Good morning, ladies and gentlemen. My name is Elaine, and I will be your operator today. Welcome to Knight Therapeutics Inc. third quarter 2022 results conference call. Before turning the call over to Samira Sakhia, President and CEO of Knight, listeners are reminded that portions of today's discussion may, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. The company considers the assumptions on which these forward-looking statements are based to be reasonable at the time they were prepared, but cautions that these assumptions regarding future events, many of which are beyond the control of the company and its subsidiaries, may ultimately prove to be incorrect.
The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, except as required by law. We would also like to remind you that your questions during today's call will be taken from analysts only. Should there be any further questions, please contact Knight's Investor Relations Department via email to info@knighttx.com or via phone at 514-484-4483. I would like to remind everyone that this call is being recorded today, November 10, 2022. I would now like to turn the meeting over to your host today, Samira Sakhia. Please go ahead, Ms. Sakhia.
Thank you, Elaine. Good morning, everyone, and welcome to Knight Therapeutics third quarter 2022 conference call. I'm joined on today's call with Amal Khouri, our Chief Business Officer, Arvind Utchanah, our Chief Financial Officer, and Jeff Martens, our Global VP of Commercial. I'm excited to announce that for the first nine months of 2022, we reported record revenues of over CAD 210 million, which represents a growth of 14%, as well as record adjusted EBITDA of over CAD 40 million, which represents a growth of 24% over the same period last year. This growth was generated by the full year effect of Exelon and the continued performance of our recent launches. During the past quarter, we made progress on the commercial transition of Exelon and AKYNZEO.
To date, we have completed the onboarding of Exelon in Brazil, Colombia, Argentina, Chile, Peru, Mexico, and Canada, as well as AKYNZEO in Brazil and Argentina. Furthermore, we continue to advance our pipeline with the submission of tafasitamab in combination with lenalidomide to ANVISA, the Brazilian health agency. We also expect to submit tafasitamab in other key Latin countries over the next several months. Turning now to the NCIB. During the third quarter, we purchased approximately 800,000 common shares for aggregate cash consideration of CAD 4.4 million.
Subsequent to the quarter, Knight has purchased an additional 887,000 common shares for aggregate cash consideration of CAD 4.8 million. The average purchase price of the shares purchased through the NCIB, launched in July 2022, was CAD 5.46 per share. I will now turn the call over to Jeff to provide more details on our product results.
Thank you, Samira. For the third quarter, we had revenues of CAD 69 million, excluding hyperinflation, which represents a decrease of CAD 2.5 million over the same period last year. This decrease is primarily driven by the planned termination and transition agreement with Gilead for the HIV HCV portfolio, which took effect July first. Now moving to our oncology hematology portfolio. During the quarter, revenues excluding hyperinflation were CAD 26.3 million, a growth of CAD 3.2 million or 14% versus the same period last year. This includes the contribution from our key promoted brands, including new launches of Lenvima, Halaven in Colombia, the growth of Trelstar in Canada, and the addition of AKYNZEO in Brazil. This increase was partially offset by a decline in sales of certain branded generic products due to the entrance of new competitors.
As for our infectious disease portfolio, we delivered revenues of CAD 27.2 million, excluding hyperinflation, a decrease of CAD 3.7 million compared to the period last year. With the increase in patient treatments as our markets reduce COVID-19 restrictions, as well as the growth of our key promoted products, the infectious disease portfolio grew by CAD 7 million. This growth was offset by an estimated CAD 10.5 million due to lower COVID-related demand, as well as the planned termination of the Gilead agreement. Now moving to our other specialty portfolio. During the quarter, revenues excluding hyperinflation was CAD 15.6 million, a decrease of CAD 2 million compared to the same period last year.
The decrease is mainly due to advanced Exelon purchases by certain customers in Brazil in the second quarter in anticipation of the transfer of the commercial activities from Novartis to Knight. On a year-to-date basis, as Samira mentioned, we have delivered record revenues of over CAD 210 million, an increase of over CAD 25 million or 14% compared to the same period last year. We grew across all of our therapeutic areas due to the increasing market penetration of our new launches as well as the full year acquisition effect of Exelon. I will now turn the call over to Arvind for an update on our financial results.
Thank you, Jeff. In the course of this conference call, I will refer to EBITDA and adjusted EBITDA, which are non-IFRS measures. Knight defines EBITDA as operating income or loss, excluding amortization and impairment of intangible assets, depreciation, purchase price accounting adjustments, and the impact of accounting under hyperinflation, but to include costs related to leases. Adjusted EBITDA exclude acquisition costs and non-recurring expenses. I will go directly to gross margin since Jeff has already discussed our revenues. Excluding hyperinflation, the gross margin for the third quarter was CAD 33.8 million or 49% of revenue, compared to CAD 38.4 million or 50% of revenues in the same period last year.
The decrease in gross margin, both in dollars and as a percentage of revenue, is due to the change in product mix, as well as the change in the accounting of Exelon from net profit transfer to net revenues and related costs post the transfer of commercial activities from Novartis to Knight. We expect gross margin as a percentage of revenue to further decline over the next quarter as the commercial activities of Exelon are transferred to Knight in Mexico, Peru, and Canada, and Knight records revenues with related cost of sales instead of a net profit transfer. Finally, I would like to remind everyone that the change in the accounting presentation of Exelon has no impact on the absolute gross margin dollars or cash flows of the company.
Under IFRS for the third quarter, we reported gross margin of CAD 30.4 million or 42% of revenues, compared to CAD 37.8 million or 51% of revenue in the same period last year. The gross margin as a percentage of revenue was negatively impacted by the change in the accounting of Exelon and product mix, and was further negatively impacted by the higher levels of inflation in Argentina. In the first 9 months of this year, the inflation in Argentina was 66% as compared to 37% in the same prior year period. While we expect the gross margin as a percentage of revenue under IFRS to further decline due to the inflation environment in Argentina, we do not expect the high inflation in Argentina to have a material impact on Knight's cash flow, cash flows over the next year.
Our total operating expenses for the third quarter, excluding hyperinflation and amortization and impairment of intangible assets, was CAD 24.4 million, an increase of CAD 4 million compared to the same prior year period. As we return to normal commercial activities, we see an increase in our sales and marketing costs for our key promoted brands, including promotion spend behind the relaunch of Exelon and AKYNZEO. In addition, we saw an increase in compensation expenses as we expanded our structure, including the management team and certain variable costs such as logistics and consulting fees. Moving on to adjusted EBITDA. The adjusted EBITDA was CAD 9 million for the third quarter, a decrease of CAD 8.3 million or 48% compared to the same period last year. We would like to remind everyone that our results on a quarterly basis remain lumpy.
In the third quarter of 2021, we had significant COVID-related sales, and as previously mentioned, in the second quarter of this year, we had advanced purchases of Exelon in Brazil in anticipation of the transfer of the commercial activities from Novartis to Knight. More importantly, on a year-to-date basis, we have delivered record numbers on both revenues and adjusted EBITDA. In the first 9 months of this year, due to the full year effect of our Exelon acquisition, as well as growth of our new launches. Now moving on to net gains on our financial assets which are not reflected in our adjusted EBITDA. In the third quarter, we recorded CAD 5.4 million of net unrealized losses on financial assets measured at fair value through profit or loss.
The loss is driven by the decline in the share prices of the publicly traded equities in our strategic fund investments due to general market conditions and the revaluation of certain private investments. Moving to our cash flow from operations. Knight generated cash inflows of CAD 11.3 million for the quarter and CAD 35.8 million on a year-to-date basis. This quarter's operating cash flow includes CAD 6 million collected for settlement of certain claims with the former shareholders of GBT, as well as an outflow of CAD 4.1 million related to the working capital of Exelon and AKYNZEO.
Finally, as we continue to transfer the commercial activities of Exelon from Novartis to Knight, as I mentioned earlier, we will record net revenues with related cost of sales instead of a net profit transfer, which will lead to a decrease in our gross margin as a percentage of revenue. We expect additional investments in working capital with an increase in the level of inventory in the next quarter that will negatively impact our operating cash flow. Our working capitals are expected to normalize at the beginning of 2023. I will now turn the call over to Samira.
Thank you, Arvind. As you can see from our Q3 results, and as we have said previously, our performance is best measured on an annual basis. The quarterly fluctuations are expected to continue due to factors such as timing of customer purchasing, historical COVID-related impact, onboarding of new acquisitions, divestments of certain products, and volatility in exchange rates. Based on our strong year-to-date financial performance, we are increasing our revenue guidance for full year 2022 to the range of $265 million-$275 million. This guidance is a non-GAAP basis as it excludes the impact of IAS 29. This is due to the difficulty in predicting the Argentinian inflation rates. The guidance is also based on a number of assumptions which are described in our press release.
Should any of these assumptions differ, the financial outlook and the actual results may vary materially. Looking ahead, we remain committed to building a leading Pan-American ex-US specialty pharma company. We have over CAD 145 million in cash equivalents, and marketable securities, and we generate cash from operations which positions us well to continue to execute on our strategy. Thank you for your support and confidence in the Knight team. This concludes our formal remarks. I'd like to now turn the call over to questions. Operator?
Thank you. Thank you. Before we begin, may I please remind you, questions during today's call will be taken from analysts only. Should there be any further questions, please contact Knight's investor relations department via email to info@knighttx.com or via phone at 514-484-4483. If you would like to ask a question, please press star followed by the number 1 on your telephone keypad. If you're using a speakerphone, please lift your handset before pressing any key. If you would like to withdraw your question, please press star 2. Our first question will come from Andre Uddin from Research Capital. Please go ahead.
Good morning, everyone. Just some of this was actually touched on by Arvind. Samira, maybe you could just add some color on this. If one looks at the hyperinflation that you're seeing right now in Latin America, how is Knight dealing with it, and could you provide maybe just a little bit more color on that? Is it possible to actually adjust drug pricing in those regions? Thanks.
First of all, hyperinflation is only in Argentina.
Okay.
The rest of inflation is similar to kind of the situation that we're seeing in global markets, whether including Canada and the US and Europe. The other thing that I wanna mention is like, you know, when it comes to markets like Brazil, Colombia and Mexico, they had started from a monetary policy to start increasing interest rates much earlier. They've been able to work through some of the inflationary issues a little bit better than we have, but inflation is in these markets. When it comes to pricing, price adjustments really depend on a country-by-country basis as to what their regulations allow us to do.
It also depends on some of our customers, on some of our products, especially due to competition, where we wanna be able to manage not outpricing ourselves versus our competitors. You take markets like Brazil, they allow us to. There's only an annual increase that's legislated. We may choose to take the max, we may not, depending on the product, the customer, and the competitive forces.
Great. Maybe either Samira or Amal, maybe you could just also give us a little bit more color in terms of what you're seeing in business development. Are you seeing any changes in pricing for products? What's the competitive environment like? That'd be great. Thanks.
Sure. This is Amal. We're not really seeing any significant changes. Deal flow continues to be healthy, but of course, there is also competition across the board on the deals that we look at. I would say kind of bottom line, really no significant changes.
Just one last question. In terms of your near-term product launches in the next year or so, what would be your most sort of important products we should be watching in terms of launches?
I'll take that on. Right now, the only product that we have that's a launch for us is really AKYNZEO, which is being added to our portfolio. We have some smaller BGx that we'll be launching as replacement of some of our current products, but they're basically a replacement rather than a new launch. Like Amal said, her team is very busy with deal flow, and we continue to look for new opportunities.
Thank you very much.
Once again, if you would like to ask a question, please press star one. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. We will take our next question from Doug Miehm from RBC Capital Markets. Please go ahead.
Good morning, everyone. I wanna continue on the idea of, you know, potential acquisitions, et cetera, et cetera. Maybe you can speak to, you know, what type of countries where you're looking at right now. All South America, Canada, maybe a few others, but I'm particularly interested in Mexico. Is there anything that is going on in that market that may be an opportunity?
Good morning, Douglas. This is Amal. In terms of product acquisitions, we're looking for our entire territory, so all of the countries we're in. In terms of M&A, as you know, we had highlighted both Canada and Mexico as priority countries because of the suboptimal size of our businesses in both markets. We do have kind of a higher priority on those two. In terms of specific opportunities we're looking at, as you know, that's not something that we disclose until there's something to be announced. We are prioritizing those two countries.
Okay. Just as a follow-up, I said I know that you said no significant changes, but, yeah, I'm just curious. With the rates increasing as much as they have here, how does that figure into how you look at the returns on invested capital and products that you could be buying, given that if, you know, in Canada we're seeing rates increase and you're paying the same price for everything, wouldn't you expect your returns to start to decline?
We're taking a more conservative and balanced approach, and you have to also remember is when we're looking at our forecast, we're looking at it on a decade plus. We've always remained kind of very careful in those ranges and we aim to be generally in that mid-teens range on the portfolio, and balancing out currencies, cash flow, the devaluation curves and that. We're staying on that same path that we were doing last year, 5 years ago, 15 years ago.
Okay, perfect. Thanks, Samira.
As a reminder, to ask a question, please press star one. We'll take our next question from Endri Leno from National Bank. Please go ahead.
Yeah, good morning. Thanks for taking my questions. Apologies if I repeat something, I was a bit late getting on the call. I'll continue on that acquisition theme and particularly for Mexico. I think they're pushing or they're in negotiations with the EU Commission to make it a regional hub to produce the vaccines and medications. Has that changed anything in terms of multiples, in terms of your interest for the market, in terms of your competitors' interest in that market?
Good morning, Andre, this is Amal. You know, the kind of Mexico becoming a regional hub, whether it's for vaccines or manufacturing, is not really that relevant for us because we're not in either business. We're not in the vaccines business or manufacturing business. For us, really what we're looking at when it comes to acquisitions is a portfolio of products. Companies with existing marketed products with profitable sales. That's really what's the interest for us. Again, the kind of environment hasn't really dramatically changed in terms of who these players are or who's looking at these opportunities.
Okay. Thanks for the answer, Amal. The other question is in another country, but perhaps this has been answered, so I can read it after. Let me know. The election in Brazil with that was concluded a week or two ago. Any kind of color you can share on that one, if you haven't already?
Sure. Happy to comment. Brazil is kind of in the same place as a lot of the other LatAm countries that we see going a little bit more towards the left. The one thing or a couple of things that I'll point out is, one, all of these countries, similar to the rest of the world, is really dealing with what looks like recessionary environment. They're gonna have to be able to manage kind of their budgets. The second thing is we're in the pharma business and we sell drugs, and people are always gonna need our type of products.
Putting those two things together, what we really are mindful of, and we have been really paying close attention to, is the pharmaceutical budgets of payers, whether they be public or private. That's where kind of having a branded generics portfolio and innovative portfolio, products that are cash pay versus, public or private institutional pay. That's really what our team's focus is on to continue to grow the business.
Thanks, Samira. Last one for me. It has to do with the FX, the US dollar strength. I mean, does it impact any of your business? I mean, do you purchase anything in US dollars? Any color you can share there?
Sure. We do have some U.S. dollar purchasing of our inventories and euro. The thing that I would comment on is really a lot of our agreements that come from partnerships in a way. Amal has done a lot of great work on negotiating profit share versus just a transfer price. That being said, as we see inflation kind of creeping up everywhere, we do expect to see that coming into our costs, starting at some point next year.
Yep. That's it for me. Thank you.
It appears there are no further questions at this time. Samira, I'd like to turn the conference back over to you for any additional or closing remarks.
Thank you. Thank you everyone for your confidence in the Knight team and for joining our Q3 2022 call. Have a great morning.
This concludes today's call. Thank you for your participation. You may now disconnect.