Medexus Pharmaceuticals Inc. (OTCQX:MEDXF) Q2 2023 Earnings Conference Call November 9, 2022 8:00 AM ET
Company Participants
Victoria Rutherford – Investor Relations, Adelaide Capital
Ken d’Entremont – Chief Executive Officer
Marcel Konrad – Chief Financial Officer
Conference Call Participants
Andre Uddin – Research Capital
Justin Keywood – Stifel
Rahul Sarugaser – Raymond James
Scott Henry – ROTH Capital Partners
Prasath Pandurangan – Bloom Burton
Operator
Good morning, ladies and gentlemen and welcome to the Medexus Pharmaceuticals Second Quarter 2023 Earnings Call. [Operator Instructions]
It is now my pleasure to turn the floor over to your host, Ms. Victoria Rutherford, Investor Relations. Victoria, the floor is yours.
Victoria Rutherford
Thank you and good morning, everyone. Welcome to the Medexus Pharmaceuticals second fiscal quarter 2023 earnings call. On the call this morning are Ken d’Entremont, Chief Executive Officer; and Marcel Konrad, 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 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 forward-looking information and non-GAAP 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 SEDAR at www.sedar.com.
I would now like to turn the call over to Ken Donta.
Ken d’Entremont
Thank you, Victoria. Good morning, everyone and thanks for joining us on the call today. We’re proud to announce the strongest quarter in Medexus history, achieving revenue of $27.7 million for our fiscal second quarter ended September 30, ’22. We saw organic growth across all our leading prescription products this quarter which was further complemented by the recognition of 100% of Gleolan net sales in the U.S. in our revenues starting from September. Our second quarter revenue of $27.7 million compares favorably to $17.9 million for the same period last year or a 55% growth year-over-year. The $9.8 million increase is primarily attributable to an increase in the net sales of IXINITY and repo as well as the recognition of revenue from Gleolan sales in the United States, as I mentioned.
Second quarter adjusted EBITDA increased to $4.2 million compared to negative $2 million for the same period last year. The $6.2 million increase is primarily attributable to the increase in sales revenue, including Gleolan sales in the United States, a reduction in research and development costs and an increase in gross margin. We produced a net loss of $2.7 million for fiscal Q2 compared to net profit of $10.1 million for the same period last year. The profit last year was primarily due to an unrealized gain on the change in fair value of the embedded derivatives in Medexus convertible debentures. Our adjusted net loss which adjusts for these unrealized losses or gains related to our convertible debentures that are included in net loss was negative $2.8 million compared to negative $6.1 million for the same period last year.
At September 30, ’22, we had $9.6 million in cash and cash equivalents with $10.1 million of total available liquidity. I — during the quarter, we invested in our net working capital as we prepared for continued growth and to take on new business, especially as it relates to Gleolan. We anticipate seeing the benefit of this investment in our cash flow in the coming quarters. We are also actively evaluating strategies to optimize our balance sheet and capital structure to support this growth and have engaged third-party advisers to help us in this initiative. Turning to our specific product lines. Our core business is growing and we are excited about new and potential additions to our product portfolio which we believe will generate growth momentum over the coming years.
IXINITY saw strong unit demand in the United States during the 12 months ending September 30, ’22, reflecting new patient conversions on top of a stable existing base of patients following resumption of in-person selling earlier in the year. We continue to invest in an ongoing initiative to improve the IXINITY manufacturing process. Preliminary results have indicated meaningfully improved yields and we have started to see moderate improvements in gross margin for the product. Repel continued to see strong unit demand growth, achieving 25% growth for the trailing 12 months ended September 30, 22 continuing its trend is one of the fastest-growing antihistamines in the Canadian prescription market. This growth reflects the peak of Canada’s allergy season during the quarter together with continued successful execution of our sales and marketing initiatives.
Turning to Rasuvo. Unit demand remained strong in the 12 months ended September 30, maintaining the product’s leading position in the moderately growing U.S. branded methotrexate market with limited sales force allocation. However, increased competition in the U.S. branded methyltrexate market continues to negatively affect poseable product level revenue. On Metoject, even with the generic entry into the Canadian methotrexate market in calendar 2020, Meadowjecsaw unit demand increase in the trailing 12 months ended September 30, although product revenue was negatively impacted by a decrease in effective unit level prices. We continue to work towards conclusion of the litigation against the generic competitor and a trial date has been set for Q1 ’23. We look to continue updating shareholders on any material developments in this matter.
In March of ’22, we acquired the exclusive rights to commercialize Gleolan in the United States. As I previously mentioned, September 22 was the first full month we began recognizing 100% of Gleolan net sales and December 31, ’22, will be the first full quarter in which we recognized 100% of Gleolan net sales. Since we acquired the exclusive rights to commercialize Gleolan, sales have continued to be in line with expectations. This reflects our successful execution of a seamless transition to full U.S. commercial responsibility and puts Medexus in a position to successfully execute on our commercial plan which includes additional sales and marketing initiatives. These products have primarily driven our performance to date.
We also actively pursue opportunities to complement our existing product portfolio by licensing and acquiring new products as well as exploring additional indications within our current product portfolio. The advancement of any one of these product pipeline opportunities would provide a significant step up in our growth profile. As we have discussed in the past, we continue to be excited about Treosulfan, an agent for use in conditioning regimens as part of allogeneic hematopoietic stem cell transplantation protocols or allo-HSCT. We have fully launched the product in the Canadian market under the trade name TriCondiv. And we expect that the commercial experience we are gaining in Canada will serve us well if and when the FDA approves treosulfan in the United States where treosulfan is an important pipeline product for us. If and when approved in the U.S., we expect that treosulfan will become a leading agent for use in conditioning regimens as part of allo-HSCT.
In September of ’22, our partners at MEDAC informed us that the FDA have delivered them a second notice of incomplete response regarding MEDAC’s July 22 new drug application resubmission for Treosulfan. This notice requested further supporting information from MEDAC to complete MEDAC’s NDA resubmission but did not require submission of new clinical data. We will provide an update to shareholders and other stakeholders once we know whether the resubmission has been accepted and are better able to assess the impact of this delay. We have applied much of the infrastructure at an anticipation of the treosulfan launch to support Gleolan, gaining experience in many of the same institutions that are expected to use treosulfan if and when it is approved.
We also implemented a restructuring plan in October of ’22 in order to focus our resources on existing products. IXINITY, already one of our leading products presents another pipeline opportunity for us. The clinical phase of our Phase IV pediatric study for IXINITY is complete and we are now preparing the analysis and clinical study report. We currently expect to submit this study to the FDA in the first half of calendar ’23. A successful study could support a significant expansion of the indicated patient population for IXINITY to hemophilia B patients under 12 years of age and we are exploring approaches to address this potentially expanded market.
Another opportunity within the Medexus pipeline is a meningioma indication for Gleolan. The licensor of our commercial rights to Gleolan continues to pursue research and development activities for a meningioma indication for Gleolan. Our exclusive commercialization rights include this additional indication. We also continue to regularly explore additional complementary product opportunities in both current and planned therapeutic areas and in both the United States and Canada and regularly evaluate various other transaction opportunities based on our strategic plan.
A key component of our growth strategy will be to continue to leverage our infrastructure through new product acquisitions and partnerships. We will continue to look at optimizing our portfolio and leveraging our resources with the goal of executing near-term accretive transactions to achieve our sales growth targets over the coming years. In the meantime, we continue working to increase revenue, develop and leverage our commercial infrastructure across products and maintain strict financial discipline.
I will now turn the call over to Marcel, who will discuss our financial results in more detail. Marcel?
Marcel Konrad
Thank you. Thanks, Ken. Total revenue for the fiscal second quarter ended September 30, 2022, was $27.7 million, an increase of $9.8 million compared to revenue of $17.9 million for the 3 months period ended September 30, 2021 and a $4.7 million increase versus prior quarter. The year-over-year increase of $9.8 million was primarily attributable to an increase in net sales of IXINITY Andre Pal and the recognition of 100% of net sales of Clearance sold in the U.S. starting September 2022. Even without that additional Gleolan revenue, the base business demonstrated a very strong performance this quarter.
Gleolan sales have been in line with expectations to date in our December 2022 fiscal quarter will be the first full quarter in which we recognized 100% of Gleolan revenues. Gross profit was $16.1 million for the 3-month period ended September 30, 2022, compared to gross profit of $9.4 million for the same period last year. The gross margin was 58.1% for the 3 months period ended September 30, 2022, compared to 52.4% for the 3-month period ended September 30, 2021. The increase in gross margin is a result of increased net sales, product mix and initial promising results from our investments in operational efficiencies in the IXINITY manufacturing process. Selling and administrative expenses were $12.9 million for the 3 months period ended September 30, 2022, compared to $11.7 million for the 3 months period ended September 30, 2021. Research and development spend was $0.9 million for the 3 months period ended September 30, 2022. This compares to $1.8 million for the 3 months period ended September 30, 2021. The decrease was primarily attributable to reductions in investments in the cine Phase IV clinical trial as it approaches its analysis and clinical study report stage.
We continue to invest a moderate amount of additional capital in the IXINITY manufacturing process improvement initiatives. As a result, adjusted EBITDA for the 3 months period ended September 30, 2022, was positive $4.2 million compared to negative $2 million for the 3 months period ended September 30, 2021. This is an all-time high quarterly adjusted EBITDA and the fourth sequential quarter of positive EBITDA which we view as a significant achievement for our company. The net loss for the 3 months period ended September 30, 2022, was $2.7 million compared to a net profit of $10.1 million for the same period last year which was primarily driven by an unrealized gain on the change in fair value embedded derivatives in Medexus convertible debentures of $16.3 million last year. The embedded derivatives in our convertible debentures are sensitive to, amongst others, fluctuations in our share price. We believe that adjusted net income or loss provides a better representation of performance of our operations because it excludes the noncash fair value adjustments on liabilities which may be settled for shares.
Our adjusted net loss for the 3 months period ended September 30, 2022, was $2.8 million compared to $6.1 million for the 3 months period ended September 30, 2021. Cash and cash equivalents was $9.6 million at September 30, 2022, reflecting an increase of $2.3 million during the quarter. Our available liquidity was $10.1 million at September 30, 2022 which consisted of $9.6 million in cash and cash equivalents and an undrawn credit of 0.5 million available under our ABL facility which we upsized by $5 million in September. During the second quarter, we saw an increase in our cash position versus the prior quarter despite the increase in working capital as we prepare for continued growth, we anticipate seeing the benefits in our cash flow in the coming quarters. At the same time, we are evaluating strategies to clean up our balance sheet and have hired third-party advisers to help us with that endeavor. We’ve been consistent in executing our plan quarter after quarter with sequential revenue growth and improving profitability.
This is the fourth consecutive quarter demonstrating positive adjusted EBITDA; and we are looking forward to building that momentum in quarters to come.
Victoria Rutherford
Operator, we will now open the call to questions.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question is coming from Andre Uddin of Research Capital.
Andre Uddin
Ken, a nice quarter. Just actually had a bit of a tough question for you. Maybe you could just share a little bit market intelligence that you may have on CSL hemophilia B gene therapy product. I was looking nicer appears to be on site for about $2 million pricing, something like that and which seems quite high. So just wondering what percentage of patients do you think would actually opt in for that? And do you think that would actually have any impact on Vinit? Any color there would be great.
Ken d’Entremont
Yes. Thanks, Andre. Thanks for the question. We’ve been watching it very closely, obviously. It’s in the market where we participate. We have close contact with physicians as well as patients, specialty pharmacies that deliver the drug. So we get a lot of feedback on what the potential might be. You pointed out that the price of the drug is extremely high. And so it would, therefore, be reserved for only the most severe patients. I think there’s a lot of patients that will end physicians who will wait and see. Only someone who is not being controlled might be considered a candidate initially until more experience is generated with the drug which is typical of drugs in the space where there’s a lot of caution because of historical issues with the products used in the space. It’s often no one wants to be the first one on.
Operator
Your next question is coming from Justin Keywood of Stifel.
Justin Keywood
Do you have any updates as far as timing for treosulfan? And has there been any change since the last quarter as far as your confidence in the resubmission process?
Ken d’Entremont
Justin, thanks for the question. I’ll deal with the second part first. No, no change in our confidence with respect to the approvability of the drug. It’s been approved everywhere else in the world, including Canada, where we manage the submission. So the drug is a needed advancement in this therapeutic area. So we still believe that very much will be approved eventually. In terms of the timing, we don’t know yet. And so we are in discussions with both the partner who is responsible and is a sponsor of the drug with the FDA and with the agency themselves to make sure that what we do put in will be sufficient for them to make a decision on the file.
Justin Keywood
Understood. And then obviously, the profitability of the business inflected in the quarter, was there any seasonal impact where we should expect some normalization for Q4?
Ken d’Entremont
As you know, there is some seasonality with respect to our revenue in Rupall and somewhat with nitens a small contributor. So some seasonality in the revenue. But that’s somewhat offset now by the addition of Gleolan which is coming on 100% in this quarter that we’re working on. So I would think that we’ll continue to have very strong revenue going forward. And the EBITDA number, as Marcel has said, we have consistently improved on our EBITDA number. And now we’re at a new level that we’re pleased with and may have some growth opportunities there.
Justin Keywood
And what is the peak sales target for Gleolan in both Canada and the U.S.?
Ken d’Entremont
Yes. We haven’t given any guidance on peak revenue but I can say that current revenue is in the USD 12 million to USD 16 million range. And it’s at the top end of that range now that we’ve had it for some time. And we think that we can significantly grow that. The use of fluorescence-guided reception for glioblastoma is about 50%, we think, in the U.S. relative to other developed markets. So we do believe there are some growth opportunities with respect to the product. We significantly increased both the sales and marketing initiatives on the product. And so we’ll be eager to see the drug respond to those efforts.
Operator
Your next question is coming from Rahul Sarugaser from Raymond James.
Rahul Sarugaser
Congratulations for the quarter — so quickly first, recognizing that SeaLand was 100% recognized this quarter. And as you mentioned, Ken, that CEO is close to the $16 million that you talked about in terms of revenue. Can you talk about how we should be thinking about now future growth, right? Because this is what drove the growth this quarter. And as we move forward, where should we be looking for exponential growth outside of Trio, of course.
Ken d’Entremont
Yes. Good question. So let’s start with Gleolan. We started to recognize the revenue in this past quarter but only for 1 month. That was September. This quarter, we’re working on, we’ll have all 3 months at 100% revenue. Historically, prior to booking the revenue ourselves and we were only booking about half of it. So Gleolan obviously, will grow significantly in terms of what we book for the drug in the U.S., plus the growth from the newly executed sales and marketing plan that will take time to really get traction but should start to bear some fruit sit.
IXINITY clearly is a significant growth driver. We’ve shown the substantial improvement year-over-year following us correcting the channel which was the right way to do. And so we do expect that drug to continue to grow strongly. Rupall has been growing strongly for many years, continues at a 25% clip even 5 years after launch. So I think the existing portfolio still has growth potential within it and then return to our product pipeline. Clearly, Treosulfan, it’s $100-plus million drug, if and when approved, Gleolan meningioma is a significant step-up in terms of the patient population that would be eligible for the drug and the extent pediatric population is a significant step up. If you think that obviously, hemophilia B is diagnosed in childhood, we’ve generated all the revenue we have today from product switches. We don’t get any new product starts. So clearly, with the pediatric indication, we’ll be seeking new product starts which will create an even stronger base of patients for that drug.
Rahul Sarugaser
Terrific. That’s very helpful. So my follow-up is, given your optimism around CO notwithstanding, given that you had ratcheted up your sales team and anticipation of Trio, now that has been deferred somewhat. Is there a way that you guys are looking at in terms of in the intermediate term, managing the cost profile we’ve seen SG&A escalate, of course, some of that has come with Gleolan. How should we be thinking about SG&A in the coming quarters, particularly as there’s some measure of uncertainty around Trio?
Ken d’Entremont
Yes. It’s a great question. So we’ve done 2 things. One, as you pointed out, we licensed Gleolan and applied a lot of the infrastructure that we had built for treosulfan has been applied to Gleolan. The second thing we did, as we mentioned in the script is that we did cut some of the costs related to Treosulfan. There’s a further delay, obviously. And therefore, we made the election that we would focus entirely on existing products as Treosulfan works its way through the regulatory process. You should think about the improvement or reduction in costs in the order of $1 million to $1.5 million per year.
Operator
Your next question is coming from Scott Henry of ROTH Capital Partners.
Scott Henry
A couple of questions. First, looking at the strength in the quarter, it appears that it was largely in the U.S. part of the business and your comments suggest that it was — at least the main part of it was IXINITY. First, do you think that’s a correct statement? And second, how should we think about IXINITY going forward sequentially? Was this a blowout quarter? Should it come down off this number? Or should it go up off this number? Just trying to get a sense of how we should relay this quarter going forward.
Ken d’Entremont
Yes. Thanks, No. Good question. First, the growth is not just IXINITY and Gleolan. So it’s not just U.S., it’s also Gopal. So Rupall continues to perform extremely well and makes a significant contribution. The Pall is one of our top 4 drugs in the entire company. So it’s partially Repel. Secondly, the way you should think about activity is we’ve talked a lot about patient demand. And it was tough to talk about it when we were doing the channel reset. But our patient demand even during that reset, continue to be extremely strong. So demand has always been there and is steadily increasing. So unfortunately, it wasn’t reflected in revenue for a few quarters but now it is. So there’s nothing unusual about the IXINITY revenue this quarter. This is just reflecting normal demand in the market.
Scott Henry
Okay. Then would you care to make any comments on what we should expect for the second half of the year? This $27.7 million revenue is a blowout number. Do you expect the second half of the year to be stronger or weaker or flat with the first half of the year?
Ken d’Entremont
Yes. So we’ve guided that we certainly expect to be over $100 million in revenue for the full year. The $277 million we did this quarter had some seasonality with respect to Repel but that’s offset now by Gleolan coming online and strong IXINITY and the sale revenue. So we would expect that we’ll continue to show sequential progress quarter-to-quarter through to the end of the year.
Scott Henry
Okay, great. And then final question. Just when I look at the balance sheet, I think you got — the current portion of the long-term debt is around $30 million. Could you just talk about that, how — what exactly is due and how we should think about that liability?
Ken d’Entremont
Yes. I’ll turn that one over to Marcel.
Marcel Konrad
Scott, I can take that. Yes, this is a good question on the shift from long term to short term. That is mainly due to the facility. We have in place $10 million term and $20 million, $25 million on the ABL side which is coming due now in — within the 12 months in July. So we know that calendar year 2020 is going to be pivotal for us to look at the balance sheet, you look at the liability side of the house. That is the first one which is coming due in September. In July, the facility. And then in October, our debentures will be due next year.
Scott Henry
Okay. So that $30 million is due in July and October?
Marcel Konrad
That $30 million is due to — in July, that’s purely related to the turbulent and Asia that is now classified as a short-term margin here.
Operator
Your next question is from Prasath Pandurangan from Bloom Burton.
Prasath Pandurangan
Congratulations on the quarter. First, could you talk about how the — how we should think about the gross margin once the product mix kind of stabilizes and are projecting for the MAD.
Ken d’Entremont
Yes. I’ll make a quick comment and turn that one over to Marcel as well. So gross margin, obviously, we’ve been very focused on IXINITY gross margin which when we took it, had a lower gross margin on the rest of the portfolio. So we have been working towards improving that and we are certainly seeing the benefit of that. It’s somewhat offset by Gleolan and I’ll let Marcel speak to that.
Marcel Konrad
Yes. If you look at our gross margin year-over-year, you see, obviously, on a year-to-date significant improvement versus last year. Even on a quarterly basis, now you see what I mentioned a 6 percentage point improvement quarter-over-quarter. A lot of that is driven by increased sales. Product mix is one of them. We now see Gleolan coming into the mix that will affect the gross margin. But I would say, overall, the exit improvement process will positively contribute to our gross margins going forward. So it will be always a bit of a mix of product sales increase in the sales level itself. And then as we go forward and talk about the product improvement initiatives that we’ll be talking more closely in the coming quarters about that.
Prasath Pandurangan
All right. And then secondly, can you talk a little bit more about the balance sheet optimization strategies that you’re exploring?
Ken d’Entremont
Again, I’ll make a quick comment and turn it over to Marcel. Obviously, we’re looking at those debentures. As you know, we have the option of paying them either in cash or shares at the company’s discretion, given where the markets are today. We want to have the ability to pay them in cash. And so we’re working towards that. And I’ll turn it over to Marcel to give you a little more color.
Marcel Konrad
Yes, is, as I mentioned before to Scott’s question on the facility now in the short term calendar year 2023 will be pivotal for us to look at the balance sheet side, the liability side of the house. As I mentioned in our — in the script that we’ve hired third-party advisers. So to help us through this pivotal period, we think we have a very, very good value proposition. We’ve come to an attractive profile, we’ve delivered 4 quarters of sequential positive EBITDA. We show good fundamentals. So we’re very excited about the next few quarters. And obviously, today, there’s nothing to say but obviously, any material update we will provide in the coming quarters.
Operator
[Operator Instructions] We appear to have no further questions in the queue. I will now hand back over to Ken for any closing remarks.
Ken d’Entremont
Well, great. Thank you very much. Thank you for joining us on the call today and thank you for the great questions. Our base business has demonstrated incredible strength which we believe will continue over the coming quarters. We are thrilled that Gleolan is now generating revenue in the U.S. which will continue to grow in the next quarter with December being that first full quarter that we recognized 100% of net sales as we continue to execute that commercial plan. We remain excited about all our opportunities within our product pipeline and we continue to work towards event in each of those.
So, we look forward to future strong quarters and thank you for your participation.
Operator
Thank you, ladies and gentlemen. This does conclude today’s conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
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