Good morning, welcome to the Knight Therapeutics first quarter 2023 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star then one on your telephone keypad. To withdraw your question, please press Star then two. Please note this event is being recorded. I would now like to turn the conference over to Samira Sakhia. Please go ahead.
Thank you, Debbie. Good morning, everyone, welcome to Knight Therapeutics first quarter 2023 conference call. I'm joined on today's call with Amal Khoury, our Chief Business Officer, Arvind Utchanah, our Chief Financial Officer, and Jeff Martens, our Global VP of Commercial. I'm excited to report an impressive first quarter results with revenues of over CAD 82 million and 29% growth compared to the same period last year, and record adjusted EBITDA of over CAD 18 million, representing growth of 37% compared to the same period last year. This strong performance is a testament to the hard work and dedication of our team and the continued success of our portfolio across all of our therapeutic areas. In addition to the continued progress of our marketer products, we launched Palbociclib in Argentina and obtained the regulatory approval in Chile.
Palbociclib is an internally developed branded generic product indicated for the treatment of locally advanced or metastatic breast cancer and is being marketed as Palbocil or Palbocil in our region. We also submitted Tafasitamab or MINJUVI for regulatory approval in Argentina for the treatment of DLBCL. Turning now to the NCIB. During the quarter, we purchased approximately 2.2 million common shares for an aggregate cash consideration of over CAD 10.8 million. Subsequent to the quarter, Knight purchased an additional 1.1 million common shares for aggregate cash consideration of CAD 5.4 million. With this additional purchase, Knight has completed approximately 73% of the July 2022 NCIB at an average purchase price of CAD 5.04 per share. I will now turn the call over to Jeff to provide more details on our product results.
Thank you, Samira. In the first quarter of 2023, as Samira mentioned, we have delivered strong revenues of over CAD 82 million, an increase of more than CAD 16 million on a constant currency basis, or 25% versus prior year. We grew across all of our therapeutic areas, mainly due to our innovative promoted portfolio. Let me start with the performance of our oncology hematology portfolio. During the quarter, revenues, excluding hyperinflation, were CAD 29.1 million, a growth of CAD 5.3 million, or 22% versus the same period last year. Our key promoted brands included Halaven, Lenvima, and Trelegy, as well as the addition of Akynzeo, contributing CAD 7.6 million of incremental revenues, which was partially offset by a reduction in sales of certain mature and branded generic products due to their life cycle and the entrance of new competitors.
As for our infectious disease portfolio, we delivered revenues of CAD 30.8 million, excluding hyperinflation. This portfolio grew by approximately CAD 7.8 million, excluding the impact of the plant transition and termination of our Gilead agreement, effective 1 July, 2022. This growth is due to our key promoted brands, the buying patterns of certain customers, as well as deliveries we made in relation to previously announced AmBisome contract with the Brazilian Ministry of Health. Moving to our other specialty portfolio. During the quarter, revenues excluding hyperinflation were CAD 22.7 million. The portfolio grew by approximately CAD 6.2 million, excluding the change in accounting treatment for Exelon. This growth is mainly due to advanced purchases of Exelon in certain countries due to the commercial transition from Novartis to Knight and the purchasing patterns of certain customers.
I will now turn the call over to Arvind to provide 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, as well as adjusted EBITDA per share, which is a non-IFRS ratio. Knight defines EBITDA as operating income or loss, excluding amortization and impairment of non-current assets, depreciation, purchase price accounting adjustment, and the impact of accounting under hyperinflation, but to include costs related to leases. Adjusted EBITDA excludes acquisition costs and non-recurring expenses. Knight defines adjusted EBITDA per share as adjusted EBITDA over the number of common shares outstanding at the end of the respective period. I will first cover the sales we made in relation to the one-time contract on AmBisome with the Ministry of Health in Brazil.
In December 2022, we signed a contract for a total value of CAD 18.4 million, of which CAD 7 million was delivered in 2022, CAD 2.4 million in Q1, 2023, and CAD 9 million in April 2023. In addition to the full amount of the 2022 contract of CAD 18.4 million, subsequent to the first quarter of 2023, Knight received an order for an additional CAD 9 million from the Ministry of Health, which was also delivered in April 2023. In summary, in Q1, Knight recorded CAD 2.4 million of AmBisome revenues for the MOH contract, and in Q2, we expect to record CAD 18 million in relation to the MOH contracts. We do not expect further purchases from the MOH for AmBisome. Now moving to gross margin.
For the first quarter of 2023, excluding the impact of hyperinflation, we reported a gross margin of CAD 41.4 million or 50% of revenue, compared to CAD 33.8 million or 53% of revenue in the same period last year. The decrease in gross margin as a percentage of revenues is due to the change in product mix, including the change in accounting treatment of Exelon. Moving on to our operating expenses, excluding hyperinflation. For the first quarter, our operating expenses were CAD 34.8 million, an increase of CAD 2.9 million compared to the same prior year period. The increase is mainly due to our expanded commercial and medical activities, as well as certain variable costs such as logistic expenses, which rose as a function of higher sales.
I also want to remind everyone that in Q1 2022, we had limited infill activities due to the COVID environment, mostly specifically Omicron. Moving on to adjusted EBITDA. For the first quarter of 2023, we reported CAD 18.2 million, an increase of CAD 5 million or 37% compared to the same period in prior year. In addition, Knight's adjusted EBITDA per share was CAD 0.17, an increase of CAD 0.05 per share or 45% over the same period in prior year. Moving on to gains or losses on our financial assets, which are not reflected in our adjusted EBITDA. In the first quarter of 2023, we recorded CAD 11.8 million of net unrealized losses on financial assets measured at fair value through profit or loss.
This loss is driven by mark-to-market adjustment of underlying assets, mainly as a result of a decrease in the share prices of the publicly traded equities held by our strategic funds. Moving on to our cash flows. During the first quarter of 2023, Knight generated cash inflows from operation of CAD 3.7 million, a decrease of CAD 9.2 million compared to the same period in prior year. The decrease in operating cash flow is a result of an increase in working capital. The investment in working capital is due to an increase in inventory, primarily for AmBisome in anticipation of the deliveries under the Ministry of Health contract, as well as timing from payments from certain customers which were settled in April. I will now turn the call back to Samira for concluding remarks.
Thank you, Arvind. I will now discuss our financial outlook for fiscal 2023. I would like to remind everyone that this guidance is provided on a non-GAAP basis due to the difficulty in predicting Argentinian inflation rates. We have revised our forecast and now expect to generate revenues of CAD 300 million-CAD 320 million, an increase of CAD 20 million on the lower and upper range. In addition, we expect adjusted EBITDA to be between 14%-15% of revenues. The increase in financial outlook is primarily due to an improvement in the forecast, forecasted LatAm currencies against the Canadian dollar, primarily the Brazilian real, and the second MOH order for AmBisome in Brazil. The guidance is also based on a number of assumptions which are described in our press release.
Should any of the assumptions differ, the financial outlook and the actual results may vary materially. Considering the recent volatility in certain of our currencies, we will continue to monitor and revise our foreign exchange assumptions, which may materially impact our results and forecasts. Looking ahead, we remain committed to building a leading Pan-American ex-U.S. specialty pharmaceutical company. We have over CAD 160 million in cash equivalents, and marketable securities, and we generate cash from operations, which positions us well to continue to execute on our strategy to in-license and acquire innovative pharmaceuticals, as well as develop our branded generics portfolio. Thank you for your support and confidence in the Knight team. This concludes our formal remarks. I would now like to open up the call for questions. Debbie?
We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Douglas Miehm with RBC Capital Markets. Please go ahead.
Good morning, everyone. First question has to do with Exelon, and you do describe that there's buy-in, I'd say a little bit, associated with the quarter. I'm just curious, as you think about Q2, would you expect, you know, some headwinds in Q2 and then things to normalize as we look out to the second half of the year?
There's a lot going on in Exelon. There's first the change in accounting. The transition is a little bit of phasing, and it'll normalize. The third thing that we are obviously, and we've discussed this before, is we do face generic competition in certain of our countries. We do know that a generic has now launched in Brazil. As we explained in our guidance, we're changing really because of currency and the MOH order and the phasing, and we don't really manage to quarters, we're managing to the year. We expect to continue to re-retain the brand.
Okay. That is fair. As you think about the political landscape, and I know there's been chatter about this over the last several months, but in, specifically in Brazil and Colombia, have there been any changes relative to, I guess, a couple of months ago when you last discussed this point?
It's similar status in Brazil. There really hasn't been any updates. In Colombia, the reform has been published, but how the reform will be implemented is not clear, and there is a significant amount of debate in Congress about this. The entire country is watching, as are we.
Excellent. Okay. Thanks, Samira.
The next question is from David Martin with Bloom Burton. Please go ahead.
Hi there. This is Antonia on the line for Dave. Just wanted to, you know, elaborate a bit more on the earlier commentary. Are you thinking, given the strong quarter, are you thinking that the generic impact of your branded generic business might be less than expected when you reported fourth quarter results? Also, when do you expect additional compensatory launches of your own branded generic pipeline?
Sure. The only reason we're really revising guidance is because of the MOH order and the change in currency FX rates. It's really not on the portfolio. When we look at local currencies, the portfolio is performing as expected. Whether it's a little bit of lumpiness, we always expect that. We don't manage to quarters as much. That's where it is. When it comes to the branded generics portfolio, it's really a bit of lifecycle issues that we are dealing with. If you look at our pipeline, we've expanded our pipeline dramatically, not just in the innovative portfolio with Tafasitamab, Akynzeo, Pemazyre, and Fostamatinib. We've also done a lot of work to in-license as well as continue the development of our own branded generics.
The issue is really lifecycle management. It's a bit of a lumpy year because where the declines are going, the mature brands are declining faster than we are able to launch. This is, again, why we are spending a lot of ED effort on each of our two portfolios to make sure we strengthen the pipeline going forward.
Okay. If I could just add, an additional quick question. Are there any strategies you have to help mitigate the hyperinflation impact?
Sure. This is the revision of the forecast that we're talking about excludes hyperinflation. This is really The majority of the change here that we're seeing is we went from an expectation that there would be a slight decline in the Brazilian real to a slight appreciation in the Brazilian real. That's not hyperinflation, that's just currency. That's a macro issue between Canada, U.S., Brazil, kind of how is the global environment working. When it comes to hyperinflation, this is exactly what. To reiterate, we don't include it in our forecast. How we manage Argentina is to make sure that Argentina is able to We kind of ring-fence that business. Please remember that what we manufacture in Argentina, we sell in Spanish-speaking South America.
It's exported out and the revenues go to Colombia, Peru, Ecuador, Chile, Uruguay, Paraguay. It's not all in Argentina.
Okay. Thank you.
Again, if you have a question, please press star then one. Next is Andre Lano with National Bank. Please go ahead.
Hi. Yeah, good morning. It's Andre Bodo sitting in for Andre. With respect to Palbociclib, I was hoping that we could get some insight on progress and performance of that, early signs that you're seeing there.
Sure. Palbociclib was launched kind of a little bit later in the quarter. If you look at on our, on our press release, what we do provide is the launches of the brand of generics in the queue. The performance you see is about, I think it was less than half a million in change versus last year, and that's, Palbociclib is part of that contributor. It's a nice brand, but it's not gonna be. As we've said, the issue that we have is that the launches that we're having are not making up for some of the declines that we expect this year.
Okay. Maybe some color on the timeline and the next steps for Palbocil.
Palbocilcil may launch in Chile. It's gonna be in the back half of 2023 because there's more work to be done to produce for Chile. Then after that, it will be Colombia. That'll be a couple years away.
Okay. How would you characterize margins on the AmBisome contract with the MOH in Brazil with respect or relative to the rest of the portfolio?
We don't disclose margin by product. It's gonna be in the range, like the margins that we've had historically is the margins that we will continue to have.
Okay. And then lastly, with respect to what you're seeing in competition, are you seeing that elevated, or is that something that you're expecting in the later in the year with respect to branded generics?
We are expecting them a little bit later in the year. It's a little bit hard to predict. It's depending on the country and the region, or depending on the country and the product. Some of the agencies are moving faster, some of the agencies are moving slower. We do expect starting in the back half of Q2. As I said earlier, we do have the generic. The branded generic has launched versus Exelon in Brazil.
Are there any, just as a follow-up, are there any, like, particular countries which are moving faster than others?
Not really. Like, it's again, we see that there is branded generics in the review pipeline. It's hard to predict when they will come out.
Okay, great. Thank you so much.
This concludes our question and answer session. I would like to turn the conference back over to Samira Sakhia for closing remarks.
Thank you, Debbie, and thank you for your confidence in the Knight team and for joining our Q1 2023 conference call. Have a great morning.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.