Good day, ladies and gentlemen, and welcome to the Medexus Pharmaceuticals Third Quarter 2022 Earnings Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Victoria Rutherford. Ma'am, the floor is yours.
Thank you and good morning, everyone. Welcome to the Medexus Pharmaceuticals Third Quarter Fiscal 2022 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 that is based on certain material factors or assumptions and is subject to risks and uncertainties that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information.
In addition, during the course of this call, there may also be references to certain non-IFRS financial measures, including references to adjusted net 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 both forward-looking information and non-IFRS financial measures, including a reconciliation of each adjusted net loss and Adjusted EBITDA to net loss, please refer to the company's management discussion and analysis, which, along with the financial statements, are available on the company's website at www.medexus.com and the company's corporate filings on SEDAR at www.sedar.com. I would now like to turn the call over to Ken d'Entremont.
Thank you, Victoria. Good morning, everyone. Thanks for joining us on the call today. We've got some prepared statements that we'll read, and then be happy to take questions at the end. In the third quarter of fiscal 2022, we achieved revenue of CAD 21.3 million compared to CAD 17.9 million in the second quarter of fiscal 2022 and CAD 24.3 million in the quarter ending December 31, 2020, or the previous year. Revenues during Q3 were positively impacted by stronger IXINITY sales quarter over quarter as we began to see the results of the channel correction we initiated a few quarters ago.
This improvement was partially moderated by the typical seasonality we have in our portfolio, specifically with Rupall sales, which reflected a severe allergy season in Canada, and then, as expected, returned to normal levels in the fall. Adjusted EBITDA was positive at CAD 1.9 million compared to negative CAD 2 million in the Q2, and compares to CAD 3.9 million for Q3 last year. This improvement from Q2 also reflects the improvements we have seen in IXINITY, in particular in the manufacturing process, which we will touch on later in the call, as well as the reduction of expenses in Q3. Our net loss of CAD 1.2 million compared to a net loss of CAD 12.8 million for the same period last year.
Our Q3 figure included a non-cash unrealized gain of CAD 2.2 million on the fair value of the embedded derivatives in our convertible debentures, which was driven by a change in our share price at the end of the applicable periods. Our adjusted net loss, which adjusts for these unrealized losses or gains, was CAD 3.4 million compared to CAD 0.4 million for the same period last year. Our net cash flow was CAD 1.4 million in the period compared to a use of CAD 2.9 million for the same period last year. At December 31, 2021, we had CAD 9.6 million in cash and cash equivalents with CAD 10.1 million of total available liquidity.
Turning to our specific product lines, we saw a sequential quarter-over-quarter improvement overall in our core business and are excited about the new and potential additions to our product portfolio, which we believe will generate growth momentum over the coming years. During the quarter, we saw a recovery in IXINITY sales that validates our recent initiatives to reset the supply chain and selling process over the last few quarters. Our unit market demand figures suggest a moderate level of patient conversions on top of a stable existing base of patients. We're also continuing to invest in a phase IV pediatric study that, if successful, will expand the IXINITY product label to include the pediatric population of patients under 12 years of age with hemophilia B. During Q3, we completed enrollment in our trial, and the trial is expected to be completed by June of 2022 this year.
Once completed, a successful study could support an expansion of the indicated patient population for IXINITY, and we are exploring approaches to address this potentially expanded market. Rupall saw strong and continued unit demand growth of 30% for the trailing twelve months ended December 31, 2021, continuing its trend as one of the fastest-growing antihistamines in the Canadian prescription market. Again, this growth reflects a severe allergy season across Canada and physicians increasingly switching patients to Rupall from either the generic prescription antihistamines or over-the-counter products. Turning to Rasuvo, a once-weekly subcutaneous single-dose auto-injector of methotrexate indicated for the treatment of rheumatoid arthritis, psoriasis, and juvenile idiopathic arthritis. On a unit sold basis, Rasuvo continued to maintain and in fact slightly increased its market share in the United States in the trailing twelve months ended December 31, 2021.
However, product revenue was negatively impacted by a decrease in the effective unit level prices we implemented during this period to defend our strong market share in light of increased competition in the branded methotrexate market. Metoject is a prefilled syringe of methotrexate, which is indicated for the treatment of rheumatoid arthritis and psoriasis. Even with a generic entry into the Canadian market in 2020, Metoject had a unit demand increase of 8% in the trailing twelve months ended December 31, 2021. Again, product revenue was negatively impacted by a similarly motivated decrease in effective unit level prices. As we have discussed in the past, we continue to be excited about treosulfan. We expect that it will become a leading agent for use in conditioning regimens as part of allogeneic hematopoietic stem cell transplantation protocols, the thankfully abbreviated allo-HSCT.
This is a therapeutic area of great strategic interest for us. In June 2021, we received notice of compliance from Health Canada to commercialize treosulfan, which we currently market in Canada under the trade name Trecondyv. We have entered into an exclusive license with medac GmbH to commercialize treosulfan in Canada and now have fully launched in the Canadian market. We also entered into an exclusive license with medac in February 2021 to commercialize treosulfan in the United States. As we have previously discussed, on August 2, 2021, we were notified by medac of a complete response letter from the US Food and Drug Administration relating to the new drug application for the use of treosulfan in the United States. We participated in medac's Type A meeting with the FDA on November 23, 2021 to review medac's resubmission plan.
Following that meeting and based on our discussions with medac, our view is that there is a path towards approval that does not involve completing an additional phase III study, provided that medac delivers to the FDA materials that address the FDA's outstanding issues set out in the CRL. The NDA resubmission is currently expected to occur in the second quarter of 2022, with a final FDA decision expected 2-6 months after the NDA resubmission, timing that is substantially consistent with our previous estimates. We continue to believe that treosulfan could eventually overtake the current market-leading product in the U.S., busulfan, which realized $126 million in U.S. sales prior to genericization. In the meantime, we do not expect to make additional milestone payments to medac until we have received FDA approval.
In addition to our current product portfolio, we also have a right of first refusal on current products from medac, the previous owner of Medexus US. We believe that several of these products represent a promising commercial opportunity in North America, and we are in the process of assessing the licensing of these products. We are also in discussion with several partners regarding other licensing opportunities that we believe have the potential to materially contribute to the revenue over the next few years. A key component of our growth strategy will be to continue to leverage our infrastructure through new product acquisitions and partnerships. We are exploring a number of opportunities, including a portion of the deal pipeline in the negotiation phase in both the U.S. and Canada.
We will continue to look at optimizing our portfolio and leveraging our resources with the goal of executing near-term accretive transactions to achieve our sales growth targets over the coming years. We aim to continue to grow revenue, leverage our North American sales force across products, realize synergies from our predecessor companies, and maintain strict financial discipline. In summary, we believe we have built a highly scalable business model which should provide significant incremental earnings potential. I'll now turn the call over to Marcel, who will discuss our financial results in more detail. Marcel?
Total revenue was CAD 21.3 million and CAD 56.4 million for the three and nine-month periods ended December 31, 2021, respectively, compared to revenue of CAD 24.3 million and CAD 62 million for the three and nine-month period ended December 31, 2020. Revenue for the quarter benefited from end-of-year wholesale buying by approximately CAD 2 million. The comparative revenue period in 2020 similarly benefited from over CAD 2.5 million in IXINITY revenues that was collected in October 2020 versus September 2020, as expected, due to a delay in receipt of finished product from our contract manufacturing partner. We expect that timing of large orders like these will continue to affect quarter-to-quarter comparisons of our revenues.
Gross profit was CAD 11.5 million and CAD 27.8 million for the three- and nine-month periods ended December 31, 2021, respectively, compared to gross profits of CAD 12.7 million and CAD 33.2 million for the same period last year. The decline for the nine-month period ended December 31, 2021 was due in part to an increase in cost of goods sold, caused by additional expenses related to failures during the IXINITY manufacturing process in the quarter ended June 30, 2021, as previously disclosed. The gross margin was 54.1% and 49.3% for the three- and nine-month periods ended December 31, 2021, respectively, compared to 52.2% and 53.5% for the three- and nine-month periods ended December 31, 2020.
For the most recent quarter, we are encouraged to see initial results of improvements made to IXINITY manufacturing. The investments we made in people and in the process, in the manufacturing process are beginning to show good results. Selling and administrative expenses was CAD 10.7 million and CAD 34.1 million for the 3- and 9-month periods ended December 31, 2021, respectively, compared to CAD 9.4 million and CAD 25.9 million for the 3- and 9-month periods ended December 31, 2020, respectively. The increase over the comparative periods reflect important investment in our personnel and infrastructure to support our anticipated growth going forward, including preparation for the commercial launch of Treosulfan in the U.S. We reacted quickly to defer or cancel any further significant expenditures related to the Treosulfan launch after receiving notice of the CRL on August 2, 2021.
However, we believe that the CRL provides a path to review and approval, and therefore have continued to incur some expenses in anticipation of treosulfan's eventual commercial launch. Research and development was CAD 1 million and CAD 5 million for the three- and nine-month periods ended December 31, 2021, respectively, compared to CAD 1.2 million and CAD 2.6 million for the three- and nine-month periods ended December 31, 2020, respectively, as we continue to fund the IXINITY pediatric study, which is now 100% enrolled. Adjusted EBITDA for the three- and nine-month periods ended December 31, 2021 was CAD 1.9 million and -CAD 5 million, respectively, compared to CAD 3.9 million and CAD 9.8 million for the three- and nine-month periods ended December 31, 2020.
Adjusted EBITDA of CAD 1.9 million reflects an increase from the CAD -2 million of the second quarter in our fiscal year 2022. Sequential quarterly improvement was primarily attributable to improved IXINITY net sales in the third quarter and the reduction of expenses. As mentioned earlier, the company's recent inventory management and manufacturing process modernization initiatives have also started to produce positive results. The three- and nine-month periods ended December 31, 2021, saw a year-over-year decrease in Adjusted EBITDA due to the impact of the IXINITY manufacturing failures during the three months ended June 30, 2021. The large increase in research and development costs over the comparative period and the significant investments we made to improve our capacity for future business development and prepare for the anticipated commercialization of treosulfan in the United States.
Net income for the 3- and 9-month period ended December 31, 2021 was -CAD 1.2 million and CAD 2.4 million, respectively, compared to net loss of CAD 12.8 million and CAD 17.8 million for the same periods last year. Included in net income or loss is a non-cash unrealized gain or loss on the fair value of the embedded derivatives in our outstanding convertible debentures, which are sensitive to, among others, fluctuations of our share price. We believe that adjusted net income or loss, which excludes the impact of unrealized gains or losses on the fair value of derivatives, provides a better representation of performance of our operations because it excludes non-cash fair value adjustments and liabilities which may be settled for shares.
Our adjusted net loss for the as month periods ended December 31, 2021 was CAD 3.4 million and CAD 19.4 million, respectively, compared to CAD 0.4 million and CAD 2.5 million for the 3- and 9-month periods ended December 31, 2020. Cash and cash equivalents was CAD 9.6 million at December 31, reflecting an increase of CAD 1.4 million during Q3 and a decrease of CAD 9.1 million over the first three quarters of fiscal 2020. Our available liquidity was CAD 10.1 million at December 31, 2021, which consisted of CAD 9.6 million in cash and cash equivalents and an undrawn credit of CAD 0.5 million available under our ABL facility.
We are continually exploring various financing strategies to enhance our liquidity to support our execution of our business plan that includes an eventual launch of treosulfan in the United States. We're exploring various options to bolster our liquidity, both pre and post FDA decision, including to fund any milestone payment announced that may become payable as a result of the FDA decision. As mentioned during previous earnings results, no further milestone payments will be owed to medac unless and until FDA approval of treosulfan is obtained. Furthermore, we want to reiterate to investors that we do not expect the CRL for treosulfan to result in any default on our credit facility.
Operator will now open the call to questions.
Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Your first question for today is coming from André Uddin. Please announce your affiliation, then pose your question.
André Uddin, Research Capital Corporation. Hi, Ken and Marcel. Looks like IXINITY inventory issues are now resolved, which is good to see. Just looking at, you know, the pediatric IXINITY trial results, are those gonna be coming out this June, or when should we expect that data?
Yeah. Thanks, André. Good question. The last patient dosed will be June of this year. It'll likely take about six months to prepare the results for submission.
Just, obviously there's lots of stuff going on here in Canada. I'm just wondering if you foresee any supply chain issues with your business given the current border closures. Maybe you could just talk a little bit about that.
No, we don't. You know, since the beginning of the pandemic, we've been seeking to hold significant inventory on hand, you know, many months. We shoot for six. You know, temporary delays don't affect us. It certainly is much more challenging to move product. It costs more, and it takes more time. Because of the safety stock we've got built in, it hasn't affected us. We haven't had any significant back orders.
Okay, that's great. Thanks, Ken.
Your next question is coming from Scott Henry. Please announce your affiliation, then pose your question.
Thank you. Roth Capital. Couple questions. First, did you disclose what product had the $2 million order at the end of the quarter?
I don't believe we did, but it was IXINITY. You know, as we've been describing, we have been, you know, resetting the channel to whatever we think or we anticipate the right, you know, level is. We were somewhat surprised that that order came in. We didn't think that that customer wanted to hold that much inventory, but they do. We filled it. We ended up with, you know, a higher quarter than we expected. We'll see what happens this quarter. I think the good news is that demand matched ex-factory revenue this quarter for IXINITY. If there are no further corrections in the channel then, you know, we would go forward from here.
You know, we thought that we'd go a little bit lower in terms of months on hand in the channel. It's a little bit higher than we had anticipated, but that's totally up to the wholesale or retail customers at this point.
Okay. If we look at the sequential gain in U.S. sales, from Q2 to Q3, is the large bulk of that gain all coming from IXINITY?
Yes, absolutely. Metoject is mature. We hold very strong market share there. I think we're like 80%. It is basically flat on a unit basis, a slight increase, and a little bit down in dollars as we protect our share. Yeah, all of the gain that was realized came from IXINITY.
Okay.
Maybe, Scott, just to, since you asked for the Q2 or the Q3 variance. Is that correct? Yeah. That was your question.
Yeah.
Yeah, that is the majority, as Ken mentioned, is from that. It's actually from the top line. We've also been very consistent in saying that we've reduced and we've stopped obviously the spend from the launch. We see if you look at our operating expenses, for example, Q3 or Q2, that has also decreased, which is a factor that contributed to an increased EBITDA this quarter. Yeah.
Okay. Now, you know, given that you had this CAD 2 million order in Q3, how should we think about fourth quarter? I mean, I know the trends are going in the higher direction, but do you think Q4 could be as strong as Q3? Should we think about positive EBITDA as a continuing event or more of a one-time event? Thank you.
We're obviously heading in the right direction, and we're anticipating that, you know, I think we kind of thought we'd be break-even this quarter and then, you know, positive next quarter. It may be the inverse. If the channel further corrects, then, you know, we might have a break-even quarter this quarter, maybe a little bit down, a little bit up. I mean, it's really depends on where the channel settles. The good news is that there are no incentives, so we're selling all the IXINITY at normal pricing, which is great, helps the margins. We think we're, you know, near where the channel should be, but the channel will determine exactly where it wants to be. It's hard to call this quarter.
I think the good news and, you know, direction I would give is that, the ex-factory sales match demand this quarter.
Okay, great. Final question on the balance sheet. Current portion of long-term debt is a, you know, sizable number, but I know there's a lot of noise in that. Do you have any debt that you expect to be due within the next 12 months? Maybe you could give some color around that.
I'll let Marcel take care of that.
Yes, Scott, good question. It's a bit difficult to decipher footnote five here on this particular CAD 18 million. The huge majority of this is our ABL, the asset-based loan, which is a revolver debt that is going in there. That obviously is not within the 12 months. Then we have CAD 4 million or so start accumulating the true debt that we have to repay in the next 12 months then.
Okay, great. Thank you for that color, and thank you for taking the questions.
Thanks, Scott.
You do have an email question from Thomas Newman, and Thomas asks, "Is Medexus still planning to uplist to a U.S. national exchange in 2022?
It's a good question. It depends on the circumstances. You know, obviously, we had believed that the FDA approval of treosulfan would have been a good catalyst for upgrading to a major U.S. exchange. We still believe that's the case, and we're evaluating those options.
Thank you. Your next question is coming from Prasath Pandurangan. Please announce your affiliation, then pose your question.
Good morning. I'm from Bloom Burton. Thanks for taking my questions. My first one relates to the impact of IXINITY. What's the target gross margin once the channel inventory is completely normalized and the manufacturing process improvements are fully in place?
Great question. Complicated answer. The gross margin obviously improved probably points as a result of withdrawing the discounts. The improvement in cost of goods is far more difficult to forecast. We're on a very good trajectory. We're seeing nice improvements, and those will be realized, you know, as we go forward. It's a long manufacturing process for IXINITY. Remember, it's a biologic product, so it takes a long time to make it. The improvements that we're seeing are as a result of work we've been doing over the last year, and it's now starting to be realized and will continue to be realized as we go forward. The target is a little ambiguous in that we don't know the improvement that each of the steps will make.
We've been pleasantly surprised that the improvements we've made so far have exceeded expectations. The yields have gone up more than we expected. We've had very good impact with the money that we spent so far and the work that our U.S. team has done, which has been excellent so far. It's hard to forecast how much better it will get, but we're confident it will get better.
Okay, that sounds good. Then, as you look at potential capital raise for milestone payments as well as the eventual launch of treosulfan in the U.S., how do you see the market changing over the past year? And how do you plan to overcome any potential challenges?
I think I'll turn that over to Marcel.
Yeah, Prasath, thanks for that question. So we have obviously a lot going on right now with our, you know, with our base business. You know, Ken alluded to business development. You know, we're looking at, you know, launching product. The dynamics per se, obviously, if you look at the past versus, you know, where we're at right now, it hasn't really fundamentally changed specifically with the, you know, with the share price we had up to now. Now, obviously, we're looking at this a little bit short, mid, and long term now. The short term, as you've seen now, we have CAD 10 million of available liquidity.
Now we're looking into the next step, sort of the midterm phase here up to the FDA approval, FDA decision ultimately then to say, after the decision point, we have a long-term view on this race, as you mentioned, on the milestone payments and so forth. We'll be tackling them over the next few quarters.
Great. Thank you.
Your next question is coming from Justin Keywood. Please announce your affiliation, then pose your question.
Hi, Stifel. Thanks for taking my call, and nice to see the base business stabilize in the quarter. On the resubmission of treosulfan, what determines the FDA response being two months versus six months?
Yeah, good question, Justin. It's totally up to the FDA, and it's dependent on the amount of material that they need to review. We're planning for the worst, which is the six months. It's either two or six. It's not really anything in between probably. We're assuming it's gonna be six. That would put us at an October decision point. But it could be two. We will know 30 days after resubmission. They will tell us whether it's type 1 or type 2, 30 days after resubmission. We will communicate that once we know.
The resubmission is in Q2. Any indication when in Q2 or difficult to say?
We think it's early Q2. Medac is obviously the party responsible for preparing it. We're reviewing and involved with it, but they are the party preparing it. We think very early Q2. We had previously said, I think at the very beginning when we first got the CRL, that we're shooting for end of Q1. It looks like it's beginning of Q2. As soon as we put it in, we will announce that.
What indicators are you looking for to resume some increased spending in anticipation to launch treosulfan? Would that happen perhaps if it's a 2-month or 6-month review, or how are you planning that?
Yeah, again, great question. First, remind you that we are carrying spending associated with treosulfan now in the medical team, the MSLs, some IITs, investigator-initiated trials. There is treosulfan spending that's in our numbers. We will initiate the sales force after a decision. That's the big spending. We've said previously that we anticipate about 16 reps, 16, to support treosulfan commercialization. That spending will not happen until we get a decision. We have some months before commercial product is available. We have time between the decision and availability of product in order to establish the sales force, and that's the plan.
Seems like a prudent strategy, and thank you for taking my call.
Thanks, Justin.
Your next question is coming from Simon-Pierre Jarry. Please announce your affiliation, then pose your question.
Hi, Ken. This is Simon-Pierre Jarry from Raymond James. My question was regarding the margin you are experiencing with IXINITY. What I understand is that you changed the manufacturing process. Can you talk a bit about that?
Sure.
What has been done? My question is more. Yeah.
Yeah, yeah. Just to be clear, we haven't changed the process. We're improving the process. These are all small incremental improvements that, you know, when you layer one on top of another, start to make a difference. That's what we're doing. It's really hard to quantify the improvement. I mean, I'll turn it over to Marcel. We're seeing small improvements in some of the SKUs, and we anticipate that to get better as we go forward. You know, there is, you know, a percentage improvement, probably single-digit in cost of goods so far, and we expect that to continue to grow as we go forward. Marcel, is there any more color you can add to that?
Yeah, I mean, as I mentioned, we've just now seen this quarter, for example, initial. It's a long process, obviously, with the biologics product. We've seen initial encouraging results. Maybe the question around gross margin versus the improvements versus the overall stability is an important one as you had, maybe, you know, this, for example, this quarter, you know, we had earlier this year, we had to put a reserve for batches, which now has been turned out to be, because of this project where we seem to be in a more stable environment.
It's not only these investments are not only about targeting obviously the gross margins, but stabilizing the product stability. You know, we don't want to see these reserves, which, as you have seen this quarter, we haven't done. It's a two-sided view on this. One, obviously, direct impact on the financial statements when you talk about gross margin. The other one is really targeting on your own manufacturing process to make sure that we see these products coming through the manufacturing process in the way we want to see them through and don't have to assess reserves.
Thank you.
Your next question is coming from Alan Ford. Please announce your affiliation, then pose your question.
Hi there, private investor. Hi, Ken. Thanks for taking the question. I've got two questions, if that's okay. The first one is just on IXINITY. Are you able to confirm what the end user demand growth was over the last 12 months? Appreciate it's been tricky with COVID. But what your thoughts on the prospects of getting back to kind of the prior growth levels? And then I've got one on the Rasuvo afterwards.
The IXINITY demand is primarily made up of existing customers. We've got a strong base of customers that have been with us for a long time, so that's very, very stable. The challenging piece is new patient growth, which became more challenging, you know, with the initiation of COVID because the face-to-face visits just aren't happening. You know, the growth, you know, I would estimate to be in the high single digit, low double digit sort of growth over the period, over 12 months. You know, quarter to quarter it fluctuates. I think the good news for us is that we've got a very stable base of existing business that is quite easy to project in terms of demand.
Thank you. That's really helpful. Just on Rasuvo, I saw the Otrexup being acquired by Assertio. This might be a kind of a basic question, they had 12-month revenue of about $15 million. My understanding was that Rasuvo was some, you know, not disclosed exactly, but been somewhere around kind of the $30 million range. I just can't quite relate the two, if Rasuvo has an 80% market share and Otrexup is obviously much, much smaller. If you had to kind of explain what I'm missing there, that'd be really helpful.
Yeah. When we quote the market share, we are quoting prescriptions. That's demand, really units. The dollar value shares may be different depending on pricing.
Okay. You're effectively a much lower price product. Is that the right take?
I think by, you know, those measures, yeah, we're a little bit lower. Therefore we'd have a lower share of dollar volume, and much higher share of unit volume.
Okay. That's helpful. I guess that's a good position to be in. Okay. Thanks very much.
Once again, if there are any questions or comments, please press star one. There are no questions in queue at this time.
Great. Well, thank you everyone for joining us on the call today. Despite a challenging start to fiscal 2022, we are confident Medexus has now turned a corner with the IXINITY supply chain process changes we're making, and we're back to a positive growth trajectory. We're pleased with the clarity provided in the Type A meeting on treosulfan resubmission and expect the FDA decision later this calendar year. We anticipate that we will continue to execute our business strategy, and we're in a good place to do that. I'm looking forward to future updates. Thanks very much for tuning in.
Thank you, ladies and gentlemen. This 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.