Meredith Corporation
Q1 2022 Earnings Call Transcript

Published: 17 Aug 2021

[Operator:]

Good day, ladies and gentlemen, and welcome to the Medexus Pharmaceuticals First Quarter Fiscal 2022 Earnings Call. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Tina Byers. Ma'am, the floor is yours.

[Tina Byers:]

Thank you, and good morning, everyone. Welcome to the Medexus Pharmaceuticals' First Quarter Fiscal 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 [phone].

[I would like to remind everyone that this discussion will include forward-looking information that is based on certain assumptions which Medexus believes to be reasonable in the circumstances, but 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.:]

[Forward-looking information provided in this call speaks only as of the date of this call and is based on the plans, beliefs, estimates, projections, expectations, opinions and assumptions of management as of today's date. There can be no assurance that forward-looking information will prove to be accurate, and you should not place undue reliance on forward-looking information.:]

[Medexus disclaims any obligation to update any forward-looking information or to explain any material difference between subsequent actual events and such forward-looking information, except as required by applicable law.:]

[In addition, during the course of this call, there may be references to certain non-IFRS financial 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 information about both forward-looking information and non-IFRS financial measures, including a reconciliation of each of 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 the company's corporate filings on SEDAR at www.sedar.com.:]

[I would also like to remind everyone that during the year-end March 31, 2021, the company changed its presentation currency to U.S. dollars from Canadian dollars. This change was applied retroactively and the company has restated the comparative financial information in its unaudited condensed interim consolidated financial statements for the 3-month period ended June 30, 2021, as if the presentation currency had always been in U.S. dollars.:]

[I would now like to turn the call over to Ken d'Entremont to discuss the first quarter.:]

[Kenneth d'Entremont:]

Thank you, Tina, and thanks, everyone, for joining us on this call today. Let me start by saying we're encouraged by the demand we're seeing for our key products. And despite some setbacks we have recently faced, we feel confident we are making progress in implementing the right strategy to return to significant growth. In the first quarter of fiscal 2022, we achieved revenue of $17.3 million for the 3-month period ending June 30, 2021, compared to $20 million for the 3-month period ending June 30, 2020.

[The decrease in net sales was due to a temporary decline in the ex factory sales of IXINITY, as pharmacy and wholesaler customers continue to work through inventory on hand. However, it is important to note that patient unit demand for IXINITY increased by 25.3% to 7.6 million international units compared to the 3-month period ending June 30, 2020, which we believe reflects the success of our commercial efforts and should be more apparent in both ex factory sales and gross margin in our future results.:]

[Our adjusted EBITDA decreased to negative $4.9 million compared to $3.6 million for the same period last year, due primarily to the decrease in net sales, the impact of the manufacturing expense related to IXINITY, an increase in research and development costs over the comparative period due to the ramp-up in the IXINITY pediatric trial and the investments we made related to the commercialization of Treosulfan, which we will discuss later on the call.:]

[Cash used by operations was $6.8 million compared to cash provided by operating activities of $3 million for the same period last year. Our net loss was $6.6 million compared to $3.2 million [sic] ( $3.4 million ) for the same period last year. Cash used by operating activities are due to lower revenue, reduction in our accounts payable balances and spend related to the launch of Treosulfan in the U.S. This period also included a $5 million milestone payment to Medac for the Treosulfan license. There are no additional milestone payments until approval of the drug by the FDA. Our adjusted net loss, which adjusts for such unrealized losses or gains on the fair value of derivatives, was $9.8 million compared to $0.8 million for the same period last year. As of June 30, 2021, we had $10.7 million of available liquidity.:]

[Turning to our specific product lines. We continue to see strong demand for our core product -- portfolio of products. Our commercial hematology product, IXINITY, is an FDA-approved intravenous recombinant factor IX therapeutic for use in patients 12 years of age or older with hemophilia B, a hereditary bleeding disorder characterized by a deficiency in quality factor IX in the blood, which is necessary to control bleeding. The hemophilia B market size in the United States alone is estimated to be in excess of USD 1 billion and continues to grow.:]

[As I mentioned earlier, we continue to see pressure on IXINITY ex factory sales due to a high level of product in the distribution channel. We believe we are making progress in normalizing the distribution channel and are quite encouraged by the growing demand. In fact, unit demand for IXINITY increased 25% during the quarter, and we saw the strongest demand ever during the month of June.:]

[We believe that we are in -- that in the longer term, this will have a significant net benefit in our revenues and margins as we implement supply chain improvements. We expect full implementation of these changes will take another quarter or 2. We also continue to enroll patients in the ongoing Phase IV clinical trial to evaluate the safety and efficacy of IXINITY in previously treated patients under 12 years of age with hemophilia B. We were pleased to announce last week that enrollment is now complete.:]

[We expect the trial to be complete in June of 2022, with the full data set to be submitted to the FDA by the end of 2022. Once completed, the study may support a significant expansion of the indicated patient population for IXINITY as approximately 1 in 3 patients treated with hemophilia -- for hemophilia B in the United States are 12 years of age or older -- or younger, excuse me. Further to this, we would expect the completion of the trial to significantly decrease our research and development costs, which have been higher than normal over the last few quarters primarily due to this trial.:]

[Turning to Rasuvo, a once-weekly subcutaneous single-dose auto-injector of methotrexate indicated for the treatment of rheumatoid arthritis, psoriasis and juvenile idiopathic arthritis. Unit demand in the United States has remained steady in the trailing 12 months, ended June 30, 2021, and continues to reflect strong payer, prescriber and patient acceptance. We believe we will maintain a strong position with the methotrexate auto-injector segment.:]

[Metoject unit market demand in Canada also remained steady in the trailing 12 months ended June 30, 2021. Metoject is a prefilled syringe of methotrexate, which is indicated for the treatment of rheumatoid arthritis and psoriasis. Metoject is a highly effective and cost-efficient treatment for these debilitating diseases. Public reimbursement creates access for a large group of patients who previously could not get the product. In the past year, we responded to a competitive threat to Metoject from a generic entry with a commercial response to protect its market share and illegal actions within the product's IP.:]

[On August 28, 2020, with Medac GmbH, we jointly filed a statement of claim against [ Core Healthcare Inc. ] regarding the launch of [ ViaCord ] on the generic version of Metoject in the Canadian market. The trial date has been set for the beginning of 2023.:]

[Rupall saw unit demand growth of 44% for the trailing 12 months ended June 30, 2021, which reflects further acceleration compared to unit demand growth of 35.7% seen for the trailing 12 months ended March 31, 2021. This was partially due to a strong allergy season across Canada and further market share gains by the brand. Rupall is one of the fastest-growing antihistamines in the Canadian prescription market. We expect Rupall to be a leading prescription antihistamine in a total market valued at approximately $135 million, including $68.7 million from the prescription market, which is growing at an annual rate of 20.9%. During the trailing 12-month period ended June 30, 2021, Rupall was one of the fastest-growing antihistamines in the Canadian prescription market.:]

[During year ending March 31, 2021, the company entered into an exclusive license to commercialize Treosulfan in the United States. Treosulfan is an innovative orphan-designated agent developed for use as part of the conditioning treatment in combination with fludarabine as a preparative regimen for patients undergoing allogeneic hematopoietic stem cell transplantation, or allo-HSCT.:]

[On August 2, 2021, the company received notice from Medac, Medexus' licensor of Treosulfan, that it had received a complete response letter, or CRL, from the U.S. Food and Drug Administration with respect to the new drug application, or NDA, for the use of Treosulfan in the United States. Via the CRL, the FDA has determined that it cannot approve the NDA in its present form. The FDA has, however, provided recommendations for how to address what they see as the outstanding issues, primarily around the provision of additional clinical and statistical analysis pertaining to the primary endpoint of the completed pivotal Phase III study.:]

[These recommendations are already covered by Medac's existing development plan for Treosulfan, which Medac is contractually responsible to execute and fund. The company, together with Medac, will move forward with the FDA to meet the agency's request. It is our belief that the CRL provides a path to review and approve and does not require additional clinical studies provided we can satisfy the FDA's data requirements and post-marketing commitments, which we are hopeful can be done with the already available data from the existing completed Phase III study and the current development plan. The window for the CRL response is 12 months, and we believe we can submit well within that window.:]

[While we have not yet had any direct discussions with the FDA following the receipt of the CRL, we are in dialogue with Medac and we continue to have a high degree of confidence that Treosulfan will ultimately be approved for distribution in the United States, albeit on a delayed time line. In fact, no regulatory authority thus far has denied approval of Treosulfan. Additionally, the fact that the FDA had granted Medac orphan drug designation in 2015 highlights the significant need for this drug in the United States.:]

[We continue to believe Treosulfan could eventually overtake the current market-leading product busulfan, which realized $126 million in U.S. sales prior to genericization. We believe the investments we have made in this product to date will support the eventual launch of the product.:]

[In the meantime, because of the way we structured the agreement, most of the consideration for the U.S. license is based on future milestones, and we are not required to make any additional milestone payments to Medac until we have received FDA approval. I also want to point out that we had not yet hired additional sales representatives for Treosulfan. And we reallocated certain new hires to help drive IXINITY growth.:]

[On August 5, 2021, we held a webinar to discuss the complete response letter in full detail, and I would encourage anyone that has not already done so, to take a moment and listen to the webinar, which can be viewed on the media site of our website. We remain highly encouraged by the prospects for Treosulfan and are fully committed to working with the FDA to bring this product to market in a short time frame as possible, and we will be informing investors of our progress along the way.:]

[On a related note, on June 28, 2021, we received a notice of compliance from Health Canada to commercialize Treosulfan in Canada under the trade name, Trecondi. And on July 12, 2021, we entered into an exclusive license with Medac to commercialize Treosulfan in Canada. Previously, we had been distributing Treosulfan in Canada only under the special access program pursuant to the authorization received in March of 2019.:]

[In addition to our current product portfolio, we also have a right of first refusal on certain specified products of Medac, that Medac wishes to commercialize for use in the United States or Canada during the term of the Medexus' U.S. supply agreement. We believe there are several of these products that represent an attractive commercial opportunity in North America, and we are in the process of assessing and the licensing of these drugs. We are also in discussions with several partners regarding other licensing agreements and we believe that those products will have the potential to materially contribute to revenue within the next few years.:]

[We believe that a key aspect of our growth strategy will continue to let -- will be to continue to leverage and grow our infrastructure through the acquisition and partnership of new products. We are exploring a large number of opportunities, including several products in negotiation phase in both the U.S. and Canada. We will continue to look at optimizing our product portfolio and leveraging our resources, with the goal of executing near-term accretive transactions to achieve our sales growth targets over the coming years.:]

[As we continue to build out our U.S. platform, we are pleased to appoint Marcel Konrad as our new Chief Financial Officer. Marcel brings over 20 years of experience in accounting, finance and business across various global markets, including the United States. He joins us from CareDx, Inc., a NASDAQ-listed precision medicine solutions company where he served as a Senior Vice President of Finance Accounting and Vice President, Corporate Controller since 2018, including a period of acting CFO in early 2021. Marcel's experience will undoubtedly be valuable for our company as the U.S. becomes an increasingly larger focus for our business.:]

[In summary, we believe we have built a highly scalable business model, which should provide significant incremental earnings potential. We remain focused on resuming and accelerating our strong historic revenue growth, leveraging our North American sales force across products, realizing synergies of the combined entities and maintaining strict financial discipline.:]

[With the available liquidity at the end of the first quarter, we're in a good position to execute our business plan, including the launch of several new products. I will now turn the call over to Marcel, who will discuss the financial results in more detail. Marcel?:]

[Marcel Konrad:]

Yes. All right. Thanks, Ken. As Ken mentioned, total revenue for the first quarter was $17.3 million compared to revenue of $20 million for the 3 months period ended June 30, 2020. The decrease in net sales was due to a temporary decline in ex factory sales of IXINITY, as pharmacy and wholesale customer continued to work through inventory on hand.

[Patient unit demand for IXINITY increased 25.3% versus prior year quarter to 7.6 million IUs, which we believe reflects the company's successful commercial efforts. It is worthwhile to reemphasize that this decrease in IXINITY sales was partially offset by strong Rupall sales.:]

[Gross profit was $6.9 million for the 3 months period ended June 30, 2021, compared to gross profit of $10.9 million for the 3 months period ended June 30, 2020. Gross profit for the 3 months period ended June 30, 2021 has been impacted by $2.5 million increase in cost of goods, the provisions related to failures during the manufacturing process. During the period ended June 30, 2021, the company began implementing improvements to this process in an effort to minimize the risk of future manufacturing failures and improve future yields.:]

[The gross margin was 40.1% for the 3-month period ended June 30, 2021, compared to 54.5% for the 3 months period ended June 30, 2020. The lower gross margin for the current period was a direct result of the manufacturing expense related to IXINITY. Normalized for this $2.5 million impact, the gross margin would have been in line with prior year quarter of 54.6%.:]

[Selling and administrative expenses were $11.7 million for the 3 months period ended June 30, 2021, compared to $8.3 million for the 3 months period ended June 30, 2020. Our selling and administrative expenses for the first quarter increased over the same period last year as we invested heavily in personnel and infrastructure to support our anticipated growth going forward, including preparation for the commercial launch of Treosulfan.:]

[Research and development costs were $2.2 million for the 3 months period ended June 30, 2021, compared to $0.6 million for the 3 months period ended June 30, 2020 as we continue to accelerate the IXINITY pediatric study. As Ken mentioned, when the last patients are enrolled, we would anticipate R&D costs decrease after the final dosing projected to be June 2020.:]

[We have $10.7 million available liquidity at June 30, 2021, which consisted of $10.2 million in cash and cash equivalents and an undrawn credit of $0.5 million available under our ABL facility. We continue to look for nondilutive financing and are exploring various options. However, as Ken mentioned, no further milestone payments will be brought to Medac unless and until FDA approval is needed. Furthermore, we want to reiterate that we do not expect that the CRL for Treosulfan to result in any default on our credit facility. We continue to monitor carefully our current and future liquidity balances in the wake of the CRL for Treosulfan.:]

[Cash used by operating activities was $6.8 million compared to cash provided by operating activities of $3 million for the same period last year. As Ken mentioned, cash used by operating activities are higher due to lower revenue reduction of our accounts payable balances and spend related to the launch of Treosulfan in the U.S. There are no additional milestone payments due until approval of the drug by the FDA. The period also included a $5 million milestone payment to Medac for the Treosulfan license.:]

[Our adjusted EBITDA decreased to minus $4.9 million compared to $3.6 million for the same period last year due to primarily the decrease in net sales, the impact of the IXINITY manufacturing expense, the large increase in research and development costs over the comparative period and obviously, again, the investments related to Treosulfan.:]

[Our net loss was $6.6 million compared to $3.2 million for the same period last year. This included a noncash unrealized gain of $3.2 million in the current period on the fair value of the embedded derivatives on our convertible debentures, which was driven by a decrease in our share price at the end of applicable period.:]

[Our adjusted net loss, which adjusted for such annualized losses or gains on the fair value of the derivatives, was $9.8 million compared to $0.8 million for the same period last year.:]

[Kenneth d'Entremont:]

Thanks, Marcel. We're now going to open it for questions.

[Operator:]

[Operator Instructions] Our first question comes from Justin Keywood.

[Justin Keywood:]

So there was, obviously, a few moving items in the expense line. And some of these items seem onetime in nature or just related ahead of the PDUFA date. Are you able just to give us a sense of the cost structure going forward for the base business and when we could see the return of profitability?

[Kenneth d'Entremont:]

Yes. Thanks, Justin. I'll make a couple of comments then turn it over to Marcel to fill in any gaps. Obviously, there's a lot of spending related to Treosulfan ramp up, expecting approval and then subsequent marketing in September-October time frame. So we were spending significantly to get prepared for that. Obviously, a lot of that will go away. We do have some people that we had hired mainly in medical, MSLs and the medical senior leadership. And so those people will help us with IXINITY, because obviously, we've got a good opportunity to grow that brand, and the skills they have certainly will help us there.

[So a lot of the spending will go away. We're focused now back to the core portfolio, which was reported to be USD 80 million last year, so we're focused on that portfolio and returning that to growth. So I think over the next quarter or 2, the expenses will come down pretty significantly. And then when the pediatric trial stops, which is really going to be June of 2022, then that R&D line drops pretty drastically.:]

[Marcel, is there anything else that you'd like to add?:]

[Marcel Konrad:]

Yes. No, Ken, I just -- I want to reemphasize that the strong fundamentals, obviously, of the business are still there. We have certain costs now recurred there. As you mentioned, there were onetime Q1 and, obviously, with the Treosulfan sort of delay that we're looking at the shift mix model of our business and recurring is definitely less expensive. We've got, obviously, the revenue not coming in and this is the projection for the next quarters as we build that now going forward there.

[Justin Keywood:]

Okay. Are you able to characterize the onetime like expenses in the quarter?

[Kenneth d'Entremont:]

Marcel, do you have any -- can you give any color to that?

[Marcel Konrad:]

Well, we had -- as we talked -- as I talked, these -- the $2.5 million, for example, manufacturing expense, we expect that, obviously, not to be a recurring expense per se. Then other than that, we're just building the -- having started to build the business towards that Treosulfan launch, and there were some smaller expenses there. But I would say mainly referring to the $2.5 million on the manufacturing side, which we expect not to be recurring.

[Justin Keywood:]

Okay. So the losses should be narrowing and then improving from there. And then just one other question on the IXINITY inventory dynamics, is that still expected to persist next quarter? Or is that all largely complete?

[Kenneth d'Entremont:]

Yes, we -- as I said in my comments, we think it will take another quarter, maybe 2. It depends on demand. Obviously, demand, as we described, was pretty strong, 25% growth in that last quarter that we're just reporting. So that's really strong demand.

[If we continue that sort of demand growth then, obviously, the channel will correct more quickly. So it really depends on that. We do expect it for the next quarter. It might carry forward into the following quarter -- next quarter, meaning the one we're working on now.:]

[Operator:]

Our next question comes from Prasath Pandurangan.

[Prasath Pandurangan:]

Firstly, on the IXINITY inventory, could you quantify the impact of the channel inventory on this quarter's IXINITY's sales? And what would be the normalized run rate for IXINITY if we take out this impact?

[Kenneth d'Entremont:]

Yes. I think we haven't stated the actual revenue impact for IXINITY. But had demand and ex factory sales matched, which they should in a normal situation, we certainly would have been in the range of previous quarters. So you saw the type of revenue that were generated, previously, $19 million, $20 million per quarter. We would expect with the channel normalizing, we'd be back in that range.

[Prasath Pandurangan:]

Okay. Just trying to understand what's the advantage of having this normalizing process being drawn out over a few quarters as opposed to taking a onetime hit and immediately normalizing the channel inventory?

[Kenneth d'Entremont:]

Yes. We can't control it completely because there's demand for various assays. So there's various strengths, different patients take different strengths. There's different levels of inventory on the different assays. And so we can't control it completely.

[What we can control is that we don't want to be discounting the product. So there's 2 benefits to doing this correction. One is, obviously, linking ex factory sales with demand, which would be a more consistent revenue stream but also a pretty significant improvement in gross margin as a result of not discounting, which is what the customers have become accustomed to. The previous owner of the drug typically put product into the channel at the end of the quarter and provided incentives in order to do so.:]

[So we don't want to do that. So we're going to take a few quarters and get it corrected. So I guess the quick answer to your question is we can't control the whole thing. We're doing what we can to normalize it.:]

[Prasath Pandurangan:]

So are the incentives still continuing? Or are they -- have they stopped?

[Kenneth d'Entremont:]

We've stopped. Yes, no incentives.

[Prasath Pandurangan:]

Okay. Got it. And then do you have any revised time line for Treosulfan approval now? Has Medac indicated a revised time line for you?

[Kenneth d'Entremont:]

So we're in discussions with Medac to sort that out. We're just over 2 weeks from the CRL. So we are -- they are working on that. We're working with them. So we don't have a definitive time line yet. We do know that it needs to be in within 12 months. So we feel very confident that we can hit that deadline.

[And so the question then becomes, okay, how much in advance of that deadline can we actually get the resubmission in? Well, we don't have a time line yet, although I think you'll get some indication as to what we think the time line is when we -- when and if we schedule a Type A meeting, which is one of the options.:]

[Operator:]

[Operator Instructions] Okay. And it doesn't look like we have any further questions. So I'll turn the call back over to Ken for closing remarks.

[Kenneth d'Entremont:]

Thank you, everyone, for joining the call today. The last few months certainly have been a challenging period for the company, but we continue to be optimistic about our progress we are making.

[Looking towards the balance of fiscal 2022, a priority certainly will be to see Treosulfan through to approval. Beyond Treosulfan, we see tremendous opportunities across the rest of the product portfolio. We have historically generated very strong organic growth, and we anticipate this will continue. We have a number of exciting new opportunities ahead, so we are determined to keep building our company into a globally recognized business. So thank you for your attention to our business. We much appreciate it.:]

[Operator:]

Thank you. This concludes today's conference call. We thank you for your participation. You may disconnect your lines at this time, and have a great day.