned performance near the 30%-mark. Adjusted EBITDA loss in Q1 '24 showed a small improvement when compared with the adjusted EBITDA loss of Q1 '23, approximately 6%. But more importantly, the improvement was much more significant when compared with the previous quarter, Q4 '23, with a decrease of 54%, while cost reduction measures implemented in Q4 '23 started to have some impact in Q1 '24, their benefit will be felt starting in Q2 '24 and will continue ramping up throughout the rest of the year. Combining all these factors and measures, we also expect to see our key financial metrics sequentially improving throughout 2024 with a full effect starting to show in Q3 '24. With 9 commercial products spread across 3 business units we intend to continue focusing on the key drivers that will impact our financial performance and accelerate our transition to positive cash flow. I'll do a brief business unit overview. As you know, we have 3 business units, first being a respiratory unit. Our 2 advanced asthma therapies Enerzair and Atectura continue to lead the way as revenue drivers for Valeo as a first-in-class fixed triple combination and a best-in-class fixed dual combination therapy, respectively. With the Canadian asthma market now valued at over $1 billion annually, and with several established brands relying on more conventional inhaled dual therapy, we believe that Enerzair is the right product to challenge the established order.
As a result of their strong therapeutic value and our ongoing commercial activities, Enerzair and Atectura continue to demonstrate significant monthly prescriber and prescription growth. At the end of the first quarter, the number of physicians who have prescribed Enerzair and Atectura reached 3,472, representing a 17% growth from the end of the prior quarter and a 119% increase over the prior year. This increase was seen across both specialty and primary care physicians as we focus on ensuring positions are educated on the unique benefits that Enerzair's triple therapy provides. Increased physician adoption has driven total prescriptions for the last 12 months ended January 31, '24, to over 78,000, an increase of 130% year-over-year. We are very pleased with our rapid prescriber and prescription growth and expect that Enerzair's adoption rate will continue to climb for many quarters to come. As we've said from the outset, we continue to forecast that these 2 asthma therapies can attain sales of $100 million, putting them on par with many of their peers in the class.
Hospital unit. Redesca, the main state of our hospital unit is a hospital-based anticoagulant and remains the #1 Low Molecular Weight Heparin Biosimilar in Canada. The Canadian Low Molecular Weight Heparin market is undergoing dramatic change with the introduction of Biosimilars. Canadian provinces have moved quickly to favorably open their markets to Biosimilars, which provides significant cost savings as well as ensuring product availability for this very important class of drugs. Ontario, which represents approximately 45% of the overall Canadian Low Molecular Weight Heparin market has now advanced its Biosimilar policy to be on par with the other Canadian provinces. This shift provides value with a major opportunity to introduce Redesca to Ontario hospitals, enabling them to access the pricing and other benefits that Redesca provides. In addition, we are seeing enoxaparin biosimilars competing in the market held by other biological anticoagulants, what we call the so-called secondary market, which will expand the market potential for Redesca across Canada in the coming quarters. As mentioned at the outset, our hospital sales, primarily Redesca, experienced a slight decline in Q1 compared to Q4 '23 as changes in inventory levels made their way through hospital networks. Q2 shipments to date are displaying strong growth, and we expect Redesca to be an important sales contributor this year due to the Ontario market changes that we announced, and that I mentioned earlier. Finally, our ophthalmology unit. In February of 2024, we announced that we had entered into an amendment of our commercialization and supply agreement with Novartis Canada for both Xiidra and Simbrinza. As per the amendment, Valeo will continue to distribute Xiidra for a transition period, which is expected to continue until approximately Q3 '24. Our rights regarding Simbrinza are unchanged, and we will continue to commercialize and promote Simbrinza on an exclusive basis for the remainder of the contract term.
Within the 60 days of the Date of Termination of our agreement with Xiidra, Valeo will be entitled to a reimbursement of a residual portion of the upfront fee originally paid by Valeo. This amount which will be -- which we believe will be received sometime during the course of the summer will be used for partial repayment of the Secured Term Loan entered into between Valeo and Sagard Healthcare Royalty Partners in July 2022. We continue to believe that our ophthalmology business unit can play an increasing role in the future success of Valeo. And that as a key therapeutic area for Valeo going forward, it is particularly well suited to accommodate additional products.
As mentioned on previous quarterly calls, our business development activities are heavily focused on expanding our optha portfolio, and we continue to assess and have discussions on a number of potential product additions. Over the course of the last 3 years, Valeo is focused on building scale through products, revenue and people. With that successfully accomplished, we are now single-mindedly focused on cash flow and profits. Cost reduction measures are now in place and the positive anticipated benefits thereof are starting to materialize. While organic revenue growth is the backbone on which we are building a solid foundation, we intend to do more to demonstrate improved and accelerating financial performance in the quarters to come. I would like to wind up my portion of this call by paying tribute to the entrepreneurial women and men whose daily efforts make Valeo Pharma one of the fastest-growing health care companies in Canada. Valeo brings innovation to Canadians. And innovation means better health care. And with that, I'll turn over the financial portion of the call to Pascal Tougas, our CFO.
Thank you, Steve. So we'll start with quickly reviewing our first quarter of 2024 results. So starting with revenues. For the quarter, we're in the vicinity of $13.5 million compared to $13.1 million in the prior quarter comparable of '23, representing roughly 3% increase, considering Q1 '23 captured nearly $600,000 benefit of a competitor back order. The adjusted [ growth ] would turn up at 7% and would be more indicative of the actual year-over-year performance.
Commercial conditions, as you probably recall, we had a capture issue in Q4 of '23. And for Q1 of '24, the Gross-to-Net, call it, or the commercial conditions that we're provisioning for are more indicative of the existing commitments and sales mix. And so in comparison with Q4 '23, there is no material adjustments that were required on a catch-up basis, whether for returns or rebates.
From there, the gross profit was $2.3 million for the quarter, slightly down from the $3.4 million comparable quarter prior year, a 34% decrease. Fair portion of the Q1 '24 gross profit is depressed by write-offs associated with launch brands, as mentioned by Steve earlier, which totaled nearly $1.1 million, and thus reflecting on an adjusted gross profit at nearly 3.9%, which would put us nearly aligned to Q1 '23. In addition, considering Q1 '23, the backorder benefit that was materializing on nonrecurring gross profit year-over-year basis would represent an upward trend at nearly 5% to 7% on an adjusted basis. Moving on to operating expenses. For the quarter, materialized at $7.1 million, so 2% down on a year-over-year basis. Almost all functions are now showing OpEx decrease on year-over-year base while still presenting or capturing severances associated to transformation that are embedded on the straight line, so G&A is still representing and capturing the severances and other transformation costs. Part of OpEx, the Corporation has also incurred transformation costs nearing $200,000 for the quarter. So excluding severances and the said transformation costs, the OpEx would reflect more an 8% reduction on a year-over-year basis. As a caveat or an element to look for, please do see #2 to our financial statements, where we've made some presentation reclassification. So there's no EBITDA, net -- net profit or loss, presentation elements or impact, it's purely a re-class within lines of the P&L.
Net loss for the quarter was $6.9 million, [ $600,000 ] to -- positive to same quarter of '23, 10% increase in net loss. Again, the year-over-year performance was negatively impacted by Q1 '23, so the nonrecurring backorder benefit and the Q1 '24 write-offs, which are both [ trickling ] down from the negatively impacted gross profit. At EBITDA level, despite the headwinds in pattern in Q1 '24, the loss remains nearly unchanged versus Q1 '23, mainly supported by a nonrecurring other income associated with the disposal of a non-core asset and the [indiscernible] associated to the transition for Xiidra. Finally, looking at the cash position and cash burn for the quarter. At the end of January, our cash position was $9.6 million, $2.1 million increase year-over-year, and the cash generated by the operating activities in the quarter is just under $0.2 million, improvement of $11.3 million on a year-over-year basis. However, that change is essentially tied to changes in noncash working capital. And finally, after foreign exchange impact, investing and financing activities represent nominal variances. This concludes the financial review part. Back for questions later on. So for now, I'll hand it over back to Steve for remarks. Thank you, and over to you, Steve.
Great. Thanks, Pascal. We are now ready to open the call for questions. Although this portion of the call is reserved for questions from our financials with any questions they may have, and we will get back to you as quickly as we can. Operator, you may now proceed with the questions part of this call.
[Operator Instructions] Your first question comes from Stefan Quenneville from Echelon Capital Markets.
My first question is about the asset, sort of a divestiture that you guys announced subsequent to the quarter. Can you talk a bit about that? And maybe give us a sense of what the revenue run rate was on that asset?
Maybe Pascal, you could handle that. I mean, the product we divested was Sodium Ethacrynate. So Sodium Ethacrynate is a generic injectable. It's a legacy product that we -- from many years back, we had the Canadian and U.S. rights. We sold the Canadian rights in November to a Canadian company and then sold the U.S. rights to the same Canadian company more recently. So subsequent to the quarter end. Pascal, do you want to add anything to that?
If I simply go to the annual rate. So Stefan, you probably know this, but it's -- the sole piece was an element where we were doing a pickup on revenue, where the partner in the U.S. was actually commercializing this for us. And so the average revenue on a yearly basis would have -- in circa about $1 million.
The bottom line, we've probably sold it 4 to 5x what our earnings contribution was, closer to the 5x. There was a lot of expenses in Canada. We basically weren't making money with this product. And in the U.S., a single-source small product has a lot of fees attached to it. So it was a -- it provided some cash, and it goes along our strategy. When I talk about we have 9 products, we actually have several more than that, but non-core is to basically clean up our operations and our product portfolio with products that are not key for our future. And at the same time, it generates a small amount of cash.
And at the end of the day, it's still conducive as if going back to your relentless focus, focusing on what we want to do for the future and what we think is accretive.
Great. My next question is just a bit on your sort of working capital management. You guys -- I mean, during the quarter, I would say it's somewhat surprising, added to your cash balance, do you want to talk about you working with suppliers? Is Novartis sort of working with you to run down beside your inventory. Can you just give us some color on what's happening there?
Sure. I can provide a bit of context to that, Stefan. So obviously, as you know, I can't necessarily go into which partners. And you won't mind about that one, I hope. But yes, there are some arrangements that we're seeking with some of our partners to actually provide some flexibility on the first part. Second part is, there's a seasonality to this in the sense that as we're -- our distribution center is actually closed in the last 2 weeks of December. We're actually collecting a lot of dollars into January. So it puts us in a position where it's a high cash moment, called it that way, considering that there's a rather high procurement season coming after with regards to inventory and cost of goods in terms of mobilization that comes in after for the next 2, 3 months, probably. Does that make sense?
Yes. No, that makes a lot of sense. And then I guess my final question is on the sort of business development or maybe even further divestitures on the sort of slower growth part of the portfolio. In your MD&A, you stated pretty clearly that you're in active discussions for different opportunities. Obviously, the stuff is ongoing. You've been very clear about that. Do you want to characterize in some way, what's going on? And maybe help us understand when something may occur. Just maybe a little more detail and the update on the business development side.
Yes. It's always, as just mentioned, it's ongoing. But what we have -- what we can say is, we've found some assets, we've assessed these assets, we're negotiating or negotiated on those assets, and we want to move forward, and I think we'd like something to happen in the next quarter, like 90 days, basically. Now we're trying to find, as you mentioned, or as we mentioned in the past, we're trying to find assets that could be immediately accretive, but they must fit with our business operations.
So things that plug in with our existing sales and commercial infrastructure have strong priority for us, and we believe that there are some licensable assets that fit that category that we're involved with or in discussions with, immediately accretive versus development assets where typically, the revenues are only going to start to flow in 24 to 36 months.
So really focused on cash flow, which has been -- while coming. I mean I think just to make a comment on that with Redesca, just maybe preempt someone else's comments, what we expected policy has -- was, in fact, enacted last year, but did not flow through to enoxaparin, which is the biosimilar that we have. So they focus mostly on chronic therapy. Those were the first ones. We're now starting to see that change. And we are in active discussions with pretty well every hospital, [ mine ] group in Ontario or hospital group in Ontario or hospital in Ontario, and there's going to be a major shift that's going to happen this year. And we're already starting to see it.
So we're very optimistic about what Redesca could do this year. Although, frankly, if you had turned back, we expected that to happen last year. And unfortunately, there was a 1-year delay, which obviously significantly impacted our ability to get the EBITDA positive in that because Redesca will play a big role in getting to EBITDA positive.
[Operator Instructions] Your next question comes from Scott McAuley from Paradigm Capital.
So just first for me, just on the write-downs. I know you had mentioned the processes, but we saw a similar write-down last quarter. Is this something that we shouldn't see going forward? Or is it just we could see less of going forward as these things normalize?
So that's -- I'll take this one, Steve. Scott, I hope you're doing well. Yes, the whole situation there is a bit concerning. Steve did speak to early on new controls that we're putting in place and so on and so on forth. Look, in transparency, the major portion of what we have in there is tied to allergy. So vicinity of maybe $700,000, $800,000. And it side to decisions that were made before last fall, because we have a long lead time on this one.
Yes. It's tied to product lineup. And I would say the balance, not all of the balance, but a portion of the balance is actually tied to hospital portfolio. But in that case, it's something that [indiscernible] back from 2-plus years and was associated to launch time line and assessments from that end. So obviously, as we look to evolve and try to marry our procure-to-pay processes, with the background that I have, I'm actually coming in and suggesting it's not only that, it's a forecast to procure, to sell, and it's a much longer type of process that you're looking into.
But in doing it that way, you only prefer to actually serve the demand that you're expecting on a shorter type of loop. And you're looking for more velocity throughout your inventory despite the rather long time lines. But at the same time, it's the -- preventing the bolus effect and the fact that we're not going to have -- of course we will be less exposed to those new launches where your risk of delta between expected forecast and execution. Generally, whether you are in a big pharma or smaller pharma, you're always exposed to those big write-offs at some point during the launch phase. So that will help us definitely. And obviously, it's going to be less of a burden on the working capital.
Yes. We do expect that there's going to be some additional small write-offs in Q2, probably in the vicinity of about $400,000. And again, it's tied to essentially 2 products, one, which, as Pascal mentioned, goes back a while, and it's -- it was packaging issues and things of that nature, which resulted in some inventory not being really available for sale. And the allergy product, which we -- I mean the product is doing well for us. There are some challenges that I don't think that we fully accepted or understood in the start-up phase. And unfortunately, that resulted. By the time we came to light, we were already committed to inventory. So I would expect to see that drop significantly.
Maybe we'll never get rid of it totally but it will drop significantly. And that product is a profitable product for us. So without these write-offs. So we expect, but the magnitude is, I believe, is terrible. I mean, it's [ worth not ] between the fourth quarter and the first quarter of this year, over $2 million of this product. And that will not happen anywhere as close to that again. So that's probably the summary on that, right? It should not be a major expense for us just right, and yet it is. And we've done things and need the changes to make sure it never happens. Again, however, write-offs do happen for a number of reasons, but they should be a small percentage of your sales and not as significant as this.
That makes sense. I think I've kind of asked on this before, but it's always positive to see the increase prescribers, the increased number of prescriptions for the Enerzair and Atectura products. And you kind of highlighted that those are growth products. But if you kind of look at the different divisions, it doesn't seem like that those growths kind of line up. And I know there's [ fee ] times and like there's a lot of moving parts, but maybe kind of in a simple way, can you describe how you think about -- when you're seeing those increasing [indiscernible]? How you can use those to inform what you're thinking around revenue expectations for those 2 products, since they are such a major component of the story?
Yes. Well, we're talking really again Enerzair and Atectura, 2 asthma therapies. But you have to look at is these are relatively inexpensive drugs. So there's -- you need to move prescriptions considerably to get to whether these products will be breakeven for us. But in the quarter, what you could pretty well look at is, we had a significant increase in Enerzair and Atectura revenues, which was offset by a reduction of our hospital revenues and a reduction of our ophthalmic revenues. So unfortunately, there was kind of an offset in that -- in Q1, and that's why Q1 results demonstrated, what I would consider pretty well flat numbers from Q4 and from Q1 last year.
But when I look at Q2, I see all our key products up significantly from Q1 in terms of year-over-year growth. So I would expect that Q2 number should be significantly better than Q1, still only halfway through the quarter. But our expectation is these revenues will grow throughout the year. But [ enters ] here, and in particular, is starting to -- it's going to start to impact the top line, and you'll probably see it more in Q -- as a stand-alone in Q2. We don't necessarily break out our revenues. We haven't historically or traditionally broken out our revenues by business unit. I think as the year goes on, whether it's in Q2 or potentially a bit later, it's not that we don't want to. We just want to make sure that it's not just meaningful, but it's representative.
And I think probably Q2, it's not Q3, we are going to start -- you'll be able to start tracking rather than just prescription revenue, we'll actually be able to start our prescription growth, we'll actually be able to start tracking revenue growth for those products, and that will give you a better idea. But again, it's kind of a bitter sweet, you say plus 3. And my comment was really it's not representative. If you look at the underlying products, I mean, Redesca had not the greatest quarter, but there was -- if you look at Q4, it had a fantastic quarter. And last year, it was aided by a stock out on Lovenox, which caused sales to jump significantly. This year, we didn't have that stock out, so it looks like it didn't have as great a Q1.
But I can say that in Q2 to date, we're up about 40% over last year's Q2 roughly. I work off gross numbers because that's why data -- and obviously, when you go to net those numbers could vary, it could be 38%, it could be 42%. But it gives you a relevant sense that that's a significant jump over Q2 last year, which was still a good quarter for Redesca.
So I think overall, our key brands, and those are Enerzair, Atectura, Allerject, Simbrinza, Redesca are all up, and I'll give you another one in ophthalmology. Ophthalmology, we were, as I mentioned, Xiidra on the switchover sales of Xiidra sort of tapered, I guess, some of our programs. So when I say programs, it would be sampling programs, it would be patient support programs, it would be co-pay programs, as they were handed off to Bausch Lomb, and by the time they got up and running, they had -- there was a negative impact on Xiidra, where Xiidra sales were actually down from the corresponding period last year.
Simbrinza also had, what I would say, a bit of a soft first quarter. First quarter sales, say, Simbrinza were basically flat from last year. Second quarter year-over-year, we're up over 25%. And for -- so that's a significant jump. So the second quarter, we're -- our key brands are performing a lot better than they did in the first quarter and certainly than last year.
So we're very optimistic about growth, and that's why we talk about growth, and I know you're saying, but I'm not seeing the growth, and it's frustrating for us too because as other elements in these key brands that are pulling -- that are making the -- we should almost put our financial statements of key brand revenue and then other revenue, and maybe that would show a better sort of -- better indicator of the fact that we are growing.
I appreciate it, a lots of moving parts, sometimes it's moving underneath the water.
Yes, exactly.
Just third for me, good to see that those operating expenses coming down and kind of highlighting that even with that, there's some onetime as from that restructuring in those numbers. So I don't know, do you have like a target, like either quarterly or annual target that you're working towards for those operating expenses?
Well, we did indicate in our press release, we'd like to cut by $2 million. We actually believe we're significantly above that number, maybe closer to $3 million. We believe we've done so in a ways that don't affect commercial opportunity or the commercial success of our products, that's not to say we were bloated before, but I think we're moving towards, I think, a bit more of an operational -- entrepreneurial operational structure.
I think before we went towards this traditional big pharma structure with the silos and what have you, and that's because of maybe some management decisions made then. So we're really trying to get back to being a bit more of a cross-functional, leaner team in the field. We talked about focus on positions, focusing on the physicians that are the higher prescribers and increasing frequency with those physicians as being key changes.
So I think you'll continue -- and as Pascal mentioned, there is a cost -- first of all, there's a cost to downsizing. There is severance costs and other associated costs. There's costs too of stopping programs because sometimes deals are issued, work's been done by our suppliers, and it's nice to say, well, we're stopping, and they still say, well, you still owe us so much money because we've spent this money. We haven't built it yet. So that's what happened in the first quarter. Some will drag a bit into a second.
And I think there was a comment made by myself and I think Pascal too, Q3 is where you're going to see more of a clean run rate of us, really how like our OpEx should be. Our target is to get it down significantly from the numbers that we currently have. And -- the target is $6 million on total OpEx. It would be, I think, the first level we want to get to. At some point, though, you need to have OpEx to support the operations that we have. And as we say, if we are successful in our licensing, we're actually increasing the workload internally with -- or we could increase the workload internally with these products. But we're downsized to that level.
So whatever we -- in-license will not require us to upload or upgrade or increase the resources within our company. So we're lean, but we're lean, ready to take more on and continue to grow, which should have a positive impact on the bottom line. Our forecast is positive EBITDA by the end of the year, and you should see a significant improvement in EBITDA loss in Q2 and even more so in Q3, as I mentioned, where the true full pass-through of the -- of all of those transition expenses has been absorbed previously.
Steve. And I guess just lastly, just on the convertible debt, it's due by the end of the year. Any progress on kind of coming up with ideas or talking to people on getting through that?
Yes. We've talked to all the big convertible debt holders that represent, I don't know, 75%, 80%, probably into debt. And there's an openness there for further discussion, but we will not be -- we're not -- we're addressing it now. We think we should have some kind of definitive conclusion by the beginning of summer, and everyone seems to be happy with that time line.
And there are no further questions at this time. I will turn the call back over to Steve Saviuk, CEO, for closing remarks.
Thank you, operator. Well, thank you all for attending the 2024 conference call. As mentioned previously, we are quite pleased with our growth trajectory, the numbers, although they show plus 3%, significant underlying growth with other -- with certain assets, and I think as I mentioned, not that we're giving any forward guidance, but Q2 has led up to this point, which is 50% of the way through the quarter, our key growth drivers are kicking in significantly. So we're very happy with our results. More to do on the cost cutting side, it never stops. I mean, you're always looking at ways to improve your operations.
Bottom line, we realized that our shareholders and we want and we need to other stakeholders, the company has to get to cash flow positive as quickly as possible. And that's clearly, as I mentioned, our single-minded objective in terms of being able to be able to hit that in calendar '24. And we feel we have the right products, the right team to be able to do so.
So again, thank you for your continued interest and support. We look forward to keeping you updated on new developments and other catalysts. And with that, I'll turn it back to the operator. And again, I want to thank you all for taking the time this morning to be with us.
Ladies and gentlemen, this concludes your conference call for today. We thank you for joining, and you may now disconnect your lines. Thank you.