Good morning, ladies and gentlemen. My name is Eric. I will be your operator today. Welcome to Knight Therapeutics' second quarter 2023 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 these assumptions on which these forward-looking statements are based to be reasonable at the time they were prepared. Cautions that these assumptions regarding the 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 a result of new information, future events, except as required by law.
We would also like to 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. I would like to remind everyone that this call is being recorded today, August 10th, 2023, and would now like to turn the meeting over to your host for today's call, Samira Sakhia. Please go ahead, Samira Sakhia.
Thank you, Eric. Good morning, everyone, and welcome to Knight Therapeutics second quarter 2023 conference call. I'm joined on today's call with Amal Khoury, our Chief Business Officer, and Arvind Utchanah, our Chief Financial Officer. I'm excited to report that Knight achieved record revenues of over $90 million for this quarter. During the first six months of the year, Knight has delivered revenues of over $172 million and adjusted EBITDA of over $32 million, a growth of 24% and 4%, respectively, compared to the same period last year. This strong performance is a testament to the hard work and dedication of our team and continued success of our portfolio. Our team continues to focus on advancing our pipeline with the approval and submission of innovative and branded generic products across our territories.
During the quarter, Knight submitted the marketing authorization for two innovative products, Menjuvi in Mexico and Pemazyre in both Argentina and Mexico. In addition, we advanced our branded generics portfolio, particularly in Chile, with the submission of marketing authorizations for Rembre or Dasatinib, and Karfib or Carfilzomib, and obtaining regulatory approval of Xetrane or Pomalidomide. Subsequent to the quarter, we submitted Fostamatinib for regulatory approval in Mexico and Colombia, and obtained regulatory approval in Brazil for Menjuvi. Upon obtaining Anvisa approval for Menjuvi in Brazil, we submitted an application for pricing approval to CMED. CMED is the regulatory body that establishes maximum prices allowed for drugs sold in Brazil. In Brazil, prior to being able to launch, we do need CMED approval of pricing. The timing and outcome of this pricing approval process is uncertain and could take up to two years.
The commercial launch of Menjuvi is dependent upon obtaining a favorable CMED price. I will turn the call now over to Arvind to provide an update on our financial results.
Thank you, Samira. When speaking of our financial results, 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. I define 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. In the second quarter of 2023, as Samira mentioned, we delivered record revenues of over $90 million. Our revenues, excluding hyperinflation, grew by more than $15 million or 20% and on a constant currency basis by more than $13 million or 17% versus prior year.
This growth is mainly driven by our infectious disease portfolio, which delivered $45.6 million of revenues. Excluding the impact of the planned transition and termination agreement of Gilead, effective July 1st, 2022, the portfolio grew by $19 million or 71% compared to the same period in the prior year. This growth is driven by our key promoted products, including the previously announced Ambisome contract with the Brazilian Ministry of Health for $18 million. As for our oncology and hematology portfolio, our revenues, excluding hyperinflation, were $27.9 million, a growth of $1.9 million or 7% compared to the same period last year. Our key promoted brands, including Lenvima and Trelstar, as well as the addition of Akynzeo, contributed $5.9 million of incremental revenues.
This was partially offset by a reduction in sales of approximately $4 million on certain natural and branded generic products due to their life cycle and entrance of new competitors. Now moving to our other specialty portfolio. During the quarter, revenues excluding hyperinflation was $16.9 million. The portfolio declined by approximately $7.5 million, excluding the change in the accounting treatment for Exelon. The decline is due to advanced purchases of Exelon in the first quarter of 2023 and the second quarter of 2022, related to the commercial transition from Novartis to Knight. As a result of the advanced purchases, we had recorded higher revenues in the first quarter of 2023, due to the transition for Mexico, and in the second quarter of 2022, due to the transition of Brazil and Colombia. Now moving to gross margin.
Excluding the impact of hyperinflation, we reported $40.2 million or 45% of revenue in the second quarter of 2023, compared to $40.8 million or 54% of revenue in the same period last year. The decline in gross margin as a percentage of revenue is partially explained by the change in the accounting treatment related to Exelon. I would like to remind everyone that in the second quarter of 2022, Exelon was recorded as a net profit transfer from Novartis. If Knight had reported revenues and related cost of sales for Exelon instead of a net profit transfer, the adjusted gross margin would have been 50% for Q2 2022. The decrease in the adjusted gross margin of 50% in Q2 2022 to 45% in Q2 2023 is due to the product mix of our revenue.
Moving on to our operating expense, excluding hyperinflation. For the second quarter, our operating expenses were approximately $38 million, an increase of $3.9 million compared to the same prior year period. The increase is mainly due to our expanded sales structure, promotion and medical activities, and certain variable costs, such as logistics expenses, which rose as a function of higher sales. Moving on to adjusted EBITDA. For the second quarter of 2023, we reported $14.3 million of adjusted EBITDA, a decrease of $3.6 million or 20% compared to the same period last year. Knight's adjusted EBITDA per share was $0.13, a decrease of $0.02 per share, or 15% over the same period last year. Moving on to gains or losses on our financial assets, which are not reflected in our adjusted EBITDA.
In the second quarter, we recorded $3.9 million of net unrealized gain on financial assets, measured at fair value through profit or loss. This gain is driven by positive mark-to-market adjustment as a result of the increase in the share price of the publicly traded equities held by our strategic fund investments. Moving on to our cash flows. During the second quarter of 2023, Knight had cash outflows from operation of approximately $1.5 million, compared to cash inflows from operation of $13.2 million in the same period last year. The cash outflows from operation during the second quarter of 2023 is due to the settlement of our accounts payable, mainly related to inventory purchases of our key promoted products and the planned transition and termination of our Gilead agreement.
The transfer of inventory under the Gilead transition led to an increase of $6 million in our accounts receivable, which will be collected in Q3. I will now turn the call back to Samira for concluding remarks.
Thank you, Arvind. Just to provide you an update on our NCIB. During the second quarter of 2023, we purchased approximately 2.9 million common shares for aggregate cash consideration of $13.7 million, at an average price of $4.78. Subsequent to the quarter, on July 14th, 2023, we launched a new Normal Course Issuer Bid. Under this NCIB, we can purchase for cancellation up to approximately 6 million common shares. Turning over to our financial outlook for 2023. I'd 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 updated our financial guidance on revenues and expect to generate between CAD 310 million-CAD 330 million in revenues, an increase of CAD 10 million on the lower and upper end of the range. Our adjusted EBITDA is expected to be between 16%-17% of revenue. The increase in financial outlook is primarily due to an improvement in LatAm currencies against the Canadian dollar in the first and second quarter of 2023. This 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 continuing to build a leading Pan-American ex-US specialty pharmaceutical company. We have over $140 million in cash, 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 generic product portfolio. Thank you for your support and confidence in the Knight team. This concludes our formal remarks. I'd like now to open up the call for questions. Eric?
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 Therapeutics' 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 one on your telephone keypad. If you would like to withdraw your question, please press star two. If you are using a speakerphone, please lift your handset before pressing any keys. One moment, please, for your first question. Your first question comes from Douglas Miehm with RBC. Please go ahead.
Yeah, good morning, everyone. Congratulations on a strong quarter. First question is maybe mostly for Arvind. When we look at the gross margins and the 45% that was reported this quarter, and taking into account, under the Endozone contract and the Exelon accounting treatment, would you say that margins are going to stay within, you know, this 45% or so range? Or could we see some significant fluctuations in that number moving forward?
Hi, Doug. The, the 45% gross margin, as I've mentioned, is, is really driven by the Exelon treatment and as well as the product weight. What I can say about gross margin going forward, we don't provide guidance on gross margin. We, we did provide the guidance on EBITDA margin. As Tamara mentioned, that would be in the 16%-17% range of revenues.
Maybe for Amal, just, she could walk through how she sees the pipeline, how it's changed over the last little while. Has it increased? Are there different things that you're looking at today relative to, say, six months or a year ago? Maybe comment on pricing, and I'll leave it there. Thank you.
Good morning, Doug. Sure. The, I would say maybe the, the, the bottom line answer is that we haven't really seen any significant or fundamental changes in the deal flow, the types of opportunities that we're looking at. We continue to look as a reminder for products or transactions that bring us products with existing sales as well as pipeline assets, and that's both on the innovative and the branded generic side. In addition to developing our internal branded generics and therapeutic areas, we're still looking within our therapeutic areas. We, of course, when we added Exelon, that brought with it an additional focus on adding CMS products to, to complement.
We're always evaluating to see if there are different therapeutic areas that we are not in today that could become interesting, and also depending on the BD pipeline, if there is one particularly interesting opportunity in a TNS, in a UTA, then we look to see, you know, if that's if that's an area that we need to accelerate BD behind. In terms of valuations, there, too, I would say I haven't really seen big changes from our perspective and for the deals that we're looking at.
Thank you.
Thank you. Your next question comes from Andre Uddin with Research Capital. Please go ahead.
A nice quarter, Samir and Amal, maybe you could just elaborate a little bit more on the business development side. Are you still seeing interesting opportunities in Mexico? I know you're sort of looking at that area. Is that still the case? Are you looking at any other regions, like emerging market regions, like, for example, Eastern Europe or the Middle East, or are you sticking right now with Pan America? Thank you.
Sure. We're, I would say on the second part of your question, we're still focused right now on our current geographic footprint, so Canada, Latin. We are still looking at Mexico again. Our business, as we said before, our business there is subscale, as it is in, in Canada, and, and both of these geographies, we continue to look for opportunities to increase the presence. We're continuing to look. We're, we're still staying the course until we find the right opportunity to execute on. That's really the, the, the focus outside of Canada and Latin for now is is not something that we're working on.
Thank you.
Thank you. Your next question comes from Endri Leno with National Bank. Please go ahead.
Hi, good morning. Thanks for taking my questions, and congrats on a good quarter. I'm just gonna tag on to the BD development questions as well. I'm just gonna try to ask it in a little bit of a different way, but the commentary on the earnings was that the focus is on advancing the pipeline with the submission of innovative and brand generic products. I mean, is this just kind of a writing, or is there more focus on advancing the portfolio, rather than adding to it new products?
No, it's really both. They're not exclusive, right? When we bring in products through business development activities, we have one of our, you know, one of the imperatives is to actually execute on those transactions and, and progress those products and launch them, get them approved in time, launch them in time. That's, that's really what our team has been doing. That's why we're highlighting advancing the portfolio. Our BD team continues to be very active to identify additional opportunities. If you recall, you know, in 2021, 2022, we brought in about nine products between the acquisition of Exelon and, and the rest was really all pipeline products.
Again, it's really important to continue to progress these products, and you're starting to see the impact that those BD deals have had, not just on the portfolio itself, in terms of products with existing sales, but also on the pipeline. We see them actually progressing so that, hopefully soon enough, you'll start seeing that contribution on, on the revenue and on the bottom line. That doesn't mean that we're decelerating the BD effort. The BD effort continues in parallel.
I just want to add, it's actually a flow. BD brings it in, it goes over to our quality and regulatory teams to regionalize and prepare doses, and then it goes to our commercial team. That funnel, that pipeline has to continue to move, and each of our teams continue to execute on all of that.
Okay, thank you. That's great to hear. One more kind of follow-up under the same topic, and I know, Amal, you mentioned that you haven't seen any kind of, you know, big changes in valuation on changes. I was just wondering if you can comment a bit, at least in the competitors, on the potential companies that or you could buy from that you monitor. I mean, have you seen any increased financial stress, let's say, in the companies you monitor, given where the interest rates, where they are right now?
Again, we're not you know, we're, we're I guess it depends on kind of who, what you have in mind. When you're looking at bringing in products, like in licensing pipeline products, we're not really seeing that impact. In fact, if there is a distressed company, which, you know, where we have question, big question marks about their ability to continue developing the product, that would be, you know, actually a question or reason to pause, maybe for us. So, so, so that's not necessarily something that's that's helping to increase or that's not necessarily an opportunity, I would say. That type of of distressed company would not be an interesting opportunity for us. In terms of acquisitions, again, it really depends on a case by case. If we're looking at company acquisitions, we're, we're monitoring.
If, again, we really look at it on a case by case to see what would be the right opportunity with the right risk profile and the right price tag attached to it.
Okay, great. Thanks. That's good color. One more for me, I'll, I'll jump in the queue. In the prior quarters or updates with the guidance mentioned, competition was cited as a reason for the guidance that was given at the time, especially earlier this year. I was wondering if you can talk on, on specific countries, if you can talk a little bit about whether there's been any changes there for better or for, hopefully not worse. Yeah, any comment there? Thanks.
Sure. That's a great question. What we are seeing is we are seeing competition. I, the, the most... This is like the, the reason for the guidance earlier in the year, there was one reasons that we were-- two or three reasons that we were bringing in down. One was currency, because we do -- what we do is when we rely on our currencies, we're relying on people a lot smarter than ourselves to forecast currency, and they, they will give-- their guidance was a devaluation, and that's what we used. The second thing was the termination of Gilead, so we knew that those top-line numbers weren't going to be there. The third was competition on our branded generics products, primarily in Argentina and Colombia.
What we have seen, especially in Colombia, is that competition has been slower to arrive, that's really a function of the Colombian agency. The second thing is the ones that are there, while they are pushing for price decreases and we are seeing price erosion, it hasn't been as aggressive as we had initially thought, because we thought there would be more players in the field than there are today. We do expect them to come. It's not a question of if, it's a question of when. As long as we can continue to, you know, take, take the benefit, we will, and we'll continue to do what we set out to do, which is in license, acquire, develop, get those products approved and commercialized, our teams are executing on all of that, and we see it in our numbers.
Yes, a great color. Thank you, Samira.
Thank you. Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the one. At this time, there are no further questions. Please proceed with your closing remarks.
Once again, thank you for your confidence in the Knight team and for joining our Q2 2023 conference call. Have a great morning.
This concludes your conference call for today. You may now disconnect your lines. Thank you.