Knight Therapeutics Inc

TSX:GUD

Earnings Call Transcript 2018-Q3

[Operator]

Good morning, ladies and gentlemen. My name is Jessa, and I will be your operator today. Welcome to Knight Therapeutics Inc. Third Quarter 2018 Financial Results Conference Call. Before turning the call over to Samira Sakhia, President and Chief Financial Officer, 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[Audio Gap]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 these assumptions regarding the future events, many of which are beyond the control of the company and its[Audio Gap]may ultimately prove to[Audio Gap]The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as result of new information or future events except as required by law. I would like to remind everyone that this conference call is being recorded today, November 8, 2018. I'd now like to turn the meeting over to your host for today's call Samira Sakhia, President and Chief Financial Officer. Go ahead, Ms. Sakhia.

[Samira Sakhia, President, CFO & Director]

Thank you, Jessa. Good morning, everyone, and welcome to Knight Therapeutics Third Quarter 2018 conference call. I want to start by letting you know that Jonathan Goodman, Knight's CEO, is unable to attend the call today. I am joined by Amal Khouri, Knight's VP of Business Development; and Arvind Utchanah, our Director of Finance. I'm pleased to report that in the third quarter, we continued our mission toward building a leading specialty pharmaceutical company. This was highlighted by the strategic investment and license agreement with TherapeuticsMD for 2 differentiated women's health products and the recent commercial launch of Probuphine for opioid dependence. At this point, I will take you through the third quarter financial results. For the quarter ended September 30, 2018, we reported revenues of $3.2 million, an increase of 73% versus the same period last year. This increase is mainly attributable to the timing of sales of Impavido and growth in sales of Movantik. For the 9 months ended September 30, 2018, we reported revenues of $8.6 million, an increase of $2.5 million or 41% as compared to the same period last year, driven by the same factors. According to IQVIA Canada data, Movantik sales were $343,000 and $963,000 for the 3 and 9-month period ended September 30, 2018, respectively.Our operating expenses for the quarter decreased by $0.3 million or 8% versus Q3 2017 as a result of reductions in general and admin expenses, mainly attributable to lower stock-based compensation, offset by an increase in our commercial activities, including promotion of Movantik and prelaunch activities behind Probuphine. Our interest income includes interest and interest accretion. For the third quarter, interest income, excluding accretion, was $5 million, a decrease of 14% compared to Q3 '17.The variance is explained by a lower average strategic loan balance offset by an increase in average cash, cash equivalents and marketable securities balances and interest rates. As a result of the company's adoption of IFRS 9, there was no significant interest accretion in the quarter or the year-to-date numbers compared to $1.2 million for the quarter last year.Our share of income of associate, which relates to our strategic investment in Medison, is driven by our share of Medison's net income, net of fair value adjustments of intangibles. For the quarter, our share of Medison's net income was $1.5 million and fair value adjustments were $1.4 million. Whereas, in the same period last year, our share of net income was $1.7 million and fair value adjustments were $1.6 million.For the quarter, we recorded a net gain on financial assets measured at fair value through profit and loss of $10.9 million. The gain was primarily driven by mark-to-market adjustments of our fund and equity investments. For the quarter, we reported net income of $12.9 million, an increase of $9.3 million or 260% versus the prior period, while for the 9-month period ended September 30, 2018, we reported net income of $23.9 million, an increase of $13.8 million or 136% versus the prior year.Now turning to our product pipeline, the engine of Knight's future growth, both expanded and matured during this quarter. On April 18, 2018, Probuphine was approved by Health Canada for the treatment of opioid dependence. Probuphine is a subdermal implant designed to deliver buprenorphine continuously for 6 months following single treatment, promoting patient compliance and adherence while addressing the risk of diversion and illicit use. As of last week, with the launch of Probuphine, Canadian patients who are stable on daily oral therapy of 8 milligrams of sublingual buprenorphine now have a novel option -- novel, innovative treatment option of a 6-month implant therapy in their fight against opioid dependence.In addition, as we discussed on our Q2 results call, we entered into an exclusive license agreement with TherapeuticsMD for the Canadian and Israeli commercial rights of 2 FDA approved women's health products. TX-004HR, marketed in the U.S. under the trade name Imvexxy, is a differentiated estradiol vaginal softgel for the treatment of moderate to severe dyspareunia, a symptom of vulvar and vaginal atrophy. As well as TX-001HR, marketed under the trade name Bijuva in the U.S., which is a bio-identical hormone therapy and is the only fixed dose oral combination of estradiol and progesterone available in a single softgel for the treatment of moderate to severe vasomotor symptoms due to menopause. We plan to submit both products to Health Canada for regulatory approval in 2019.Furthermore, on September 24, 2018, we announced a strategic investment and license agreement with Jaguar Health for the exclusive right to commercialize Mytesi and the related products in Canada and Israel and a right of first negotiation in specified Latin American countries. Mytesi is an FDA-approved product in the U.S. indicated for the symptomatic relief of noninfectious diarrhea in adults -- in adult patients with HIV/AIDS on antiretroviral therapy. In addition, Knight invested USD 900,000 and received 1.5 million shares as part of Jaguar's $9 million underwritten public offering.Now moving to our strategic loan portfolio. In July, Knight received $3.1 million from Profound Medical representing a full repayment of the loan balance. As of September 30, 2018, we had a nominal value of $25 million receivable from 6 strategic loan partners, and we continue to look for loan opportunities that generate income and more importantly, help us secure commercial rights to innovative pharmaceutical products. As we round out 2018, I'm excited that we have 2 innovative products on the market in Canada, 2 more under Health Canada review and 3 more that we will be submitting in 2019 as well as having $775 million of cash, cash equivalents and marketable securities on hand to continue to execute. Looking ahead, we remain focused on leveraging our balance sheet to find good opportunities for growth and building a specialty pharmaceutical company that improves the health and well-being of Canadians while, at the same time, creating shareholder value.This concludes our formal remarks, and we would like -- now I'd turn the call over to questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Ammar Shah from National Bank.

[Ammar Shah, Associate]

Congrats on the quarter end and the launch of Probuphine. Just on that topic, I know it's still early days, but just hoping if I could get some color on how we should think about the sales ramp for that might proceed from here on out.

[Samira Sakhia, President, CFO & Director]

Thanks for your question, Ammar. So Probuphine is a 6-month implant for patients that are stable on sublingual product -- buprenorphine already. So what we are doing today is we -- and also physicians need to be trained on how to do the implant and explant. So at this point in time, we're working with physicians to get the training done as well as working with them to identify the right type of patient that this would be a product that would be good for them. As it is a 6-month implant, the renewal periods are also very long, so we expect this product to be a slow build. We think it's a great product that can help a lot of people -- that can help a certain kind of people. And we are looking forward to continuing with the launch.

[Ammar Shah, Associate]

Got it. That's great color. And just one follow-up for me. You mentioned the NDS submission time line for Imvexxy and tenapanor in 2019. Are you able to comment on when that might be in 2019, like first half, second half? Or are you just kind of aiming for 2019 in general at this point?

[Samira Sakhia, President, CFO & Director]

We haven't given more guidance to it just yet. We're working through all of the dossier work. And as soon as we submit it, we'll be announcing.

[Operator]

Your next question comes from the line of Tania Gonsalves from Cormark Securities.

[Tania Rae Gonsalves, Analyst of Institutional Equity Research]

Congratulations on the launch of Probuphine. Again, my couple of questions is around that. To start, I'm just hoping you can talk about what Knight is doing differently in order to circumvent the difficulties that Braeburn faced in the U.S., so for example, reimbursement issues due to the high pricing and physician pushback that the patients would perhaps not come in for enough counseling over that 6-month treatment horizon.

[Samira Sakhia, President, CFO & Director]

That's a really great question. So one of the things that we are working with is really getting the physicians to identify the right kind of patients so that they can work through both the counseling as well as the treatments. The other thing is the pricing of Probuphine in Canada is dramatically different than it is in the U.S. As you know, we have controlled pricing in Canada, so it is -- it's in line with that.

[Tania Rae Gonsalves, Analyst of Institutional Equity Research]

Okay, perfect. And then secondly, also focused on Probuphine. I know Braeburn is working on a weekly or monthly injection of buprenorphine, CAM2038 I believe it is. Just given those concerns around Probuphine, how do you see this drug stacking up to it?

[Samira Sakhia, President, CFO & Director]

So the CAM products are weekly and monthly, and I think that there is a place for all of these to support patients as they deal with their opioid dependence.

[Tania Rae Gonsalves, Analyst of Institutional Equity Research]

Okay. So it's more of a complementary thing, maybe they target the above 8-milligram market and you guys can go to those low-dose patients.

[Samira Sakhia, President, CFO & Director]

Potentially that as well as transitioning from going to a daily, to a weekly, to a 6-month.

[Tania Rae Gonsalves, Analyst of Institutional Equity Research]

Got you, okay. Okay. And then moving on, again, congratulations on the out-licensing of Impavido to Pharma Consulting Group. I know you've been evaluating the Latin American market for some time now. This could be a very lucrative market, I think, for Impavido especially. Could you give us a sense maybe of the income potential from this out-licensing deal?

[Samira Sakhia, President, CFO & Director]

So as you saw with PCG, the license is for the smaller territories, and they're -- it's also only in the private space. We do expect that it will make a difference but it is a much smaller portion of the potential market that is Latin America. So we are working, in addition to PCG, looking at the other markets like Brazil as well as looking at markets in -- going back towards India and Bangladesh and Nepal.

[Tania Rae Gonsalves, Analyst of Institutional Equity Research]

Perfect. Okay. And then is there potential to continue working with PCG perhaps with ARAKODA. I saw that the tafenoquine product was approved by the FDA.

[Samira Sakhia, President, CFO & Director]

Yes. So again, whether it's -- what we're looking for really is as we round -- as we look into Latin America is really finding the right partners for the right products. PCG has expressed an interest but we'll see as we -- we're just kind of getting up to speed of how we can get that product into Latin America.

[Operator]

Your next question comes from the line of Justin Keywood from GMP Securities.

[Justin Keywood, Director of Equity Research]

Just on the tax reassessment in the quarter, there's some commentary around the Québec revenue agency imposing a similar liability. I'm wondering, has that actually been imposed? Or is that just expected?

[Samira Sakhia, President, CFO & Director]

We have not heard -- we have not received any notice of assessment yet from Revenu Québec. We do expect it to come, though.

[Justin Keywood, Director of Equity Research]

Okay. So that's just, I guess, an estimated liability there for the $19 million?

[Samira Sakhia, President, CFO & Director]

Yes.

[Justin Keywood, Director of Equity Research]

Okay. And I would assume there'll be a similar appeals process anticipated as well?

[Samira Sakhia, President, CFO & Director]

We -- Québec will be following what federal is doing, so our appeal from federal will be filed similarly with Québec. But it's how federal responds, Québec will go along with it.

[Justin Keywood, Director of Equity Research]

Okay. And is there any other potential tax liability for this transaction or that would be the maximum possible amount from those 2 authorities?

[Samira Sakhia, President, CFO & Director]

The -- at this point, because we've made the deposit, the interest has stopped. With Québec, the $19 million is an estimate based on when we think the interest and penalties will come in. So that's kind of around about where we're at.

[Operator]

[Operator Instructions] Your next question comes from the line of David Novak from Raymond James.

[David Novak, MD & Healthcare Research Analyst]

Just one really from me. A couple of days ago, Takeda articulated its confidence in securing the appropriate backing to finally close on the Shire acquisition. So just wondering if you could provide any insight into how this may impact Medison and, by association, Knight's share in Medison's income going forward, if at all.

[Samira Sakhia, President, CFO & Director]

So that's a great question. So Medison has an agreement with Shire that has a term. Our -- we are continuing to monitor. We do suspect that the agreement will not be renewed because Takeda does have operations in Israel. That being said, the Medison team has been very active on their own business development and continuing to grow that business. There may be a little bit of a dip, but we expect them to be able to work through that.

[Operator]

There are no further questions at this time. Ms. Sakhia, I turn the call back over to you for closing remarks.

[Samira Sakhia, President, CFO & Director]

Thank you, everyone, for your confidence in the Knight team and for joining our Q3 2018 conference call. And have a GUD, and of course, that's G-U-D, morning.

[Operator]

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