Knight Therapeutics Inc

TSX:GUD

Earnings Call Transcript 2018-Q1

[Operator]

Good morning, ladies and gentlemen. My name is Ruth, and I will be your operator today. Welcome to the Knight Therapeutics Inc. First Quarter 2018 Financial Results Conference Call.Before turning the call over to Samira Sakhia, President and Chief Financial Officer; Jonathan Ross Goodman, Chief Executive Officer; and Jody Engel, Director of Business Development, listeners are reminded that portions of today's discussion may, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. The company considers the assumptions on which these forward-looking statements are based to be reasonable at the time they were prepared but cautions that the assumptions regarding the future events, many of which are beyond the control of the company and its subsidiaries, may ultimately prove to be incorrect. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether a result of new information, future events, except as required by law.I would like to remind everyone that this call is being recorded today, May 10, 2018.I would now like to turn the meeting over to your host for today's call, Jonathan Goodman, Chief Executive Officer of Knight Therapeutics Inc. Mr. Goodman, you may proceed.

[Jonathan Ross Goodman, CEO & Director]

Thank you, Ruth. Good morning, and welcome to Knight Therapeutics First Quarter 2018 Conference Call. I'm joined on today's call with Samira Sakhia, our President and CFO; and Jody Engel, our Director of Business Development. We are pleased to report that in the first quarter, we progressed on the path towards building a leading Canadian specialty pharmaceutical company. Highlighted by the in-license of tenapanor, the submission of Netildex and the regulatory approval for Probuphine. Looking ahead, we remain focused on finding good solid demand and focus opportunities for growth. And ultimately, building a specialty pharmaceutical company that improves the health of Canadians while creating shareholder value. I will now turn the call over to Samira, who will walk-through the first quarter financial results and highlights.

[Samira Sakhia, President, CFO & Director]

Thank you, Jonathan, and good morning, everyone. I'm pleased to report that for the quarter ended March 31, 2018, we reported revenues of $3.2 million, an increase of 80% over the prior period. This increase is mainly attributable to the sales of Impavido and an increase in Movantik sales. According to IQVIA Canada's data, Movantik sales were $301,000 for the period compared to $168,000 for the same period last year. Our operating expenses for the year increased by $126,000 or 4% for Q1 2017 -- over Q1 '17. This increase is primarily explained by commercial activities, including promotion behind Movantik, offset by a decrease in our G&A due to a lower stock-based compensation expense. Our interest for the quarter was driven by the -- some of the interest income and interest accretion. Interest income, excluding accretion for the quarter was $5.3 million, an increase of 10% or $506,000 compared to Q1 2017 due to an increase in the average cash balance, average cash, cash equivalents and marketable securities balances as well as an increase in interest rates, offset by a lower average loan balance. As a result of the company's adoption of IFRS 9, there was no significant interest accretion in the quarter compared to $1.1 million in Q1 of last year. Our share of income of associate, which relates to our strategic investment in medicine is driven by our shares -- a share of income -- net income, net of fair value adjustments of intangibles. For the quarter, our share of medicines net income was $1.9 million and fair value adjustments were $1.4 million. Whereas, in the prior period, our share of net income was $1.8 million and fair value adjustments were $1.5 million. For the quarter, we reported net income of $6.9 million, an increase of $862,000 or 14% versus the prior period. Net income for the quarter was driven by the above-mentioned items as well as: one, other income of $1.3 million due to the early repayment fees on the Medimetriks loan and net gain on revaluation of financial assets measured at fair value through profit or loss of $541,000 and a foreign exchange gain of $2.6 million from the appreciation of the U.S. dollar.Turning to our product pipeline, the engine of Knight's future growth, which both expanded and matured during this past quarter. On March 16, 2018, Knight entered into an exclusive license agreement with Ardelyx to commercialize tenapanor in Canada. Tenapanor is a first-in-class small molecule treatment that has completed Phase III development for irritable bowel syndrome or IBS-C and is being evaluated in a second Phase III study for hyperphosphatemia. Ardelyx has completed 2 Phase III studies in IBS-C and is preparing a new drug application, tenapanor, for IBS-C, which they intend to submit to the U.S. FDA in the second half of 2018. We expect to file our new drug submission for tenapanor for IBS-C to Health Canada in 2019. In addition, Ardelyx has completed one Phase III study in hyperphosphatemia, with a second Phase III study ongoing with anticipated -- with data anticipated in 2019. On February 15, 2018, Health Canada accepted Knight's new drug submission for Netildex for review. Netildex is a fixed combination of netilmicin and dexamethasone for the treatment of inflammatory ocular conditions of the anterior segment of the eye in presence or at risk of bacterial infection. On April 18, 2018, Probuphine was approved by Health Canada for the treatment of opioid drug dependence. Probuphine is a subdermal implant designed to deliver buprenorphine continuously for 6 months following a single treatment, promoting patient compliance and adherence, while addressing the risk of diversion or illicit use. Knight expects to launch Probuphine by the end of 2018. As we launch Probuphine, we will work with addiction specialists on training regarding performing the implant procedure as well as identifying stable patients that can transition from daily oral therapy to a 6-month therapy. Also, in the quarter, we received a Notice of Non-Compliance from Health Canada regarding the submission -- regarding our submission for Iluvien. Iluvien is an implant that delivers continuous therapy over a 3-year period for the treatment of diabetic macular edema. We are working closely with our partner, Alimera, and are on track to respond to Health Canada's issues within the prescribed 90-day window. Now turning over to Knight's strategic growth. During the quarter, we received early repayment of our loan to Medimetriks of about -- of $20 million and $4.5 million from 60 Degrees Pharmaceuticals in the quarter. In addition, Knight exercised its option to convert $500,000 debenture with a -- Antibe Therapeutics into $2.5 million common shares. At the end of the quarter, we had nominal value of $29 million receivable from 7 strategic loan partners, and we continue to look for loan opportunities that both generate good income and more importantly, help us to secure commercial rights to innovative pharmaceutical products. Now looking at our fund strategy also designed to generate good income and help us secure innovative pharmaceuticals. We have committed a total of $126 million. During the quarter Knight invested $5.8 million and received distributions of $4.2 million from our pool of 9 venture capital funds. As at March 31, 2018, we had an outstanding commitment of approximately $81 million to these funds. At the end of the quarter, we had over $800 million of cash, cash equivalents and marketable securities on hand and net asset value of $1 billion or $7.01 per share. We are well positioned to execute on our mission to improve the lives of patients while making good return in the process. In that order. This concludes my formal remarks. I'll now open up the call to questions. Ruth?

[Operator]

[Operator Instructions] Your first question comes from Ammar Shah with National Bank.

[Ammar Shah, Associate]

This is Ammar Shah calling in for Endri Leno. My first question was just related to Probuphine. So I believe Titan recently announced that it intends to reacquire the commercialization rights from Braeburn. I was just wondering if there was any change in strategy of this discussion or is the plan still for Knight to proceed as is with the Canadian rollout.

[Samira Sakhia, President, CFO & Director]

So the -- any negotiations that happen between Braeburn and Titan don't really impact our license agreement. So we continue to work towards launching this product by the end of the year.

[Ammar Shah, Associate]

Got it. Got it. Okay. And then just a follow-up to that. So I guess the commercialization strategy in the U.S. has been a bit challenging for those 2 entities and I understand there's still some time before the Canadian commercialization. I was just wondering if there're some learning opportunities or any sort of strategies that you guys are planning to implement that potentially make the road a bit different than what was seen down south?

[Samira Sakhia, President, CFO & Director]

So we have actually spent a lot of time with the commercial team and discussing with Braeburn kind of what they found as successes and items that didn't work, and we are incorporating those in our strategy. That being said, the Canadian market is a bit different because of, I guess, the buy and sale that happens in the U.S. where physicians buy the product and sell it to their patients. The health care system in Canada doesn't work that way. So that is also incorporated as part of our launch strategy.

[Ammar Shah, Associate]

Got it. Got it. It makes sense. And just the final one from me. Are you guys considering any international acquisitions at this time? I know the team has experience in South Africa, as an example. I don't know if you'd consider similar approaches along those. Just wanted to get some color on that front.

[Samira Sakhia, President, CFO & Director]

Sure. So one of the things that we have been saying over the last few years is, we are looking for opportunities similar to medicine, to expanding into smaller geographies where we can become the partner of choice for rest of world pharma. And to that effect, we are very active in looking at opportunities, but those are harder to find than products and as we've mentioned before, product deals are also very hard. Our priorities, when it comes to territories, is looking at Latin America, so Mexico, Colombia, Argentina, Brazil, kind of territories as well as the Middle East. The first one being trying to provide a Pan-American solution, the second, providing a full-on Middle East, the Arab countries and Israel. We're also monitoring South Africa, Australia, and New Zealand, and we're open to looking at any kind of opportunity in any of those territories.

[Operator]

Your next question comes from David Martin with Bloom Burton.

[Antonia Borovina, Associate of Equity Research]

This is Antonia on the line for Dave. Just a couple of questions from me. So firstly, with regards to Impavido, I know that those orders have traditionally been lumpy, but you're consistently just being a B in several quarters, so just wondering if we should expect similar levels to continue.

[Samira Sakhia, President, CFO & Director]

Sure. So as you know, Impavido was launched about 1.5 years ago in the U.S. So there is consistent lumpiness when it comes to our sales because the sales that come through Europe or the rest-of-world territories go up and down. What we have been seeing over the last year is continued growth from the U.S.

[Antonia Borovina, Associate of Equity Research]

So we do expect this kind of level to continue?

[Jonathan Ross Goodman, CEO & Director]

We expect it to be less lumpy going forward, but still lumpy.

[Antonia Borovina, Associate of Equity Research]

Okay. Okay. And then just my second question is whether you've made any adjustments to your strategy and plans in light of the current environment for acquisitive stock pharma?

[Samira Sakhia, President, CFO & Director]

So -- not really. One of this is -- where we are -- we've continued to be disciplined, and we look at those product rights, both acquiring and in-licensing. We're looking at M&A, both inside Canada and outside Canada. That's a strategy that when it comes to our organization, when it comes to Knight it has been going on for 4 years, but as you know, it was happening prior to that as well.

[Operator]

[Operator Instructions] Your next question comes from David Kideckel with Beacon Securities.

[David M. Kideckel]

Now I know, given Knight's agnostic approach to different therapeutic areas and drugs, with the recent explosion of the cannabinoid-derived pharmaceutical space, especially with the -- in light of GW Pharmaceuticals' big news a couple of weeks ago. I'm wondering what Knight's approach will be, if any, to this new and exciting space given -- with respect to what type of companies we're seeing come up, and again, specific more to the biotech space, not really speaking towards medical cannabis?

[Jonathan Ross Goodman, CEO & Director]

It's Jonathan. So we will definitely look at any pharmaceutical that has been shown to be safe and efficacious and right now, we haven't -- certainly, we're not actively looking to partner with these companies at the moment because we don't believe the science passes that test. And if it does, we'd be happy to start looking at it. Right now, we're focusing on kind of old-fashioned pharmaceuticals.

[Operator]

Your next question comes from David Novak with Raymond James.

[David Novak, MD & Healthcare Research Analyst]

Just one quick question from me. I was hoping to get a little bit more insight from you on the Notice of Non-Compliance with respect to Iluvien, presumably this is the same manufacturing issue that you ran into with AzaSite. So I was just wondering if there's any more context you can provide us with?

[Samira Sakhia, President, CFO & Director]

David, thanks for your question. Actually, it's not really in relation to anything that was similar to AzaSite. These are not clinical questions, so it is mostly around manufacturing, and we are working very closely with Alimera, and we're confident that we'll be able to respond to Health Canada's questions by the middle of June.

[Operator]

There are no further questions at this time. I'll turn the call back over to the presenters.

[Samira Sakhia, President, CFO & Director]

So thank you, everyone, for your confidence in the Knight team and for joining our Q1 2018 conference call, and have a good morning.

[Operator]

This concludes today's conference call. You may now disconnect.