Meredith Corporation
Q3 2024 Earnings Call Transcript

Published: 8 Feb 2024

[Operator:]

Greetings, and welcome to the Medexus Third Fiscal Quarter 2024 Conference Call. [Operator Instructions] I will now turn the conference over to your host, Victoria Rutherford, Investor Relations. Victoria, you may begin.

[Victoria Rutherford:]

Thank you, and good morning, everyone. Welcome to the Medexus Pharmaceuticals Third Fiscal Quarter 2024 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, 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 income and 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 reconciliations to net income and loss, please refer to the company's MD&A, which along with the financial statement, is available on the company's website at www.medexus.com and on SEDAR www.sedar.ca.:]

[As a reminder, Medexus reports on the March 31 fiscal year basis, Medexus reports all financial results in U.S. dollars. I would now like to turn the call over to Ken d'Entremont.:]

[Kenneth d'Entremont:]

Thank you, Victoria, and thank you, everyone, for joining us on the call today. I'm going to start with some general comments before I dive into the usual financial and product highlights.

[Our third quarter results reflect yet another quarter of positive operating income and positive adjusted EBITDA. However, we believe the results also reflect certain changing business conditions affecting our operations, in particular, recent adverse trends in IXINITY demand and Rasuvo product level performance.:]

[In response, we have moved quickly to reduce costs, including a reduction in allocation of sales force resources to the products. We estimate that these cost reductions will reduce our go-forward operating expenses by approximately $4 million to $6 million on an annualized basis, which would help improve our results in fiscal Q4 and subsequent quarters.:]

[For IXINITY, we will seek to maintain existing demand, but reduce investments in IXINITY's growth. With the pediatric indication as a tailwind if and when approved, for Rasuvo, we will continue to defend receivables strong formulary status. We expect that our cost reduction initiative will establish a solid foundation to manage the future needs of the business and generate cash flows from operations. We look forward to increasing our focus on Gliolan as an institutionally based product that we believe will complement our commercialization activities for treosulfan if and when that product is approved.:]

[On treosulfan, we are pleased to report that the data collection phase of Medac's effort to respond to the FDA's information request on treosulfan is now complete. It will take time for Medac to process and submit the information as part of the NDA resubmission. The progress to date remains in line with our previous expectations for this to occur in the first half of calendar 2024.:]

[Now for our key financial highlights. Our fiscal Q3 '2t revenue of $25.2 million decreased from $28.7 million for the same period last year or a 12.3% decrease year-over-year. The $3.5 million decrease is mainly due to a decline in sales of IXINITY over the second and third fiscal quarters of 2024 and the accumulating effect of continued effective unit level price reductions for Rasuvo.:]

[Adjusted EBITDA of $3.2 million for the quarter was a decrease compared to $5.2 million for the same period last year. The $2 million year-over-year decrease is mainly due to the decrease in revenue I mentioned, offset in part by reductions in operating expenses in the third quarter of fiscal -- third quarter fiscal '24.:]

[We also produced a net loss of $0.5 million for the quarter, an improvement compared to a net loss of $1.5 million for the same period last year. The positive operating -- and positive operating income of $1.6 million, a decrease compared to $2.9 million for the same period last year.:]

[Turning to our specific products. IXINITY unit demand in the United States decreased by 5% over the 3- and 12-month periods ended December 31, 2023. Demand continues to reflect the effects of lower observed average quantities of IXINITY consumed by newer patients, together with lower apparent adherence by existing patients and other developments in the broader hemophilia B treatment solutions market.:]

[We now believe that these emerging trends are likely to persist and as such, we'll seek to maintain existing demand, but reduce investments in IXINITY's growth with the pediatric indication as a tailwind if and when approved.:]

[We continue to engage in constructive dialogue with the FDA on that supplemental biological license application, which the FDA accepted for review in June of 2023. We remain optimistic and expect to hear from the FDA with a decision in the first half of calendar year 2024.:]

[On Rasuvo, we maintained a market-leading position during the quarter as unit demand remained strong. However, competition continues to adversely affect Rasuvo product level revenue. We have also observed an increasing share of product level revenue attributable to government-sponsored programs, which benefit from statutory discounts and rebates with adverse effects on total product level revenue. We also now expect that additional statutory discounts and rebates anticipated under the U.S. Inflation Reduction Act will have an increased incrementally adverse effect on product level revenue going forward.:]

[Rupall unit demand in Canada remained strong during the quarter, which is reflected in the unit demand growth of 21% over the trailing 12-month period ended December 31, 2023. The strong performance reflects successful execution of our sales and marketing initiatives to sustain the product's strong performance over the 7 years since the product was launched in January 2017.:]

[We continue to see tropical terbinafine, which we licensed in March as a strategic fit with Rupall.:]

[Tropical terbinafine has been widely used in other markets to treat nail fungus infections. We made the -- we made a new drug submission in December of last year. And last month, we learned that Health Canada had accepted the NDS for review, which we view as consistent with our plans to target a commercial launch in the first half of calendar 2025. If and when approved, this product will enter a market that we estimate to be CAD 88 million on an annual basis.:]

[On Gliolan in the United States, we continue to execute our post-transition commercial plan. While it is too early to say for certain, we currently expect that product level revenue for fiscal years 2024 and 2025 would require additional royalty payments to the licensor in order to meet the minimum annual royalty obligations set out in our license agreement.:]

[Although Gliolan performance has remained lower than expected, unit demand has been growing moderately over the course of fiscal 2024, and we do intend to increase our focus on the product as an institutionally based product that we believe will complement our commercialization activities for treosulfan if and when that product is approved.:]

[Metoject unit demand in Canada has increased by 17% in the trailing 12-month period ended December 31, 2023, in spite of direct generic competition. We continue seeking to defend the product's strong market position as we continue to await the Federal Court's decision following the January 2023 trial in the patent litigation we initiated against Metoject's generic competitor in 2020.:]

[In sum, we continue to focus on maintaining stability of our base business and generating cash from operations, and we are confident that our quick moves to formulate and implement our recent cost reduction initiative will set the company up for success in the quarters to come.:]

[I'm now going to turn the call over to Marcel, who will discuss our financial results in more detail. Marcel?:]

[Marcel Konrad:]

All right. Thank you... Thank you, Ken. We are pleased to report our seventh consecutive quarter of positive operating income and ninth consecutive quarter of positive adjusted EBITDA. I'm also very happy with our accomplishments to settle the debentures in cash during the third quarter for fiscal year 2024.

[Turning to the fourth quarter results. Total revenue for the fiscal second -- third quarter was $25.2 million. The quarterly revenue number represents a decrease of EUR 3.5 million compared to EUR 28.7 million for the 3 months period ended December 31, 2022. As Ken mentioned, the EUR 3.5 million decrease in the third quarter 2024 revenues versus the prior year third quarter is primarily due to the decline in sales of IXINITY over the second and third fiscal quarter of 2024 and the accumulating effect of continued effective unit level price reductions for receivable.:]

[Gross profit was $12.5 million for the 3 months period ended December 31, 2023, compared to gross profit of $15.9 million for the same period last year. The gross margin was $50.4 million for the 3 months period ended December 31, 2023, compared to 55.4% for the 3 months period ended December 31, 2022.:]

[As we mentioned on last quarter's call, we continue to monitor this metric closely. This quarter's 5% year-over-year decrease in gross margin primarily reflects changes in the relative contribution of product level net sales -- more specifically, the effect of Gliolan sales in the United States before September 2022, declining exit sales over the second and third quarters of 2024 and the accumulating effect of continued effective unit level price reductions for receivable.:]

[Selling and administrative expenses were $10.7 million for the 3 months period ended December 31, 2023, compared to $11.9 million for the same period last year. The $1.2 million year-over-year decrease in SG&A was primarily attributable to targeted reductions in operating expenses. After period-end, we reduced our allocation of sales force resources to IXINITY and Rasuvo as part of the company's implementation of the cost reduction initiatives, which we expect to improve the contributions of those products to overall financial results.:]

[Research and development was $0.4 million for the 3 months period ended December 31, 2023. This compares to $0.7 million for the 3 months period ended December 31, 2022. Adjusted EBITDA was $3.2 million for the 3 months period ended December 31, 2023, a decrease of $2 million compared to $5.2 million for the 3 months period ended December 31, 2022.:]

[The decrease in adjusted EBITDA was primarily attributable to the year-over-year decrease in revenues in the quarter, offset by reductions in operating expenses in the third fiscal quarter 2024. The net loss for the 3 months period ended December 31, 2023, was $0.5 million compared to a net loss of $1.5 million for the same period last year. Adjusted net loss of $0.5 million for the 3 months period ended December 31, and December 31, 2023, an improvement of $0.4 million compared to an adjusted net loss of $0.9 million for the same period last year.:]

[Our cash position remains solid with cash and cash equivalents of $8.2 million at December 31, 2023. The primary factor in the net decrease in cash comparing to March 31 and September 30, 2023, to December 31, 2023, was the use was the use of cash to make the final maturity -- the final maturity date payment in respect to our convertible debentures in October 2023, offset, amongst other things, cash provided by operating activities of $5.5 million and $17.1 million for the 3 and 9 months period ended December 31, 2023.:]

[We also completed a bolder public offering in October for aggregate gross proceeds of CAD 11.5 million or CAD 10.8 million aggregate net proceeds before expenses. As always, there can be variability in our quarter-to-quarter results, but we look forward and are energized to continue to build the company and its portfolio in the coming quarters and beyond.:]

[Victoria Rutherford:]

Operator, we will now open the call to questions.

[Operator:]

[Operator Instructions] Your first question is coming from Andre Uddin of Research Capital.

[Andre Uddin:]

Kevin, Marcel. Just a bit of a long-winded question here. But if we look at the balancing of your debt repayments using your cash flow from operations with your ongoing business development. In terms of strategy, will you be more focused on in-licensing or will you look at some asset acquisitions? And are you seeing any interesting opportunities with either...

[Kenneth d'Entremont:]

Yes. Thanks for the question, Andre. So I think in answering the question, obviously, the biggest opportunities we have within are already within our portfolio. It's clearly treosulfan and terbinafine. In terms of additional business development, we're seeing lots of activity, smaller deals in Canada for smaller products that we could license and use little capital upfront. So certainly are doing those. We are seeing bigger deals, but our valuation, the way we're looking at it, we think we're pretty significantly undervalued, particularly with the treosulfan asset coming along in the pipeline. So not sure whether we'd be able to execute those deals at this stage.

[Andre Uddin:]

Okay. No, that's fair enough. And just in terms of IXINITY, is it primarily being affected by the gene therapy products and -- or is there some other factors that are impacting any -- can you just talk about that a little bit?

[Kenneth d'Entremont:]

Yes, sure, happy to. No. So gene therapy really is having no effect thus far on us, and I'm not sure it's having much effect on the hemophilia B market at all. I think the patient numbers are miniscule. So the broader trend continues to be extended half-life and standard half-life in those 2 categories, there certainly has been a shift, and it continues to a small degree, from standard to extended half-life products. And so that continues. And then the trend that we were been observing in the last couple of quarters is just lesser adherence by our core base of patients and it's probably more related to macro-economic issues than anything and that we're seeing that some patients are losing insurance coverages because they're losing jobs. And that obviously adversely affects us for a grade of time.

[Now that may well come back and we certainly hope it does, but we thought it more prudent to adjust our cost base now. And if that does happen, then obviously, that would be a nice upside for us in the future.:]

[Andre Uddin:]

Okay. And just you were talking a little bit about the treosulfan opportunity. Just one more question there. If everything is addressed with the CRL and let's say, the FDA is okay with everything that they see, and you are able to follow it within the first half of this year, when would you foresee seeing that product on the market potentially.

[Kenneth d'Entremont:]

Yes. So if everything appears to be on the time line that we had set out previously. So file in the first half of this calendar year. And so, we're looking for a decision in the last quarter of this calendar year.

[Andre Uddin:]

Okay. That's great.

[Operator:]

Your next question is coming from Rahul Sarugaser from Raymond James.

[Michael Freeman:]

This is Mike on for Rahul today. I'd like to get into Gliolan. You indicated that you would like to make further investments in its sales for, I guess, for a bunch of reasons. I'm curious what the -- if you could describe like what that capital deployment would -- might look like? And also related to Gliolan, you indicated in the press release that it's looking unlikely that you'll meet the minimum royalty requirements for 2024 and 2025. And I'm curious what implications that has for your business.

[Kenneth d'Entremont:]

Thanks, Michael. So I'll take the first part of that question and hand the royalty piece over to Marcel.

[So in terms of the execution -- commercial execution on Gliolan, the costs associated with that are already built into our business. And so we've taken down expenses on IXINITY, but maintained those -- maintain most of those expenses on Gliolan because we do believe that there is a growth opportunity in Gliolan, plus the fact that being institutionally based, that's where treosulfan would be launched if and when approved. So we think strategically, it makes good sense to continue our institutional effort and obviously, Gliolan is the product that we have in that space.:]

[Marcel, do you want to manage the royalty question?:]

[Marcel Konrad:]

Yes, sure, Michael. So the royalty per se that you -- as you may recall from previous calls, accrued already in our cost of goods sold and part of the prepared remarks, I explain sort of the drivers there on a quarter-over-quarter and year-over-year decline on our gross margin, which is other components in there. But essentially, that's all it is, which started to accrue put out and then obviously, we have to pay that royalty down the road there.

[Michael Freeman:]

Okay. All right. Now a quick one on IXINITY. Should the pediatric BLA come through, would you -- should we expect that, that could materially change the dynamic -- the sales dynamic of that drug given you would now have the capacity to get children on drug early and not be needing to face the dynamic of a need to change or shift adult patients from one drug to another.

[Kenneth d'Entremont:]

Yes. It's a great question. So I think the way to think about it is that over medium or long term, yes, it has an impact to affect the trajectory of the drug. In the short term, probably not very much. As new patients are diagnosed typically in childhood, they're quite small. So the dose they would take would be very small. So the financial benefit of adding those patients isn't very big. It's not until they get larger, use bigger doses over a longer period of time that it makes an impact. So we wouldn't expect to see an immediate effect. But over medium and longer term, certainly, it should have a positive impact.

[There may be some positive halo effect of the fact that we've now -- or we would expect to get the pediatric indication added to our label that puts us on equal footing with our competitors. So that may bring us some other business from adult patients, but we'll wait and see. We're obviously going to be promoting the fact that it has been approved when it does.:]

[Operator:]

Your next question is coming from Justin Keywood of Stifel. Justin?

[Justin Keywood:]

A lot of moving parts, as mentioned, are you able just to detail the run rate of the business expected on a revenue and adjusted EBITDA basis and if it's expected to be free cash flow generative.

[Kenneth d'Entremont:]

Yes, I'll flip that over to Marcel.

[Marcel Konrad:]

Yes. Thanks for the question. Yes. As you've seen from our quarter now versus previous quarter, we've seen a decline in sales. So we've generated positive adjusted EBITDA, specifically for the first and second quarter. So we've seen a bit of a dip. We've taken immediate actions to that. I think what we've -- what we've historically done is we've seen those changes in the business environment. We have reacted quickly. Now we'll be reacted on our costs and protect our bottom line on the EBITDA, which we should see the impact in the coming quarters.

[And then on the revenue side, as Ken mentioned, we have to observe some of those trends that are occurring now in our external business environment. And at this point, we're not giving any guidance obviously what's going happen going forward. But as we talked a little bit earlier on some of these trends may be temporary, others may not. So this is a little bit a hard estimate for us to say. But as we said, we took immediate action on the cost side to at the bottom line here.:]

[Justin Keywood:]

Understood. And just on the restructuring or onetime costs, are you able to detail that?

[Marcel Konrad:]

So, what we've said is what we basically took out sort of on an annualized basis $4 million to $6 million. You actually see already that if you look at our total operating expenses for Q2 over Q3, it's already coming down. So we basically quantify that sort of on an annual basis and with a sign of an impact, obviously, going forward that will help us to protect our bottom line there.

[Justin Keywood:]

Okay. And then just on treosulfan, if there's been any change in strategy just as far as the organization for the next submission, given it's the third attempt here and what gives you confidence of a successful outcome this time?

[Kenneth d'Entremont:]

Yes, it's still the first attempt. So this is still the same ongoing submission. It was one CRL, one resubmission. So no, no change in the strategy in terms of how we would commercialize. The opportunity continues to be large. We obviously have 18 months of experience now in Canada, and we are seeing the trends in Canada in that market and what works in terms of commercialization. And so no, I think the key thing is get the resubmission completed and get a decision date and if positive, execute commercialization plan that has probably only got better in the couple of years that we've been working on CRL.

[Justin Keywood:]

And just on the first half of this year timing, -- so the, I guess, item to be -- to watch out for is if the FDA accepts the resubmission for treosulfan? Is that what we should be looking out for?

[Kenneth d'Entremont:]

Yes, yes, correct. So we will clearly put that news out once the FDA has accepted the resubmission. So we would expect, as we said, that's sometime in the first half of this year, this calendar year.

[Operator:]

Your next question is coming from Stefan Quenneville from Echelon Capital Markets.

[Stefan Quenneville:]

Could we drill down a bit more on the pricing pressure you're seeing in the U.S.? The decline in the U.S. business implies teams pricing pressure on both, I guess, Rasuvo and [indiscernible]. Can you guys delve a little deeper into what's going on there?

[Kenneth d'Entremont:]

Yes, sure, happy to. So the pricing pressure is primarily on Rasuvo, being a reimbursed product and exposed to various payers. 2 dynamics happening there. One, we've seen unit volume actually increase meaningfully as a result of a methotrexate drug shortage, which has been a shortage kind of worldwide. We've seen that happen in many different markets. So we benefited from additional units coming into our book-to business. Unfortunately, though, those units are coming from vials, which tend to be the lowest cost, which tend to be patients who've got the lowest level of coverage, which is our smallest profit book of business. So we're getting these additional units, and it doesn't help that much.

[And then on the rest of the business, the rest of the commercial business continue to see price pressure in order to defend our market share. If you recall, we've got a better than 80% market share. So we've made it very clear that we're going to defend our share in order to keep those units. And so, in order to do so, at sometimes, it's meant adjusting the price to protect our business.:]

[Stefan Quenneville:]

Okay. And just on to the -- I guess, the path forward for IXINITY, is it fair to say like the language you're talking about here seems to imply that you don't view it really as a growth franchise for you going forward. Is that a reasonable way to look at it and you're looking to just sort of maintain your profitability with that product? Like what's the franchise strategy there?

[Kenneth d'Entremont:]

Yes, it's a great question. We spent a lot of time analyzing exactly that issue. What is the growth potential of this drug versus other products that have the portfolio or other products that we have in our pipeline. And so, I think the way we're thinking about it is that we've got a good, stable base of business for IXINITY. And most of our business is coming from a core group of patients, and we truly want to maintain those. The effort to get new patients is high, it's costly. And we're seeing those new patients coming in at a lower value. So obviously, the cost to obtain a new patient has been going up. And so, I think we've shifted our strategy to say, let's maintain our base. Let's take new products that might come along, but we're not going to spend heavily searching for those new patients.

[As the market changes and our position within the market improves if and when the product is approved for pediatrics, then we may get more patients, and that may come through more naturally. Obviously, we've got a group of patients who are using our product, a group of physicians who are familiar with our product, and we would expect to get some share. So we're no longer going to invest in the growth of the product, more interested in maintaining the good base of business that we do have and then investing in institutionally-based products, which is currently Gliolan -- and in the future, we hope is treosulfan.:]

[Stefan Quenneville:]

Okay. And let's sort of move to treosulfan as well. So the language in the press release, you talked about Medac having collected all the data acquired. Can you explain what that means? Are they -- they had to go through patient records. It was a long process. Have they successfully got all the patient information? Are there gaps in that data, they were unable to -- some percentage of patients that weren't able to collect the data that the FDA required? Or is it -- have they comprehensively been able to collect what was being asked for, I guess, by the FDA? Can you characterize that to some degree?

[Kenneth d'Entremont:]

To some degree, I think what I can say at this stage is that the data collection phase is over. And so they have successfully collected 570 of 570 patients. So it's 100%. So I think that was a very thorough job. I can't really comment on the analysis of the data that's being collected because that's ongoing. But I can say that the fact that we do expect to resubmit would suggest that we believe that the data is compelling enough to do the resubmission.

[Stefan Quenneville:]

Yes. And then just finally on Treo. Well, I have 2 questions, Phil. You're expecting a Class II review if the resubmission is accepted by the FDA. So a 6-month review process?

[Kenneth d'Entremont:]

That's our assumption. But as you know, it could be the other class, which would be a 2 month. And so, it's at the outside, it's Q4 of this calendar year for a decision if it's a 6-month review.

[Stefan Quenneville:]

Okay. And then just finally on Treo. In the markets where it's available, I understand it quickly become sort of standard of care. Can you characterize how quickly people, I guess, in more conservative markets, Canada and Europe have switched to Treo and how you expect that will occur in the U.S. if it is, in fact, launched later this year?

[Kenneth d'Entremont:]

There's a lot in that question. So let me try. The European market, obviously, is far more mature than the North American market. It's been in that market for quite a long time, ovarian cancer before being indicated for stem cell transplantation. So familiarity was quite high. And it has become standard of care in Europe, and there are physicians who have written that they're just not familiar with using the other drugs that they use Treo. The only market that we can really comment on that is a recent launch is our own market, which we launched it ourselves in Canada 18 months ago, and we're seeing very good uptake that would support the sales revenue that we've projected for the U.S. What we're seeing happen in Canada, if you translate that to the U.S., it would be very supportive of what we think is going to happen in the U.S.

[But I'll also point out that in Canada, even though we have really good performance, we don't yet have reimbursement -- so it's going to get better in Canada with reimbursement. And so, we're really pleased with the trajectory that the product has in Canada. If and when it gets approved in the U.S., we think that our sales projections that we've previously put out there would be [ reexible ].:]

[Stefan Quenneville:]

Okay. And just -- sorry, just to jump around a bit. On the cost cuts, can you guys give a sense of what the kind of the amount -- the onetime payment is going to be for those, I guess, the severance as well. Do you expect the cost cuts to more than sort of make up the EBITDA loss from the weakness in your U.S. product portfolio over the next 12 months?

[Kenneth d'Entremont:]

I'll turn that one over to Marcel.

[Marcel Konrad:]

Yes. I say one. No, we didn't disclose the reaction for the termination benefits. But of course, can assume we had to go through a very sort of a difficult exercise to reduce these costs, both on the headcount and the variable costs. And you already see the impact here a little bit in Q3, as I said. And as I mentioned before, we're really trying to be agile and flexible to our business environment to be able to react to that and get sort of back towards sort of previous levels as we have seen. But at this stage, early to say how much is cost cuts will be fluctuating relative to our revenue evolution going forward?

[Stefan Quenneville:]

Okay. And I know I've been hogging the call here, but one last question. Can you remind us of covenants, maybe surrounding EBITDA levels on the BMO facility and debt that we should be aware of?

[Marcel Konrad:]

Yes, we haven't disclosed in detail, but we're going to continue to service our debt. Obviously, you've seen with these cash flows we've been generating for this quarter, for example. So that is a continued focus to do so. And obviously, the cost cutting the -- protecting our bottom line will be help assuring that we continue to service our debt.

[Operator:]

Thank you very much. We have now reached the end of our question-and-answer session. I will now hand back over to Ken for any closing comments.

[Kenneth d'Entremont:]

I just want to thank everybody for joining us on the call today. We look forward to building upon and advancing the products in our portfolio and the pipeline and continue to deliver a strong performance over the rest of 2024 and beyond. Thanks very much.

[Operator:]

Thank you very much, everyone. That 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.