Medexus Pharmaceuticals Inc. (OTCQX:MEDXF) Q4 2022 Earnings Conference Call June 23, 2022 8:00 AM ET
Company Participants
Ken d’Entremont – Chief Executive Officer
Marcel Konrad – Chief Financial Officer
Victoria Rutherford – Investor Relations, Adelaide Capital
Conference Call Participants
Andre Uddin – Research Capital
Scott Henry – Roth Capital
Justin Keywood – Stifel
Prasath Pandurangan – Bloom Burton
Operator
Good morning ladies and gentlemen and welcome to the Medexus Pharmaceuticals fourth quarter 2022 earnings call.
At this time, all participants have been placed on a listen-only mode and the floor will be open for questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host, Ms. Victoria Rutherford. Victoria, the floor is yours.
Victoria Rutherford
Thank you and good morning everyone. Welcome to the Medexus Pharmaceuticals fourth quarter and fiscal year 2022 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 that is based on certain material factors or assumptions and is subject to risks and uncertainties that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information.
In addition, during the course of this call there may also be reference to certain non-IFRS financial measures or non-GAAP 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 more information about both forward-looking information and non-GAAP measures, including a reconciliation of each of adjusted 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 the company’s corporate filings on SEDAR at www.sedar.com.
I would now like to turn the call over to Ken d’Entremont.
Ken d’Entremont
Thank you Victoria, and thanks to everyone for joining us on the call today.
We continue to make progress on our growth objectives and are achieving several exciting initiatives that we believe will have a meaningful impact on our business going forward. During the fiscal fourth quarter that ended March 31, 2022, we achieved revenue of $20.3 million compared to $17.6 million in the same period last year, or 15% growth year-over-year. I am pleased to report that this represents the strongest fourth quarter at Medexus to date.
The $2.6 million increase is primarily attributable to an increase in the net sales of Ixinity during the quarter as pharmacy and wholesale customers returned to buying patterns better aligned with patient unit demand. Rupall and Rasuvo also had solid sales during the quarter.
Fourth quarter adjusted EBITDA increased to $1.1 million compared to negative $1.6 million for the same period last year. The $2.7 million increase is primarily attributable to the increase in net sales of Ixinity in the fourth quarter of ’22 and a $0.9 million expense related to a one-time destruction of Ixinity inventory in the fourth quarter of ’21.
We produced a net loss of $5.3 million for Q4 compared to a net loss of $10.5 million for the same period last year. Our adjusted net loss, which adjusts for unrealized losses or gains related to our convertible debentures included in net loss, was negative $4.6 million compared to negative $5.2 million for the same period last year. As at March 31, 2022, we had $10 million in cash and cash equivalents with $11.2 million in total available liquidity.
Overall, we were pleased to have achieved $76.7 million in revenue for the year, which compares to $79.7 million for fiscal ’21. The adjusted EBITDA for the year was negative $3.9 million in ’22 compared to positive $8.2 million last year.
Turning to our specific product lines, our core business remains strong. We are excited about new and potential additions to our product portfolio which we believe will generate growth momentum over the coming years. Unit demand for Ixinity continues to grow. During the fourth quarter of ’22, we saw sales normalize as pharmacy and wholesale customers have now worked through much of their accrued inventory and returned to buying patterns better aligned with patient unit demand.
We continue to invest in the manufacturing improvement initiatives and we expect the resulting operational efficiencies to ultimately improve the gross margins for Ixinity over the coming quarters. We are also continuing to invest in a Phase IV pediatric study that, if successful, will expand the Ixinity product label to include the pediatric population of patients under 12 years of age with hemophilia B. Medexus expects the analyst and clinical study report to be completed in the first quarter of ’23. Once completed, a successful study could support a significant expansion of the indicated patient population for Ixinity and we are exploring approaches to address this potentially expanded market.
Rupall continued to see strong unit demand growth, achieving 31% growth for the trailing 12 months ended March 31, 2022, continuing its trend as one of the fastest growing antihistamines in the Canadian prescription market. Again, this growth reflects a severe allergy season across Canada and a successful, sustained execution of our sales and marketing initiatives as physicians continue switching patients to Rupall from either generic prescription antihistamines or over-the-counter products.
Turning to Rasuvo, on a units sold basis, Rasuvo continues to maintain its strong market position and in fact increased its market share in the United States for the trailing 12 months ended March 31, 2022. However, increasing competition in the U.S. branded methotrexate market continued to negatively affect Rasuvo product level revenue. We implemented an effective unit level price reduction to defend the product’s market-leading position.
On Metoject, even with a generic entry in the Canadian methotrexate market in calendar 2020, Metoject saw unit demand increase in the trailing 12 months ended March 31, 2022. Again, product revenue was negatively impacted by a similarly motivated 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 calendar Q1 2023. We will continue to update shareholders on the material developments in this matter.
These existing products have primarily driven our performance to date. We also actively pursue opportunities to complement our existing portfolio by licensing and acquiring new products. For example, we recently acquired the exclusive rights to commercialize Gleolan in the United States and Canada. Gleolan is currently used as an optical imaging agent indicated in patients with glioma as an adjunct for the visualization of malignant tissue during surgery. We estimate Gleolan’s annualized revenue to be between $12 million and $16 million. We expect to complete the transition of full responsibility for commercialization of Gleolan in the United States from our partners at NXDC and begin recognizing full product revenue in fiscal Q2 2023. Our U.S. re-launch of Gleolan will complement our existing commercialization rights to Gleolan in Canada, where we executed a full commercial launch of Gleolan in February of 2021.
As we have discussed in the past, we continue to be excited about treosulfan. We expect that it will become a leading agent for the use and conditioning regimens as part of allogeneic hematopoietic stem cell transplantation protocols or, thankfully, allo-HSCT. This is a therapeutic area of strong strategic interest for us. We recently shared the results and analysis of the pivotal Phase III clinical trial of treosulfan conducted by our partner, medac.
We were very encouraged by these results and would like to point everyone to a presentation made by Dr. Filippo Milano, who reviewed the results of the pivotal study. Dr. Milano is a physician-scientist whose research is focused in the area of stem cell transplantation to treat blood cancers. You can view Dr. Milano’s presentation on our Investor Relations section of our website.
In June of 2021, we received a Notice of Compliance from Health Canada to commercialize treosulfan, which we currently market in Canada under the trade name, Trecondyv. We have now fully launched in the Canadian market and expect that the commercial experience we’re gaining in Canada will serve us well if and when the FDA approves treosulfan in the United States.
Our partners at medac continued to collect data requested by the FDA in May of 2022 to complete medac’s resubmission of their new drug application for treosulfan. The data collection process is progressing well and medac continues to expect to respond to the FDA’s information request in July of 2022, which would be well within the 12-month timeline required by the FDA’s complete response letter. A final FDA decision is expected two to six months after the FDA considers medac’s NDA resubmission to be complete.
If the FDA approves treosulfan, we will then be obliged to pay certain milestone payments to medac that would range anywhere between $15 million and $45 million, depending on the terms of the FDA’s approval. We continue to believe treosulfan could eventually overtake the current market-leading product in the U.S., busulfan, which realized $126 million in annual U.S. sales prior to generitization. In the meantime, we do not expect to make any additional milestone payments to medac until we have received FDA approval, and we are evaluating options to finance any milestones that may come due with a number of interested capital partners.
We also continue to regularly explore additional complementary product opportunities in both current and planned therapeutic areas 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 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 to work to increase revenue, develop and leverage our commercialization 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
Yes, thank you Ken. I’m also very pleased with our strongest fourth quarter at Medexus to date. Total revenue for fiscal fourth quarter was $20.3 million and for the full year was $76.7 million. This compares to revenue of $17.6 million and $79.7 million for the three and 12-month periods ended March 31, 2021. The $2.6 million increase in fourth fiscal quarter 2022 versus the prior year fourth quarter is primarily attributable to an increase in net sales of Ixinity, Rupall, and we saw initial Gleolan sales. Rasuvo continues its strong performance which is efficiently supported by a moderate allocation of sales personnel.
As a reminder, our product revenues can arrive from quarter to quarter based on the timing of large orders; for example, revenue for the third quarter of fiscal year 2022 benefited from a large late December order totaling approximately $2 million, which was originally anticipated to be received in the fourth quarter of fiscal 2022.
Gross profit was $10.1 million and $37.9 million for the three and 12-month periods ended March 31, 2022 respectively compared to gross profit of $8.8 million and $42 million for the same periods last year. The gross margin was 49.8% and 49.4% for the three and 12-month periods ending March 31, 2022 respectively compared to 50% and 52.7% for the three and 12-month periods ended March 31, 2021. Full year 2022 gross profit includes a $1.9 million charge in cost of goods sold compared to fiscal year 2021 cost for additional expenses related to the Ixinity manufacturing process. Without that additional expense, the gross margin for the full year this year is more in line with the gross margin for full year 2021.
We’ve undertaken an initiative to improve the Ixinity manufacturing process and continue to invest in this initiative, which remains ongoing. Preliminary results for this initiative have been encouraging, indeed indicating improved yields.
Selling and administrative expenses were $9.9 million and $44 million for the three and 12-month periods ended March 31, 2022 compared to $10.3 million and $36.2 million for the three and 12-month periods ended March 31, 2021. The full year increase was primarily attributable to Medexus’ significant investment in personnel and infrastructure to support its anticipated future growth, including continued essential preparation for a potential commercial launch of treosulfan in the United States.
Research and development was $0.8 million and $5.9 million for the three and 12-month periods ended March 31, 2022. This compares to $2 million and $4.6 million for the three and 12-months periods ended March 31, 2021. As mentioned, we continue to fund the Ixinity pediatric study for which we expect in the calendar year quarter 2023 to complete the analysis and clinical study report as well as our ongoing Ixinity manufacturing process improvement initiative.
Adjusted EBITDA for the three and 12-month periods ended March 31, 2022 was positive $1.1 million and negative $3.9 million compared to negative $1.6 million and positive $8.2 million for the three and 12-month periods ended March 31, 2021. Ixinity sales have now normalized and the increase in adjusted EBITDA in fiscal year Q4 2022 compared with the same period last year is primarily attributable to the increase in net sales of Ixinity in the fourth quarter 2022, as well as a $0.9 million expense related to a one-time destruction of Ixinity inventory in the comparative period.
Net loss for the three and 12-month periods ended March 31, 2022 was $5.3 million and $2.9 million compared to a net loss of $10.5 million and $28.3 million for the same period last year. The net loss includes an impairment charge of intangible assets of $1.7 million. Most of that impairment is related to Metoject based on our year-end assessment of the impact of [indiscernible] generic entry. This has resulted in a revised forecast and discount rate. We and medac intend to continue taking all appropriate steps to enforce intellectual property rights on medac’s relevant Canadian patent rights. We initiated a patent litigation against [indiscernible] in 2020 and a trial date has been set for the beginning of calendar year 2023.
Also included in net income or loss is a non-cash unrealized gain or loss on fair value of embedded derivatives in our outstanding [indiscernible] debentures which are sensitive to, amongst other fluctuations, our share price. We believe that adjusted net income or loss provides a better representation of performance of our operations because it excludes non-cash fair value adjustments on liabilities which may be settled for shares. Our adjusted net loss for the three and 12-month periods ended March 31, 2022 was negative $4.6 million and negative $24 million compared to negative $5.2 million and negative $7.6 million for the three and 12-months periods ended March 31, 2021.
Cash and cash equivalents was $10 million at March 31, 2022, reflecting an increase of $0.4 million during the fourth quarter and a decrease of $8.7 million over the entire fiscal 2022. Our available liquidity was $11.2 million at March 31, 2022 which consisted of $10 million in cash and cash equivalents and undrawn credit of $1.2 million available under our ABM facility.
We’re pleased with our quarterly performance and continually exploring various financing strategies to enhance our liquidity to support our execution of our business plans, which includes the eventual launch of treosulfan in the United States. We’re exploring various options to bolster our liquidity both pre and post [indiscernible], including to fund any milestone payments announced that may become payable as a result of the FDA decision. As mentioned during previous earnings results, no further milestone payments will be owed to medac unless and until the FDA approval of treosulfan is obtained. Furthermore, we want to reiterate to investors that we do not expect [indiscernible] for treosulfan to result in any default on our credit facility.
Victoria Rutherford
Operator, we will now open the call to questions.
Question-and-Answer Session
Operator
[Operator instructions]
Thank you. Your first question is coming from Andre Uddin of Research Capital. Andre, please ask your question.
Andre Uddin
Hi Ken and Marcel. Just was wondering if you could discuss your marketing plans for Gleolan in the U.S., and also when would you start booking revenues – is that going to be fiscal Q2 of 2023? Thanks.
Ken d’Entremont
Hi Andre, thanks for the question. The plan for Gleolan is to utilize a lot of the infrastructure we’d already built for treosulfan. There is pretty significant overlap of institutions that do both stem cell transplantation and glioblastoma resection, so there’s a good overlap there at key oncology centers. We’re using infrastructure we’ve already built for treosulfan. We will add sales representatives – in fact, we’re going to double the number that NXDC had and that will happen when we start to commercialize our own product, which is the point at which we would book full revenue.
The quarter we just reported, Gleolan really had a small impact – it was only one month and half of the product revenue, so going forward we’ll be booking–going forward from August, we expect to book full product revenue and we do expect to grow the product with the re-launch of the brand and the extra selling resources.
Andre Uddin
Can you also give us a bit of an update on the competitive landscape of Ixinity, and also how you expect that to grow this year? Thanks.
Ken d’Entremont
Yes, so the growth that you’re seeing in the quarter now is both from patient demand and correcting the channel, I think a lot of it due to correcting the channel. As we discussed previously, we’re largely done with that. Going forward, we do expect to see some competition from gene therapy late this year, but again it’s uncertain as to what impact that will have.
As you probably know, gene therapy is expected to be extremely expensive, therefore would only really be targeting the most severe patients, so we don’t expect to lose a significant number of patients but we may lose some high volume patients. The sales team has been doing a great job at adding new patients, so growing demand through the addition of new patients, and their task has gotten a lot easier obviously as things start to open up post COVID.
Andre Uddin
Great. Just one more thing, actually. Could you talk a little bit about in terms of the pricing needs, where you mentioned something on the call about Rasuvo, how much did the price actually drop this quarter?
Ken d’Entremont
I’ll speak to the strategy behind that and then let Marcel speak to the numbers.
The strategy, clearly we are the market leader. We’ve got the strongest unit sales base so we will defend that base, and usually that means that if a competitive threat comes, we will make sure that we hang onto any contractual business by adjusting price.
Marcel Konrad
Yes, so in terms of Rasuvo’s performance for this quarter, we’re seeing at this point a pretty steady–it’s a strong performance quarter and that is anticipated to go forward. Obviously going forward, we will see an impact on pricing that we’re trying to offset as much as we can through other initiatives, but this is a product for the quarter, at least, that has been quite steady compared to other quarters for Q4.
Andre Uddin
Great, thank you.
Operator
Thank you. Your next question is coming from Scott Henry of Roth Capital. Scott, please ask your question.
Scott Henry
Thank you and good morning. Just a couple questions. First on Gleolan in the U.S., can you talk about the economics for that product in the U.S., how we should think about how much of the profit you will keep, and the royalties paid out, will that run through the cost of goods sold or will that be in the SG&A?
Ken d’Entremont
Yes, thanks for the question, Scott. Gleolan, we’ve said previously current revenue is between US $12 million and $16 million – it’s at the higher end of that range, as we’re finding out now, and we think we can grow that. The penetration of Gleolan into the U.S. market is much less than other developed markets, primarily in Europe, so we think there’s good potential to grow it. The economics, the way it’s working currently is we’re currently booking about half of the product revenue now. When we take over the distribution in August, we’ll book 100% of the product revenue and the economics back to the licensor – it’s about 50%, and it’ll go back through cost of goods.
Scott Henry
Now, is that 50% of profits or 50% of revenues?
Ken d’Entremont
Fifty percent of revenues.
Scott Henry
Okay, okay. Great, thank you.
Then when you think about fiscal 2023, obviously revenues will get a bolus from Gleolan. How should we think about the rest of your business? Do you expect continued strong growth in 2023? Just trying to get a sense of what your expectations are looking out the next year.
Ken d’Entremont
Yes, I think it varies product by product, so Ixinity, I think we return to more historical revenues with some growth built in, so product demand, patient demand is increasing but we also, remember, had those two or three quarters where we were correcting the channel, so that’s behind us, so we’re going to show pretty strong growth in Ixinity as a result of those two factors.
Rasuvo and Metoject, I’d say would be more or less steady. They’re mature, we’ve got very strong market positions with those products, so we’re looking to maintain those. Rupall, I think we showed again another really strong quarter of 31% growth for Rupall many years after launch, so we would expect that to continue as well, and then we’ve added Gleolan and we do expect to grow Gleolan. We will be doubling the sales resources on Gleolan that it’s had historically, so we think there is good potential in Gleolan.
Scott Henry
Okay, great. A final question, then – on treosulfan, do we know that it’s a six-month review or will they tell you that after they accept the filing? Is that firm?
Ken d’Entremont
Yes, they will tell us within 30 days after accepting the resubmission, and the timeline can be either two months or six months. We’ve been assuming six months, but it could be a surprise to the upside.
Scott Henry
Okay, great. Thank you for the color and thank you for taking the questions.
Ken d’Entremont
Thanks Scott.
Operator
Your next question is coming from Justin Keywood of Stifel. Justin, over to you.
Justin Keywood
Good morning. Thanks for taking my call.
I was just hoping to clarify the timeline for treosulfan and to build on the prior question. If I understand correctly, if the submission is for the end of July, will the FDA communicate the review timeline at the end of August? Is that how to think of it?
Ken d’Entremont
Thanks for the question, Justin. Yes, so certainly we’ll get it in by the–we expect that medac will get it in by the end of July and then the FDA has 30 days to communicate the review period, so we certainly expect that at some point during August, we will know the timeline to a decision point.
Justin Keywood
And is there any risk that that process can be disrupted if there a request for additional data or some other items?
Ken d’Entremont
Yes, I think that risk always exists. There have been many data requests that have gone back and forth. Many had been satisfied prior to this resubmission, so we’re really down to what we think is three, two of which were very straightforward, one of which required some data collection which is ongoing, which we think will be completed soon. There is always the risk that they could ask for something else or more information, or a recalculation of something, so that risk exists but we’ve been through the process many times with them now, so we hope that we’re starting to narrow down the questions.
Justin Keywood
Okay, thanks. Those were my questions.
Ken d’Entremont
Thanks Justin.
Operator
Your next question is coming from Prasath Pandurangan of Bloom Burton. Prasath, over to you.
Prasath Pandurangan
Hi, good morning. I have just the one. How do you think about potential capital raising options as we get closer to a milestone payment in terms of your equity raise or asset sales? Could you elaborate on that?
Ken d’Entremont
Yes, thanks Prasath, that’s a good question. Obviously when we were moving towards the original PDUFA date, we had been working on raising capital for the milestone payment. The preference at that point was debt – we had pretty much organized a good debt provider that would allow us to take care of that. We’re thinking of all options now. Obviously equity markets are awful, so that option certainly isn’t preferred. There’s always a debt option, there’s always option on even selling current assets, so I think we’ve got many different options to deal with that. We also have the option of deferring some of those payments, so we’re working with medac all the time just to make sure that we have an optimal launch. Our preference would be to use our capital, our cash to execute an excellent launch, which would be in line with medac’s desires.
Prasath Pandurangan
Thank you.
Operator
Ladies and gentlemen, as a reminder, if you wish to ask any questions or you have comments, please press star, one on your handset at this time.
There appear to be no further questions in the queue. I’ll now hand back over to Victoria.
Ken d’Entremont
I think Victoria’s actually going to hand it over to me. I just want to thank everybody for joining us on the call today. Our base business demonstrated incredible strength with Ixinity sales normalized, strong performance out of Rasuvo and Rupall, and sales beginning to benefit from another severe allergy season. On top of this, we expect to begin recognizing revenue from Gleolan in the U.S. partway through fiscal Q2 and fully in fiscal Q3. This is a drug that we estimate generated $3 million to $4 million in revenue in the last full quarter before we licensed the product. For treosulfan, our partner medac’s collection of the recently requested data by the FDA is progressing well and we are confident that we’ll see an FDA resubmission in July, so we’re looking forward to a very strong 2023 and look forward to updating investors.
Thanks very much for joining the call today.
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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