Ladies and gentlemen, and welcome to the Valeo Pharma Inc. third quarter results. Results [Foreign language] conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, September 13th, 2024 . I would now like to turn the conference over to Frédéric Dumais, Director of Communications and Investor Relations. Please go ahead.
Thank you, operator. Good morning, everyone. Present with me today for our third quarter 2024 financial results call are Mr. Al Moghadam, our CEO, and Mr. Pascal Tougas, our Chief Financial Officer. Before we begin our call, I would like to remind everyone that this conference call may contain certain forward-looking statements regarding the company's expectations or future events. Such expectations are based on certain assumptions that are founded on currently available information. If these assumptions prove incorrect, actual results may differ materially from those contemplated by the forward-looking statements contained in this conference call. The company disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, other than as required by securities laws. I would now like to pass the call over to our CEO, Mr. Al Moghadam. Please go ahead, Sir.
Thank you, Fred, and good morning, all, and thank you for joining us for our third quarter 2024 results conference call. I'm very pleased to be here with you today for my very first quarterly call as Valeo CEO. I will start by quickly reviewing our latest quarterly results and will provide a brief commercial and operational progress update. I will then pass it over to our CFO, Pascal Tougas, who will provide more details on our third quarter financial results. So looking at our Q3 2024 results summary, while at first glance, our third quarter revenues appear to be down compared to previous quarters, it's important to make the following distinctions. Our total revenues for the third quarter of 2024 amounted to CAD 12.6 million, compared to CAD 14.1 million for Q3 2023 . This representing an 11% decrease.
However, the loss of revenues associated with the termination of Xiidra alone represented a shortfall of CAD 2.5 million versus the third quarter of 2023 and some CAD 2.8 million less versus second quarter of 2024. So factoring out Xiidra, the trends from continued business would have shown a healthy growth of 9% versus third quarter of 2023. It is also important to note that our respiratory business unit continues to grow while our specialty products have returned to growth. Our year-to-date revenues of CAD 40.3 million are in line with the CAD 40.8 million in revenues from last year's comparable period. As important as revenue growth is, it is even more important to ensure that all our activities are done with the main goal of delivering operational efficiencies that will allow us to grow profitably.
Our Q3 2024 OpEx and adjusted EBITDA are reflective of cost-saving initiatives announced in November 2023 and implemented throughout the first two quarters of 2024. Savings have materialized across all functions, and we expect both to continue improving over the coming quarters. General and administrative expenses appear to reflect a CAD 1.1-CAD 1.2 million increase when compared to prior 2024 quarters. However, the savings generated in G&A so far are more than offset by transformation and restructuring costs incurred in Q3 2024, respectively, CAD 0.5 million and CAD 1.1 million. Going forward, we expect that the restructuring of our respiratory field operations will also generate additional savings and efficiencies, providing us with a more balanced and proportional resource allocation to our overall revenues.
We also expect continued revenue growth over the coming quarters from our core therapeutic assets while continuing to reduce OpEx. This will lead to expanded gross profits and accelerate our path towards profitable growth. We're now targeting achieving EBITDA positive status during the first quarter of 2025. Our CFO, Pascal Tougas, will get into greater financial result details in his portion of the call. Our respiratory unit continued to demonstrate revenue growth with an increase of 29% in Q3 2024 compared to prior Q2 2024. Enerzair and Atectura continue to increase both the number of prescriptions and prescribers year-over-year. At the end of the third quarter, the number of physicians who have prescribed Enerzair and Atectura reached 4,285.
While this increased physician adoption has proven, has driven total prescriptions for the last 12 months, ended July thirty-first, 2024 to over 97,000. That's an increase of 74% year-over-year. Our specialty unit returned to growth in Q3 2024, with REDESCA leading the way with a 21% growth over the prior Q2 2024. And we expect to see REDESCA continue to take advantage of favorable market trends as provincial governments continue to delist innovator biological drugs from public reimbursement to prioritize biosimilars. Our ophthalmology unit was materially impacted by the loss of Xiidra revenues stream, following the commercialization termination of the product. This represented, as mentioned earlier in my remarks, a shortfall of CAD 2.5 million versus the third quarter of 2023, and some CAD 2.8 million less versus the second quarter of 2024.
Still, our current business development activities continue to be heavily focused on expanding our ophthalmology portfolio, and we hope to be able to report good news on that front in the near future. Finally, we also entered into an agreement with Sagard Healthcare Royalty Partners, LP, amending the second term loan entered... Sorry, the secured term loan entered into between Valeo and Sagard in July 2022. The facility was amended to provide, among other things, an extension until September 6th, 2024, for the first CAD 10 million repayment by Valeo, originally scheduled for August 31st, 2024. Which date was extended again until this Friday, September 13th, 2024, pursuant to the amendment. Valeo made a repayment of $4.8 million , that's approximately CAD 6.5 million, which reduced the principal owed by Valeo.
Once again, we appreciate the continuing support from our lenders and the provided extension for that first CAD 10 million repayment. The additional financial flexibility provided should enable us to execute on our plan and advance ongoing initiatives we are currently working on to optimize our financial situation. So with that, I will turn over the financial portion of the call to Pascal Tougas, our CFO.
Thank you, Al. Good morning, everyone. Let's review our third quarter 2024 results. The third quarter 2024 results, starting with revenue. As mentioned by Al, our revenues were CAD 12.6 million for the third quarter of 2024, compared to CAD 14.1 million for the third quarter ended July 2023, an 11% decrease. Valeo's revenue appeared to trend down in Q3 2024, but as a matter of fact, and as mentioned by Al, the loss of Xiidra revenue stream in the first half of Q3 2024 represents roughly a CAD 2.5 million decrease versus Q3 2023 and a CAD 2.8 million reduction versus Q2 2024. In essence, excluding the Xiidra sales, so moving into comparable business data, the performance represents roughly a +1 million growth on retained comparable portfolio.
Such a 9% increase on Q3 2023 and a 12% increase versus Q2 2024, with all of this growth essentially being generated by our core brands. Moving over to gross profit. Aligned with practices implemented since Q4 2023 closing, the gross to net provisions or the commercial rebase provisions are more reflective of recent market dynamics, and as a result, are impacting our gross margin, notably on a comparable quarter year-over-year ophthalmology business impact of nearly CAD 2.6 million, essentially resulting from transfer of Xiidra to Bausch + Lombo. Although the recent market dynamics are still affecting our gross margin under Q3, it is to a much lesser extent than what was observed over the prior three quarters.
In Q3 2024, the gross profit as percentage of revenues, so formerly known as OpEx to sales ratio, or sorry, the gross profit to sales ratio, is actually realigning in trend with comparables observed for the period Q1 2023 to Q3 2023. That is near the 25% mark. So trailing 12-month revenue at the end of Q3 2024 reached CAD 53.4 million, nearly the same as the twelve-month period ended a year before that. Going back on gross profit and revenue, and you'll see where we're going with this. So the key growth performance vectors for Q3 2024 on a year-over-year basis include REDESCA and asthma, as mentioned by Al, but let me bring a little bit more color. REDESCA has generated nearly 18% revenue growth.
And is accelerating its contribution to comparable portfolio, i.e., excluding the Xiidra aspect of things, by increasing its contribution by 3% and delivering more than fair share of contribution to the bottom line. The asthma franchise remains the top line contributor, with nearly 55% revenue growth and delivering an additional 8% contribution in comparable portfolio sales. Reported adjusted gross profit was CAD 3.9 million for the third quarter ended July 2024, compared to CAD 4.4 million for the third quarter ended July 2023. 12% decrease. The roughly CAD 0.5 million decrease over the period's comparable period is tied essentially to the transfer of Xiidra asset, with just over one month of activity in Q3 2024, resulting in a CAD 1.3 million decrease versus the same quarter year-over-year.
Without that, you do see that our reported adjusted gross profit, excluding Xiidra, would be up. OpEx management. For Q3 2024, OpEx and adjusted EBITDA are reflective of cost savings initiative that were announced in 2023, starting November 2023 and implemented throughout the first two quarters of 2024. Savings have been materialized across all functions: commercial, medical, and enablement. Also highlighting the restructuring announced in June 2024 with regards to respiratory commercial operations, that seeks to generate additional savings and efficiencies with a more balanced resourcing approach to top line ambition. This announcement resulted in restructuring and severances nearing CAD 1.1 million, and they are reflected in the quarter. Sampling, just a quick note, to mention that sampling for Q3 2024 was nominal and in check with limited procurement.
As you probably recall, for IFRS rules, samples are expensed on purchase and can lead to significant variation of OpEx charges between quarters. As the charge for Q3 was nominal, no real impact to business. While the performance observed versus Q3 2023 represented a peak in sampling expenditures for us, and as a result, depending on the mix of business, the sample procurement is also affecting the go-to-market approach, demand seasonality as well as production timelines, so in the end, associated use and resupply may differ from quarter to quarter and from year to year. Moving on to general and administrative. So G&A would appear nearly unchanged to prior quarters, instead of the reported CAD 1.2 million increase.
And the reason for that is we have a number of one-time costs in transformation and restructuring that were incurred in Q3 of 2024. Both combined totaling near CAD 1.6-CAD 1.7 million. Total OpEx to revenue ratio, so that's the famous OpEx to sales, is reported just under 50% mark. I think it's 49.6%, if I'm not mistaken. Excluding the one-time costs I just mentioned a second ago, so for transformation and restructuring, the OpEx to revenue ratio would turn up near 41%, which would represent a 9% decrease from the observed Q3 2023 at 50%. Moving over to operating net loss and EBITDA loss.
The reported operating loss at CAD 3.2 million, CAD 0.2 million improvement from Q3 2023, despite the number of one-time costs that are supported in the quarter. The net loss was CAD 8.2 million for the third quarter ending July 31, 2024, compared to CAD 5.8 million for the third quarter a year before. The 40% increase in net loss in Q3 2024 is mainly resulting from a combination of two things. First, the whole aspect of the Xiidra portion of business being active or sold for one month under Q3 2024, versus three months in Q3 2023. So that's the first piece, roughly CAD 1.3 million gross profit level and bottom line.
And then the transformation and restructuring costs that are supported under G&A for Q3 2024, and that are amounting in the vicinity of about CAD 1.6 million. Adjusted EBITDA loss was CAD 1.5 million for the third quarter ended July 31 of this year, compared to CAD 2.5 million for the third quarter ended 2023. So a 40% improvement. So that shows that after some elements that are would be deemed non-recurring or non-repetitive, the storyline is actually improving, although we still have a bit of a gap to still cover for things. For year to date, I will keep my commentaries focused on the highlights.
Year to date revenues of CAD 40.3 million for the nine months ended July 31, 2024, compared to CAD 40.8 million for the nine-month period ended 2023, representing a 1% decrease. Going again on the comparable portfolios excluding Xiidra, the trend would be positive again with a +5% year-over-year for roughly CAD 1.4 million. Adjusted gross profit for the nine months was CAD 11.2 million for the period ended July 2024, down 14% compared to the CAD 13 million for the nine months ended July 2023. Here again, simply excluding Xiidra would turn the trend to positive performance. Net loss of CAD 22.9 million for the nine-month period ended July 2024, compared to CAD 18.6 million for the nine months ended July 2023.
Finally, on an Adjusted EBITDA loss, year-to-date July 2024 shows CAD 6.1 million compared to CAD 6.4 million for the nine months ended in July 2023, a 5% improvement. Just before going on, allow me a short closing commentary on financials. So, during the nine-month period ended July 2024, OpEx was actively managed to a lower baseline to better align with expected revenue growth from the transformed portfolio. Cost management remains a priority for the management team for the remainder of fiscal year 2024. On this note, this concludes the financial review part of our call, and I will now turn it back over to Al. Thanks, Al.
Thank you, Pascal. So we are now ready to open the call for questions. Although this portion of the call is reserved for questions from financial analysts, we invite any of our shareholders or any other interested parties to contact us directly with any questions they may have, and we will try to get back to you as quickly as we can. Operator, you may now proceed with the questions part of this call.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Scott McAuley with Paradigm Capital. Your line is now open.
Hey, Al. Good morning, and thanks for taking the questions. So I think maybe just to start on the balance sheet, just a quick clarification that the CAD 10 million that was due August 31st, and that's since been kind of extended or initial prepayment with a bit of that extended, is that $10 million or CAD 10 million? And then so what is the net balance that's being extended week to week?
I can take that, Pascal, and if you wanna add anything to it. So it's CAD 10 million, and that balance continues to be CAD 10 million. That's extended week to week.
I thought there was a CAD 6.5 million payment made to that, or, or am I misunderstanding?
Yes. So, so that payment went to reduce the overall amount due to Sagard, but not the ten million milestone payment. The milestone payment continues as CAD 10 million, but the overall debt has been reduced.
I see. So the CAD 6.5 million went to the overall balance.
Correct.
Not specifically to that payment. I see. Okay. Thank you for that.
Yeah.
The payment from Novartis for the Xiidra transaction, has that been reflected in this quarter, or is that something that will be reflected the next quarter?
Maybe I'll pass that along to Pascal. I think he's a bit familiar, more familiar with the ins and outs of the reconciliation with Novartis. Go ahead, Pascal.
Thanks, Al. Hey, Scott, great question. So the transaction, as it continues with the reconciliation with Novartis, we've made a number of elements that are inputs into this transaction. So from a cash flow standpoint, it will no longer be generating the full phase value of that. We've been operating as we had, as we have a number of assets with Novartis on this front. As in any good deal, you always go through reconciliations with regards to, you know, cost of acquisitions, transfer price, all that good stuff. And so as we had a consequent level of business, the goal was to minimize the level of cash flows that have been going on between us.
There is still going to be an amount, but it's not gonna be the full CAD 5.8 million that was previously announced.
Got it. And but whatever that amount ends up being is still, has still not been reflected in the cash flow as of July?
Nope, it has not.
Got it. And I noticed, you know, there's a big swing in the working capital, specifically, I think, around the inventory. Was some of that related to Xiidra, like, kind of returning whatever remaining inventory of Xiidra that you had to Novartis, or was there other just kind of rebalancing of inventory levels that did that?
I would say it's more the latter, where we rebalanced our inventory levels to a lower level, still supporting and being able to serve demand, but something that is probably a little bit more reflective of our needs, ambition, and the need for us to be a little bit closer to just in time rather than having, you know, five months of stock.
Got it. And for the convertible debt that's due kind of at the end of the year, no specific mention, are you still looking at discussions or negotiations or options around refinancing that or pushing that out, working with the holders there?
I can take that one, Pascal. Yeah. Hey, Scott. Yes. Yeah, so we've got a number of initiatives that we're working on, working with the larger debenture holders, to look at extending and looking at a few options there. So we're in discussions with them, and we're working with them, and there are a few initiatives on the go right now, which will help us with that. We hope to be able to announce those soon.
That's great. Sounds good. And then just on the, kind of more on the growth and operations. So good to hear REDESCA, you know, seeing some growth. I think I heard the 18% growth. Is that year-over-year or quarter- over- quarter? And is that kind of starting to see some impact from Ontario, or is the kind of Ontario opportunity still, you know, a quarter to come thing?
Yes, I can take that, Pascal, and then you can jump in with color. So Ontario hasn't really hit yet. We expect some explosive growth for REDESCA in coming months and quarters. We were hoping that Ontario was kicking earlier. So the numbers that you're seeing, the quarter on quarter of growth or the year-over-year growth, is not reflective of the big push that we are expecting to happen within the next few months.
That's great. And so was that 18% growth, is that year-over-year or quarter- over- quarter for REDESCA?
It's.
2024 versus 2023.
Got it. Cool. And then on the respiratory side, you know, great to hear again, growth, underlying growth there. Is that tracking with what you're expecting? Are you happy with that level of growth, both on the prescription prescribers as well as the financial revenue growth?
Sorry, I missed it. Was it on REDESCA, your question?
No, sorry, on the asthma, the respiratory side. So just, you know, whether or not that growth is tracking with your expectations.
Yeah. So I'll just finish off on REDESCA. So if you look at Q3 2024 versus Q2 2024, that whole, you know, respiratory or the specialty unit, which REDESCA is really the big part of that, has a 21% growth. That's just a quarter on quarter growth. And then you've got the Q3 2024 versus Q3 2023 growth that Pascal mentioned. So growth all around, so quarter on quarter and year-over-year. Moving on to respiratory. So if you look at the prescription and the adoption, it's quite good. Are we satisfied? No. We want a faster adoption and higher growth. So we keep pushing for much higher adoption, much higher growth.
But we're happy that there is this consistent growth, but we expect more, and we're pushing for a better adoption as we go forward in this entire portfolio.
Yeah. And I guess, is there a kind of a key barrier for that growth? Is it just the competitive nature of that indication? You know, I know there's the Quebec reimbursement if they self-develop these forms, like, what do you see as the main kind of thing pushing against kind of the growth that you'd like to be seeing?
Yeah, so overall, if we take a step back, so there are some very large established players in this market. You know, it takes a large share of voice to push the needle. Fortunately, the products or the product portfolio is unique and has a great value proposition. So we don't believe we have to spend our way to growth the way others have done in this area. However, that value proposition, it still has to be recognized by INESSS and Quebec and others, you know, the way we want it to do. So we're working hard on getting that value proposition really registered with, you know, with INESSS and RAMQ, and move towards much better access to the product.
Got it. That's great. And last one for me, on the cost side, so good to see those kind of flowing through. In terms of the restructuring costs, are there any kind of expected ongoing restructuring costs, or is this quarter kind of reflect the majority of those severance and other fees related to the change in headcount and other restructuring?
I think I can take that, Pascal, and then you can add color. The bulk of the restructuring is done because of the large restructuring we did in with asthma, but Scott, as any good company, you know, we need to continuously, you know, clean up and make sure that we've got the right structure. As you can see with the results, I'm pushing for a lower OpEx. So there will be continued OpEx optimization, both on headcount and on other areas of OpEx, but it will not be to the extent that it was done in with that one-time restructuring of the respiratory.
But it will, we will continue with the cleanup for the next few quarters. And in terms of one-time, other one-time costs, the charges, I think this quarter, it included many of the one-time charges. However, we expect a little bit more in Q4, 2024. That way, our 2024 is gonna be all clean and then on to much better, cleaner twenty twenty-five, without any of these, you know, one-time charges in our feet.
That's great. Appreciate it, guys. Thanks for taking the questions.
Thanks, Scott.
Ladies and gentlemen, as a reminder, should you have a question, please press star one. There are no further questions at this time. I will now turn the call over to Al for closing remarks.
Well, thank you very much for your time today and being with us. If you do have other questions, please, please send them in. We’re grateful that you attended our 2024 conference call. You know, we appreciate the fact that you know, you are still with us, and we wanna continue to be available and provide as much information as possible. The last few months have been challenging at Valeo and for all of our stakeholders, to say the least. But we believe that we currently have the core therapeutic assets and people to deliver on this profitable growth path that we are setting.
So we intend to do to clean up our product portfolio, to add to our product portfolio. More importantly, I can assure you that we will relentlessly strive to achieve profitable growth as quickly as we can, to ensure the success of the company and deliver the value creation that our stakeholders are demanding. As such, we will continue using all available means to further leverage our infrastructure and accelerate our path to profitability, and we hope to be able to report on progress on this very shortly. Again, thank you all for your continued interest and support, and we look forward to keeping you up to date on all upcoming and exciting developments and all the value creation catalysts expected in months to come.
Thank you very much.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.