Greetings, and welcome to the Medexus Third Fiscal Quarter 2024 Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions after the presentation. If anyone should require operator assistance during the conference, please press star zero on your phone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Victoria Rutherford, Investor Relations. Victoria, you may begin.
Thank you, and good morning, everyone. Welcome to the Medexus Pharmaceuticals third fiscal quarter 2024 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 480-625-5772. I would like to remind everyone that this discussion will include forward-looking information as defined in securities laws. Actual results may differ materially from historical results or results anticipated by the forward-looking information. In addition, this discussion will also include non-GAAP measures such as Adjusted net income and 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 more information about forward-looking information and non-GAAP measures, including reconciliations to net income and loss, please refer to the company's MD&A, which, along with the financial statements, is available on the company's website at www.medexus.com and on SEDAR+ at www.sedarplus.ca. As a reminder, Medexus reports on the March 31st fiscal year basis. Medexus reports all financial results in U.S. dollars. I would now like to turn the call over to Ken d'Entremont.
Thank you, Victoria, and thank you everyone for joining us on the call today. I'm going to start with some general comments, before I dive into the usual financial and product highlights. Our third quarter results reflect yet another quarter of positive operating income and positive Adjusted EBITDA. However, we believe the results also reflect certain changing, business conditions affecting our, our operations, in particular, recent adverse trends in IXINITY demand and Rasuvo product-level performance. In response, we have moved quickly to reduce costs, including a reduction in allocation of salesforce resources to the products. We estimate that these cost reductions will reduce our go-forward operating expenses by approximately $4 million-$6 million on an annualized basis, which would help improve our results in fiscal Q4 and subsequent quarters.
For IXINITY, we will seek to maintain existing demand but reduce investments in IXINITY's growth, with the pediatric indication as a tailwind, if and when approved. For Rasuvo, we will continue to defend Rasuvo's strong formulary status. We expect that our cost reduction initiative will establish a solid foundation to manage the future needs of the business and generate cash flows from operations. We look forward to increasing our focus on Gleolan as an institutionally based product that we believe will complement our commercialization activities for treosulfan, if and when that product is approved. On treosulfan, we are pleased to report that the data collection phase of Medac's effort to respond to the FDA's information request on treosulfan is now complete.
It will take time for Medexus to process and submit the information as part of the NDA resubmission, but progress to date remains in line with our previous expectations for this to occur in the first half of calendar 2024. Now for our key financial highlights. Our fiscal Q3 2024 revenue of $25.2 million decreased from $28.7 million for the same period last year, or a 12.3% decrease YoY. The $3.5 million decrease is mainly due to a decline in sales of IXINITY over the second and third fiscal quarters of 2024 and the accumulating effect of continued effective unit-level price reductions for Rasuvo. Adjusted EBITDA of $3.2 million for the quarter was a decrease compared to $5.2 million for the same period last year.
The $2 million YoY decrease is mainly due to the decrease in revenue I mentioned, offset in part by reductions in operating expenses in the third quarter of fiscal 2024. We also produced a net loss of $0.5 million for the quarter, an improvement compared to a net loss of $1.5 million for the same period last year. The positive operating income of $1.6 million, a decrease compared to $2.9 million for the same period last year. Turning to our specific products, IXINITY unit demand in the United States decreased by 5% over the three- and twelve-month periods, ending December 31st, 2023.
Demand continues to reflect the effects of lower observed average quantities of IXINITY consumed by newer patients, together with lower apparent adherence by existing patients and other developments in the broader hemophilia B treatment solutions market. We now believe that these emergent trends are likely to persist, and as such, will seek to maintain existing demand but reduce investments in IXINITY's growth with the pediatric indication as a tailwind, if and when approved. We continue to engage in constructive dialogue with the FDA on that supplemental Biologics License Application, which the FDA accepted for review in June 2023. We remain optimistic and expect to hear from the FDA with a decision in the first half of calendar year 2024. On Rasuvo, we maintained a market-leading position during the quarter as unit demand remained strong. However, competition continues to adversely affect Rasuvo product level revenue.
We have also observed an increasing share of product-level revenue attributable to government-sponsored programs, which benefit from statutory discounts and rebates, with adverse effects on total product-level revenue. We also now expect that additional statutory discounts and rebates anticipated under the U.S. Inflation Reduction Act will have an increased, incrementally adverse effect on product-level revenue going forward. Rupall unit demand in Canada remained strong during the quarter, which is reflected in the unit demand growth of 21% over the trailing twelve-month period, ended December 31st, 2023. This strong performance reflects successful execution of our sales and marketing initiatives to sustain the product's strong performance over the seven year, seven years since the product was launched in January 2017. We continue to see topical terbinafine, which we licensed in March, as a strategic fit with Rupall.
Topical terbinafine has been widely used in other markets to treat nail fungus infections. We made a new drug submission in December of last year, and last month we learned that Health Canada had accepted the NDS for review, which we view as consistent with our plans to target a commercial launch in the first half of calendar 2025. If and when approved, this product will enter a market that we estimate to be CAD 88 million on an annual basis. On Gleolan in the United States, we continue to execute our post-transition commercial plan.
While it is too early to say for certain, we currently expect that product-level revenue for fiscal years 2024 and 2025 would require additional royalty payments to the licensor in order to meet the minimum annual royalty obligations set out in our license agreement. Although Gleolan performance has remained lower than expected, unit demand has been growing moderately over the course of fiscal 2024, and we do intend to increase our focus on the product as an institutionally based product that we believe will complement our commercialization activities for treosulfan, if and when that product is approved. Metoject unit demand in Canada has increased by 17% in the trailing twelve-month period, ending December 31st, 2023, in spite of direct generic competition.
We continue seeking to defend the product's strong market position as we continue to await the Federal Court's decision following the January 2023 trial in the patent litigation we initiated against Metoject's generic competitor in 2020. In sum, we continue to focus on maintaining stability of our base business and generating cash from operations, and we are confident that our quick moves to formulate and implement our recent cost reduction initiative will set the company up for success in the quarters to come. I'm now going to turn the call over to Marcel, who will discuss our financial results in more detail. Marcel?
All right. Thank you. Thank you, Ken, yeah. We are pleased to report our seventh consecutive quarter of positive operating income and ninth consecutive quarter of positive Adjusted EBITDA. I'm also very happy with our accomplishments to settle the debentures in cash during the third quarter for fiscal year 2024. Turning to the full quarter results, total revenue for the fiscal third quarter was $25.2 million. The quarterly revenue number represents a decrease of $3.5 million compared to $28.7 million for the three-month period ended December 31st, 2022.
As Ken mentioned, the $3.5 million decrease in the third quarter of 2024 revenues versus the prior year third quarter is primarily due to the decline in sales of IXINITY over the second and third fiscal quarters of 2024, and the accumulating effect of continued effective unit-level price reductions for Rasuvo. Gross profit was $12.5 million for the three-month period ended December 31st, 2023, compared to gross profit of $15.9 million for the same period last year. The gross margin was 50.4% for the three-month period ended December 31st, 2023, compared to 55.4%, 55.4% for the three-month period ended December 31st, 2022. As we mentioned on last quarter's call, we continue to monitor this metric closely.
This quarter's 5% YoY decrease in gross margin primarily reflects changes in the relative product, the relative contribution of product-level net sales. More specifically, the effect of Gleolan sales in the United States before September 2022, declining IXINITY sales over the second and third quarters of 2024, and the accumulating effect of continued effective unit-level price reductions for Rasuvo. Selling and administrative expenses were $10.7 million for the three-month period ended December 31st, 2023, compared to $11.9 million for the same period last year. The $1.2 million YoY decrease in SG&A was primarily attributable to targeted reductions in operating expenses.
At the period end, we reduced our allocation of sales force resources to IXINITY and Rasuvo as part of the company's implementation of the cost reduction initiative, which we expect to improve the contributions of those products to overall financial results. Research and development was $0.4 million for the three-month period ended December 31st, 2023. This compares to $0.7 million for the three-month period ended December 31st, 2022. Adjusted EBITDA was $3.2 million for the three-month period ended December 31st, 2023, a decrease of $2 million compared to $5.2 million for the three-month period ended December 31st, 2022. The decrease in Adjusted EBITDA was primarily attributable to the YoY decrease in revenues in the quarter, offset by reductions in operating expenses in the third fiscal quarter, 2024.
The net loss for the 3-month period ended December 31st, 2023, was $0.5 million, compared to a net loss of $1.5 million for the same period last year. Adjusted net loss of $0.5 million for the 3-month period ended December 31st, 2023, an improvement of $0.4 million compared to an Adjusted net loss of $0.9 million for the same period last year. Our cash position remains solid, with cash and cash equivalents of $8.2 million at December 31st, 2023.
The primary factor in the net decrease in cash comparing to March 31st and September 30th, 2023, to December 31st, 2023, was the use of cash to make the final maturity date payment in respect to our convertible debentures in October 2023. Among other things, cash provided by operating activities of $5.5 million and $17.1 million for the three- and nine-month periods ended December 31st, 2023. We also completed a bought deal public offering in October for aggregate gross proceeds of CAD 11.5 million, or CAD 10.8 million aggregate net proceeds before expenses.
As always, there can be variability in our quarter-to-quarter results, but we look forward and are energized to continue to build the company and its portfolio in the coming quarters and beyond.
Operator, we will now open the call to questions.
Thank you very much. At this time, we'll be conducting our question-and-answer session. If you would like to ask a question, please press star one on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press star two if you would like to remove your question from the queue. For anyone using speaker equipment, it might be necessary to pick up your handset before you press the keys. Please hold a moment while we poll for questions. Thank you. Your first question is coming from André Uddin of Research Capital. André, your line is live.
Okay, thank you. Hi, Ken and Marcel. Just a bit of a long-winded question here, but if, if we look at the balancing of your debt repayments using your cash flow from operations, with your ongoing business development, in terms of strategy, will you be more focused on in-licensing, or will you look at some asset acquisitions, and are you seeing any interesting opportunities with either? Thanks.
Yeah, thanks for the question, André. So I think, you know, in answering the question, you know, obviously, the biggest opportunities we have within our are already within our portfolio, it's clearly, treosulfan and, and terbinafine. In terms of, you know, additional business development, we're seeing lots of activity, smaller deals, in Canada, for smaller products that we could license and use, you know, little capital up front. So certainly are doing those. We are seeing bigger deals, but you know, our valuation, the way we're looking at it, we think we're pretty significantly undervalued, particularly with the treosulfan asset coming along in the pipeline. So, you know, not, not sure whether, you know, we'd be able to execute those deals at this stage.
Okay, well, that's fair enough. And just in terms of IXINITY, if it is primarily being affected by the gene therapy products, and or is there some other factors that are impacting IXINITY? Can you just talk about that a little bit?
Yeah, sure. Happy to. No. So gene therapy really is having no effect thus far on us, and not sure it's having much effect on the hemophilia B market at all.
Okay.
I think the patient numbers are minuscule. So, the broader trend continues to be, you know, extended half-life and standard half-life. You know, those two categories. There certainly has been a shift, and it continues to a small degree from standard to extended half-life products. So that continues. And then the trend that we were being observing the last couple of quarters is just, you know, lesser adherence by, you know, our core base of patients, and it's probably more related to macroeconomic issues than anything. In that we're seeing that some patients, you know, are losing insurance coverage because they're losing jobs. And, you know, that obviously adversely affects us for a period of time. Now, that they...
that may well come back, and we certainly hope it does, but we thought it more prudent to adjust our cost base now, and if that does happen, then obviously that would be a nice upside for us in the future.
... Okay. And just, you were talking a little bit about the treosulfan opportunity. Just one more question there. If everything is addressed with the CRL, and let's say the FDA is okay with everything that they see, and you are able to file it within the first half of this year, when would you foresee seeing that product on the market potentially? Thanks.
Yeah. So if everything appears to be on the timeline that we had set out previously, so, file in the first half of this calendar year. And so we're looking for a decision in the last quarter of this calendar year.
Okay, that's great. Okay, thanks, Ken.
Thank you very much. Your next question is coming from Rahul Sarugaser from Raymond James. Rahul, your line is live.
Hi, Ken, hi, Marcel. This is Mike on for Rahul today. Thanks for taking our question. I'd like to get into Gleolan. You indicate that you would like to make further investments in its sales for a bunch of reasons. I'm curious what that... If you could describe what that sort of capital deployment might look like? And also related to Gleolan, you indicated in the press release that it's looking unlikely that you'll meet the minimum royalty requirements for 2024 and 2025. I'm curious what implications that has for your business. Thanks.
Thanks, Mike. So I'll take the first part of that question and hand the royalty piece over to Marcel. So in terms of, you know, the execution, commercial execution on Gleolan, you know, the costs associated with that are already built into our business. And so, you know, we've taken down expenses on IXINITY, but maintained those, but maintained most of those expenses on Gleolan, because we do believe that there is a growth opportunity in Gleolan, plus the fact that, you know, being institutionally based, that's where treosulfan would be launched, if and when approved. So we think strategically, it makes good sense to continue our institutional effort, and obviously, Gleolan is the product that we have in that space. Marcel, do you wanna manage the royalty question?
Yes, sure, Mike. So the royalty per se, as you may recall from previous calls, accrued already in our cost of goods sold and part of the predetermined works. I've explained sort of the drivers there on a QoQ and YoY decline on our gross margin, which there are other components in there, but essentially, that's all it is, which is sort of accrue for that, and then obviously have to pay that royalty down the road then.
Okay. All right. Thanks very much. Now, a quick one on IXINITY. You know, should the pediatric BLA come through, should we expect that that could materially change the dynamic, the sales dynamic of that drug, given, you know, given you would now have the capacity to get children on drug early and not be needing to face the dynamic of needing to change or shift adult patients from one drug to another?
Yeah, it's a great question. So, I think the way to think about it is that, you know, over, you know, medium or long term, yes, it has an impact to affect the trajectory of the drug. In the short term, probably not very much. You know, as new patients are diagnosed, typically in childhood, they're quite small, so the dose they would take would be very small. So, you know, the financial benefit of adding those patients isn't very big. It's not until, you know, they get larger, use bigger doses over a longer period of time, that it makes an impact. So we wouldn't expect to see, you know, an immediate effect, but over, you know, medium and longer term, certainly it should have a positive impact.
There may be some positive halo effect, you know, of the fact that, you know, we've now, or we would expect to get the pediatric indication added to our label. That puts us on, you know, equal footing with our competitors. So, you know, that may bring us some other business from adult patients, but, you know, we'll wait and see. We're obviously going to be out promoting the fact that it has been approved if and when it does.
All right. That's helpful. I'll pass it on.
Thank you very much. Your next question is coming from Justin Keywood of Stifel. Justin, your line is live.
Good morning. Thanks for taking my call. A lot of moving parts, as mentioned. Are you able just to detail the run rate of the business expected on a revenue and Adjusted EBITDA basis, and if it's expected to be free cash flow generative? Thanks.
Yeah, I'll flip that over to Marcel.
Yeah, thanks. Thanks for that question. Yeah, yeah, as you, as you've seen from, from our, quarter now versus previous quarter, we've seen a decline in sales. So we've generated positive Adjusted EBITDA, specifically for the first and second quarter. So we've seen a bit of a dip. We've taken immediate actions to that. I think what we've been, what we've historically done is we've seen those changes in the business environment. We have reacted quickly.
Now, we've reacted on our costs and protect our bottom line on the EBITDA, which we should see the impacts in the coming quarters. Then, on the revenue side, as Ken mentioned, we have to observe some of those trends that are occurring now in our external business environment. At this point, we're not giving any guidance, obviously, what's going to happen going forward. But as we talked a little bit earlier, some of these trends may be temporary, others may not.
This is a little bit hard, a hard estimate for us to say, but as we said, we took immediate action on the cost side to protect the bottom line, yeah.
Understood. Thanks. Just on the restructuring or one-time costs, are you able to detail that?
So what we've said is, what we basically took out, sort of on an annualized basis, $4 million-$6 million. You actually see already that if you look at our total operating expenses for Q2 over Q3, it's already coming down. So we basically quantified that sort of on an annual basis and, with a sign of an impact, obviously, going forward, that will help us to protect our bottom line, yeah.
Okay. And then, just on treosulfan, if there's been any change in strategy, just as far as the organization for the next submission, given it's the third attempt here, and what gives you confidence of a successful outcome this time?
Yeah, it's still the first attempt. So this is still the same ongoing submission. It was one CRL, one resubmission. So, no, no change in the strategy in terms of how we would commercialize. The opportunity continues to be large. We obviously have 18 months of experience now in Canada, and we are seeing the trends in Canada, in that market and what works in terms of commercialization. And so, no, I think, you know, the key thing is get the resubmission completed, and get the decision date, and then if positive, execute the commercialization plan, that has probably only gotten better in the couple of years that we've been working on CRL.
Thanks. And just on the first half of this year, timing, so the, I guess, item to watch out for is if the FDA accepts the resubmission for treosulfan, is that what we should be looking out for?
Yeah, yeah, correct. So, we will, you know, clearly put that news out once the FDA has accepted the resubmission. So, you know, we would expect, as we said, you know, that's sometime in the first half of this year, this calendar year.
Thank you very much.
Thank you very much. Your next question is coming from Stefan Quenneville, from Echelon Capital Markets. Stefan, your line is live.
Hi, guys. Thanks for taking the question. Could we just drill down a bit more on the pricing pressure you're seeing in the US? You know, it, you know, the decline in the US business implies, you know, you know, pricing pressure on both, I guess, Rasuvo and or IXINITY. Can you guys just delve a little deeper into what's going on there?
Yeah, sure. Happy to. So the pricing pressure is primarily on Rasuvo, you know, it being a reimbursed product and exposed to, you know, various PBMs. You know, two dynamics happening there. One, we've seen unit volume actually increase, you know, meaningfully, as a result of a methotrexate drug shortage, which has been a shortage kinda worldwide. We've seen that happen in many different markets. So we've benefited from, you know, additional units coming into our book of business. Unfortunately, though, you know, those units are coming from vials, which tend to be the lowest cost, which tend to be, you know, patients who've got the lowest level of coverage, which is our, you know, smallest profit book of business. So we're getting these additional units, and it doesn't help that much.
And then, you know, on the rest of the business, the rest of the, you know, the commercial business, you know, continue to see price pressure, in order to defend our, you know, our, our market share. If you recall, we got a better than 80% market share, so we've made it very clear that we're going to defend our share in order to keep those units. And so in order to do so, at some times it's meant adjusting the price to protect our business.
Okay. And just onto the, I guess, the path, you know, forward for IXINITY, is it fair to say, like the language you're talking about here seems to imply that you don't view it really as a growth product franchise for you going forward. Is that a reasonable way to look at it, and you're looking to just sort of maintain your profitability with that product? Like, what's the, you know, franchise strategy there?
Yeah, it's a great question, and we've spent a lot of time, you know, analyzing exactly that issue. You know, what is the growth potential on this drug versus other products that we have in our portfolio and other products that we have in our pipeline? And so I think the way we're thinking about it is that we've, you know, got a good, stable base of business for IXINITY. And, you know, most of our business is coming from, you know, a core group of patients, and we clearly want to maintain those. The effort to get new patients is high, it's costly. And we're seeing those new patients coming in at a lower value. So, you know, obviously, the cost to obtain a new patient has been going up.
And so I think we've shifted our strategy to say, "Look, let's maintain our base. Let's take new products that might come along, but we're not going to spend heavily searching for those new patients." You know, as the market changes and, you know, our position within the market improves, if and when the product is approved for pediatrics, then we may get more patients, and that may come through more naturally. You know, obviously, we've got a group of patients who are using our product, a group of physicians who are familiar with our product, and, you know, we would expect to get some share.
So we're no longer going to invest in the growth of the product, more interested in maintaining, you know, the good base of business that we do have, and then investing in institutionally based products, which is currently Gleolan, and in the future, we hope is treosulfan.
Okay. And let's kind of move to treosulfan as well. So, you know, the language in the press release, you talk about Medac having collected all the data required. Can you explain what that means? Have they... You know, they had to go through patient records. It was a long process. Have they successfully got all the patient information? You know, are there gaps in that data? They were unable to—some percentage of patients, they were unable to collect the data that the FDA required, or is it, have they comprehensively been able to collect what was being asked for, I guess, by the FDA? Can you characterize that to some degree?
To some degree. I think what I can say at this stage is that, you know, so the data collection phase is over. And so they have successfully collected 570 of 570 patients, so it's 100%. So I think that was a very thorough job. I can't really comment on the analysis of the data that's being collected because that's ongoing. But I can't say that, you know, the fact that we do expect to resubmit would suggest that, you know, we believe that the data is compelling enough to do the resubmission.
Yeah. And then just finally on Treo. Well, I guess two questions, Treo. You're expecting a Class 2 review if the resubmission is accepted by the FDA, so a six-month review process?
That's our assumption, but as you know, it could be-
Could be a 2 months.
The other class, which would be a 2-month. And so-
Yeah.
You know, it's at the outside, it's Q4 of this calendar year-
Yeah
... for a decision, if it's a six-month review.
Okay. And then just finally on Treo. You know, in the markets where it is available, you know, I understand it, you know, quickly becomes sort of standard of care. Can you characterize how quickly, you know, people, I guess in, you know, more conservative markets, you know, Canada and Europe, have switched to Treo? And, you know, how you expect that will occur in the U.S., if it is, in fact, launched later this year?
There's a lot in that question, so let me try.
Yeah.
The European market obviously is far more mature than the North American market. It's been in that market for quite a long time, ovarian cancer before being indicated for stem cell transplantation, so familiarity was quite high. And it has become standard of care in Europe, and you know, there are physicians who have written that you know, they're just not familiar with using the other drugs, that they use Treo. The only market that we can really comment on that you know is a recent launch is our own market, which you know we launched it ourselves in Canada 18 months ago. And we're seeing very good uptake. Uptake that would support the sales revenue that we've projected for the U.S.
You know, what we're seeing happen in Canada, if you translate that to the U.S., it would be very supportive of what we think is going to happen in the US. But I'll also point out that, you know, in Canada, even though we have really good performance, we don't yet have reimbursement. So, it's going to get better in Canada with reimbursement. And so we're really pleased with, you know, the trajectory that the product has in Canada. If and when it gets approved in the U.S., you know, we think that, you know, our sales projections that we previously put out there would be reachable.
Okay. Sorry, just to jump around a bit. On the cost cuts, can you guys give a sense of what the kind of one-time payment's going to be to for those, I guess, the severance? As well, do you expect the cost cuts to more than sort of make up the EBITDA loss from the weakness in your U.S. product portfolio over the next 12 months?
I'll turn that one over to Marcel.
Yeah, I take finance.
No, we, we're not-- we didn't disclose the, you were asking for the termination benefits, but, but of course, you know, can, c-can assume we are, we did, we had to go through a very, sort of a difficult, difficult, difficult exercise to, to reduce, these costs, both from the, both from the headcount and on the variable costs. And we'll, we'll you already see the impact here a little bit in Q3, as I, as I said, and, as I mentioned before, we, we're really, we're really, trying to be agile and flexible to our, business environment, to be able to react to that and get sort of, previous levels, as, as, as we have seen.
But at this stage, it's early, early to say how much these cost cuts will be fluctuating relative to our revenue evolution going forward.
Okay. And just I know I've been hogging the call here, but one last question: Can you remind us of covenants, maybe surrounding, you know, EBITDA levels on the BMO facility and debt that we should be aware of?
Yeah, we haven't disclosed in detail, but we're gonna continue to service our debt. Obviously, you've seen with these cash flows we've been generating for this quarter, for example. So that is a continued focus to do so, and obviously, the cost cutting, the protecting our bottom line, will help assuring that we continue to service our debt.
Okay. Thanks, guys. That's it for me.
Thank you very much. We have now reached the end of our question and answer session. I will now hand back over to Ken for any closing comments.
I just want to thank everybody for joining us on the call today. We look forward to building upon and advancing the products in our portfolio and the pipeline, and continue to deliver a strong performance over the rest of 2024 and beyond. Thanks very much.
Thank you very much, everyone. That does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.