Good morning, and welcome to the Medexus Pharmaceuticals Fiscal Third Quarter 2026 conference call. At this time, all participants are in a listen-only mode, and the floor will be open for questions following the presentation. If anyone should require operator assistance during this 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, over to you.
Thank you, and good morning, everyone. Welcome to the Medexus Pharmaceuticals Third Fiscal Quarter 2026 E arnings Call. On the call this morning are Ken d'Entremont, Chief Executive Officer, and Brendon Buschman, 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 Canadian securities laws that is based on certain assumptions that Medexus believes to be reasonable in the circumstances, but is subject to risks and uncertainties. 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 EBITDA, Adjusted EBITDA margin and adjusted gross margin and net debt, 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, 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 March 31st fiscal year basis. Medexus reports financial results in US dollars, and all references are to US dollars unless otherwise specified. I would now like to turn the call over to Ken d'Entremont.
Thank you, Victoria, and thank you everyone for joining this call today. We continue to execute on our commercial launch of GRAFAPEX and are extremely pleased with the progress achieved thus far. We've had a significant presence at Tandem Meetings last week, and we are encouraged by the level of interest in conditioning regimens and GRAFAPEX in particular. Product level performance to date has exceeded our pre-launch expectations, and although we experienced a quieter period in the December holiday season, we have seen a strong rebound in January 2026, and that and which now represents one of the strongest months of patient demand we have seen since commercial launch. For the nine-month period ending December 31st, 2025, we recognized product level revenue of GRAFAPEX of $8.2 million, compared to $8.5 million we invested in the GRAFAPEX launch over that period.
We anticipate GRAFAPEX will be accretive to quarterly operating cash flows starting in fiscal Q4 2026, so the quarter we're in right now, and will generate product level net revenue of $11 million-$12 million for fiscal year 2026. The initial adoption by major commercial payers and leading healthcare institutions has been highly encouraging, and early indicators of patient level demand continue to validate the value proposition GRAFAPEX delivers. To that end, product level net revenue from GRAFAPEX in fiscal Q3 2026 totaled $2 million, relative to $2.5 million of GRAFAPEX personnel and infrastructure investments. The $8.5 million we have invested in the GRAFAPEX launch year to date through December 31st continues to have a significant impact.
As of today, 32% of all 180 U.S. transplant centers have already ordered GRAFAPEX for procedures in their institutions, and 77% of those 57 institutions have reordered. In fiscal Q4 2026, we expect that the underlying patient demand of GRAFAPEX will be approximately $3 million-$4 million. This compares to $2.2 million in fiscal Q1 2026, $2.1 million in fiscal Q2 2026, and $2.6 million in fiscal Q3 2026. Considering the estimated inventory on hand at our wholesaler at December 31st, 2025, we anticipate patient demand in fiscal Q4 2026 will result in product level net revenue of GRAFAPEX between $3 million-$4 million. Overall, our fiscal Q3 2026 results remained solid, with positive operating income, Adjusted EBITDA and operating cash flows.
Our results reflect the continuation of our portfolio dynamics we have discussed in past quarters, coupled with continued growth momentum from GRAFAPEX, which we view as a continuing testament to our portfolio approach. Our fiscal Q3 2026 net revenue was $25.3 million, a decrease compared to $30 million for the same period last year. Our fiscal Q3 2026 adjusted EBITDA was $4.5 million, a decrease compared to $5.8 million for the same period last year, but our third consecutive fiscal quarter of adjusted EBITDA growth since the approval and launch of GRAFAPEX in fiscal Q4 2025. We produced modest net income of $0.1 million for the quarter, a slight decrease compared to $0.7 million for the same period last year.
Operating income was $1.7 million in fiscal Q3 2026, a decrease compared to $2.1 million for the same period last year, but again, our third consecutive fiscal quarter of operating income growth since the approval and launch of GRAFAPEX. On the rest of our portfolio, I have a few updates to note. We continued to invest judiciously in our IXINITY manufacturing process improvement initiative, which has been ongoing for some years now. This initiative has resulted in a 30% decrease in product level cost of goods, comparing fiscal Q3 2026 to fiscal Q1 2021, being the first full fiscal quarter following the acquisition of the product in February of 2020.
This progress informed our choice to commit in fiscal Q3 to a modest further investment in this process, approximately $1.2 million, of which we expect to pay in fiscal 2026. Regarding Rasuvo, during fiscal Q2 2026, we learned that another product in the branded methotrexate auto-injector market had been withdrawn by its distributor. Comparing fiscal Q3 2026 to fiscal Q3 2025, we attribute the 17% increase in patient unit demand to this change in the competitive landscape. Although we expect that this one-time increase is now largely reflected in product-level performance. Rupall continues to face generic competition in Canada. However, we expect that the adverse impact of this generic competition is now largely reflected in product-level performance of Rupall, meaning that declines in net sales and product-level performance of Rupall for future fiscal quarters will be less severe.
In summary, we remain focused on delivering strong overall performance across our portfolio of products in both the United States and Canada, advancing GRAFAPEX in the United States, and strategically positioning the company to capitalize on future revenue opportunities. I will now turn the call over to Brendon, who will discuss our financial results in more detail. Brendon?
Perfect. Thank you, Ken. Our results for fiscal Q3 2026 continue to demonstrate consistent results quarter-over-quarter and continue to reflect the natural, transitional changes of an evolving product portfolio year-over-year. We are very pleased with the early performance of GRAFAPEX, which, as Ken mentioned, saw strong quarter-over-quarter, patient demand growth, generating $2 million of product-level net revenue in our fiscal Q3 2026. As a reminder, net revenue is determined based on wholesaler buying in the period, not underlying patient demand, which in fiscal Q3 2026 was $2.6 million. GRAFAPEX is expected to begin contributing positively to operating cash flows in the first calendar quarter of 2026, which is our fiscal Q4 2026. Turning to the full quarterly results, total net revenue for fiscal Q3 2026 was $25.3 million.
This represents a decrease of $4.7 million compared to $30 million for the same period last year. The $4.7 million year-over-year net revenue decrease was attributable in part to reduced net sales of Rupall in Canada and the return of Gleolan in the United States to the licensor, partially offset by product-level net revenue increases from GRAFAPEX and Rasuvo. Gross profit was $13.6 million for fiscal Q3 2026, compared to $15.2 million for the same period last year. Gross margin was 53.6% for fiscal Q3 2026, which is an improvement on the 50.7% we achieved in the same period last year.
We continue to expect increasing product-level net revenue from GRAFAPEX, together with the absence of product-level net revenue from Gleolan after fiscal year 2025, to have a positive effect on company-level gross margin. These resulting changes to gross margin have emerged over fiscal year 2026 and are expected to continue to emerge over fiscal year 2027. Selling general and administrative expenses were $11.2 million for fiscal Q3 2026, consistent with $11 million for the same period last year. Adjusted EBITDA was $4.5 million for fiscal Q3 2026, a decrease of $1.3 million compared to $5.8 million for the same period last year.
The decrease was primarily due to the effects of generic competition on product-level net revenue from Rupall, the termination of Gleolan in the U.S., and a $2 million beneficial impact of customer buying patterns of IXINITY on net revenue in the prior year, so fiscal Q3 2025. Net income was $0.1 million for fiscal Q3 2026, a decrease of $0.6 million compared to net income of $0.7 million for fiscal Q3 2025. We continue to generate meaningful cash from our operating activities with quarterly operating cash flow of $7.8 million, compared to $6.7 million for fiscal Q3 2025. Excuse me. Even while investing in the launch of GRAFAPEX, we have generated an average of $4.3 million of cash from operating activity per quarter in the four quarters since launch.
Cash on hand of $15 million at December 31st, 2025, compares to $24 million at March 31st, 2025. Sorry, one second. Sorry about that. As of December 31st, 2025, our net debt was $10.4 million, a decrease of $2.8 million compared to $13.2 million as at March 31st, 2025. In November 2025, we entered into a new senior secured credit agreement. Sorry. Sorry about that. A senior secured credit agreement with National Bank of Canada. The delayed draw term loan feature of this facility provides us with flexibility to finance future licensing and or acquisition transactions on a long-term, non-dilutive basis. Given our strong financial position, on January 1st, 2026, the remaining installment of a regulatory milestone payment owed to Medac for GRAFAPEX was repaid, fully repaid using cash on hand.
We also initiated normal course issuer bid. Sorry. Sorry about that. issuer bid to repurchase Medexus's common shares. As of today, we have repurchased 201,500 shares. As always, there can be variability in quarter-to-quarter results, and the operating environment also remains variable. But we are encouraged by the strength of our business and remain well-positioned to continue building the company and expanding its portfolio in the coming quarters and beyond. Operator, we will now open the call to analyst questions.
Thank you very much. We are now 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 any participants using speaker equipment, it might be necessary to pick up your handset before you press the keys. Please wait a moment while we poll for questions. Thank you. Our first question is coming from André Uddin of Research Capital. Andre, your line is live.
Thank you, operator. Hi, Ken and Brendon. There was some very useful GRAFAPEX info provided in the release yesterday. I think all of us are trying to figure out right now what the right trajectory is to get GRAFAPEX to $100 million. So my questions are around that. Can you talk a little bit about the 180 transplant centers, and how are you working towards getting GRAFAPEX on their formularies? Thanks.
Yeah, thanks, André. Great question, because obviously, getting the product listed on a formulary is the key leading indicator to future revenue. So we've had really good success in those efforts. I think we've directed that a significant portion of those hospitals have already put it on the formulary, and that is where a lot of our revenue is coming from. So it's roughly broken down. A third have got it on the formulary, a third have it under review, and another third we're still working on. So that's kind of how it breaks down. So we're really pleased with the revenue that we've been generating from the third that have it on the formulary.
Okay. Looking ahead, where do you think you would be in terms of getting GRAFAPEX on those formularies in those 180 centers in fiscal 2027? Is there some sort of goal that you have in mind there for that?
Yeah, absolutely. So you know, obviously we're working primarily on the adult hospitals. I mean, that is 85% of the market, and those are the ones that tend to take a longer period of time. So we would expect that, you know, it takes 12-18 months to get around to everybody. And so we would expect that kind of in that timeframe, we should see significant continued uptake in formulary approvals.
Just looking at your 75% reorder rate, I mean, that's pretty high. Do you think you can improve that?
Yeah, it's 77%, but, absolutely. Yeah, yeah. Sure. I mean, you know, obviously we're getting new orders, first orders from hospitals all the time, every month. And so obviously, they're, they, they don't necessarily reorder immediately. So, you know, as time goes by, that, that rate will continue, and then as new initiations of hospitals flatten, you know, it should go, you know, closer to 100. You know, as, as hospitals are starting to utilize our product, you know, we will see regular orders, and that's kind of the pattern that we've been observing.
Yeah, that's useful. And just lastly, are there any additional transplant conferences this year that Medexus is looking to have, either a sales booth or even a physician focused symposium?
Yeah, it's a great question. So Tandem is the Super Bowl of conferences for this specialty. So that was last week. Then there's many, many regional meetings, which we will go to, you know, all of them, where they kind of discuss what happened at Tandem, and other related topics. And then the EBMT, which is European Transplant Meeting, is next month, and, you know, we will have people there as well.
That's great. Thanks, Ken.
Thank you very much. Our next question is coming from Michael Freeman of Raymond James. Michael, your line is live.
Hey, good morning, Tim, Brendan. Congratulations on the quarter, and this, GRAFAPEX ramp. I wonder if, sort of following on to, Andre's questions, I wonder if there are, you know, as you slice up those 180 transplant centers, you're surely, taking a look at the highest volume, centers and targeted those. I wonder if you could describe, you know, your penetration of those maybe like top decile volume, centers, and just a progress update there would be great.
... Yeah, thanks, Michael. Yeah, good question. So, 180 total transplant centers in the U.S., but recall that the 76 of those 180 do 80% of the transplants, so they are highly concentrated in the top 76, and our penetration is better in the top 76 than the total. So, obviously, you know, we are focusing on those top decile hospitals. I think what I can say is that we've got some significant hospitals that are in the top quartile that are ordering product on a regular basis. So we're making good progress with the important hospitals, and they simply take longer. You know, the bigger the hospital, the more bureaucracy there is, the longer it takes to get products onto formulary.
So that is the dynamic that exists, but we're making steady and excellent progress with everybody, and obviously, the top 76 is the focus.
Gotcha, helpful. Now, prescribing for adult patients, you described in your releases that there was, you know, a significant increase in demand among adults. I wonder if you could describe the, you know, the impact that that NTAP reimbursements program has had on that ordering dynamic, and if there are, you know, further improvements to be made to the process of reimbursement for adults, and further penetrating that very important transplant population.
Yeah, great question. So, the reimbursement for everyone is excellent. You know, so we, we haven't been running into problems where patients aren't able to get access to the drug. It seems to be quite universal, so we're really pleased with that. The NTAP, or for those who aren't familiar with it, a new technology add-on payment, is a Medicare payment, where they basically pay up to the difference between generic Busulfan, our competitor product, and our branded GRAFAPEX or Treosulfan. And so that's $21,000. And so, Medicare is, we estimate, about 30% of adult patients, and so it's a significant add-on payment for the institution. So there's basically no risk in using our product.
And obviously, we're out there, you know, demonstrating to hospitals, institutions, that even if they weren't to get that add-on payment, we still save the hospital money through, you know, shorter hospital stays, fewer readmissions. There's a bunch of factors that go into the fact that into the analysis that demonstrates that we actually save them money. When you add the add-on payment, obviously there's no risk whatsoever, and so that just helps facilitate uptake in that patient population, and it is a significant patient population. So, the add-on payment goes on top of what they receive in the case rate or the DRG.
Gotcha. Thank you, Ken, and maybe one more for Brendon. As looking, thinking about the balance sheet, with this new credit facility, with the final Medac payment made, and looking at cash from operations, funding much of your endeavors, I wonder if you could speak to maybe the difference in balance sheet health, between-
Yeah
... now and last year.
Yeah, no, great, great question. Thanks. Yeah, so as a reminder, a year ago, when we were with the BMO facility, our principal repayments were $3.3 million a quarter. Now with National, that's come down to $0.5 million a quarter. The company, as I mentioned, is still generating, you know, very meaningful cash from operations, even while investing in GRAFAPEX. So, we're, we are in a much better position now from a cash flow perspective than we were previously in that, you know, currently and going forward, meaningful amounts of those cash from operations are ours to grow the business with or to buy back stock with.
All right. Thank you very much. I'll pass on.
Thank you very much. Our next question is coming from Scott Henry of AGP. Scott, your line is live.
Thank you, and good morning. Ken, for starters, can you get a sense of when reported GRAFAPEX sales will, you know, more similarly match patient demand? You know, at what point should we have consistency where, you know, those two would kind of go together?
Yeah. Morning, Scott. Good question. I think we're entering that now. Like, I would expect that this quarter they'll start to be pretty level. Yeah, obviously, the wholesaler wants to keep about a month on hand. And so, you know, as our monthly and quarterly revenue grows, they'll keep more on hand, but it's gonna be a lot more balanced as we go forward now.
Okay, great. And as we try to, you know, as the past questions have alluded to, as we try to track GRAFAPEX, obviously formulary participation will be a key metric to follow. Are there any other metrics that you would suggest that would be a good idea to follow? There may not be. I don't know, you know, what you're gonna make available, but anything else we can watch, or is that the key thing to focus on?
... That is certainly the key thing. I think the other really important factor is the split of adult versus pediatric patients. And so, you know, that's why we've been calling that out. It's 15% for pediatric patients, and obviously they use a much lower volume of product because they're smaller. So the adult market is the key market for future growth. And so that's why we've been calling that out. We will continue to do so. So we'll keep an eye on our uptake in adult hospitals, where, you know, that's 80%-85% of transplants, and obviously they use a larger volume of products, so really key for us. And so we're very pleased that, you know, we are seeing strong uptake in that space. That's where our growth will come from going forward.
Okay, great. And a couple modeling questions for Brendon. I guess first, selling and administrative was a little lower than I expected. I sort of expected there to be more increase from GRAFAPEX sales costs. Yeah, how do you think of that December quarter number for selling and administration going forward? Should it be increasing, or do you think that's a good reflection of the current run rate?
I think it'll increase a little bit. One of the reasons we saw a bit of a drop in OpEx for GRAFAPEX in this last quarter was because of the holiday season. So there was just less traveling by our field team. That'll ramp up again, including, you know, the trip to Tandem. So I think that it's a—we've hit a good, stable operating expense for our base business or our business excluding GRAFAPEX. And then I would expect sort of modest increases to GRAFAPEX to get us back into that $3 million-$4 million that we have been guiding to, and then closer to $4 million throughout fiscal 2027.
Okay, great.
Yeah, just to add to that, Scott, the variable expense is the piece that's changing. The infrastructure that we have in place is, you know, very, very flat and stable. So it's the travel and expenses for people to be in the field that can vary from quarter to quarter.
Okay, great. Thank you for that color. And final question, when we think about fiscal Q4, you know, last year it was a sequential decline from Q3. I don't really recall what the specifics to that were, but when you're thinking about this March quarter, would you expect, you know, sales to be flat to up, or would you expect some sort of seasonal weakness?
Yeah, I'll start, and then maybe, Brendon can jump in. So this quarter that we're working now will be comparing kind of like businesses. You know, historically, the past three quarters, we haven't really been comparing like businesses. So, it'll be a much cleaner picture as we go forward. Brendon?
Yeah, no, that's, that's exactly right. I think one of the reasons for the drop, sort of between Q3 and Q4 of last year was the Resuva- no, sorry, Rupall generic hitting. So that as one of the benefits of the generic erosion with Rupall is that it's seasonality. Tracking allergy season won't move things up and down quite as much. So as Ken said, we've got a really, really nice, stable base business that really started to emerge in Q4 and then really has crystallized over the last two quarters as things like the handing the Gleolan license back has sort of flushed itself out.
So I would sort of say if you take out Gleolan from, or sorry, GRAFAPEX from, the last two quarters, you know, you'll see a very stable, repeatable, durable base business that GRAFAPEX, as it grows, will increase.
Okay, great. Thank you for taking the questions.
Thank you very much. Just a reminder, if there are any remaining questions, you can still join the queue by pressing star one on your phone keypad. Our next question is coming from David Martin of Bloom Burton. David, your line is live.
Good morning. First question, the NTAP incentives that you talked about for hospitals, for patients insured with Medicare, I'm wondering about those that are covered by private insurance. Is there any flow-through for the extra cost of the drug versus Busulfan generics, for privately insured patients, or do the hospitals have to swallow the increased costs of the GRAFAPEX?
Hey, David. Yeah, thanks for asking that question because it is an important point. So there is a dynamic, and we've talked about this before, but we observed it even more strongly at Tandem last week. There is a dynamic by which more and more of these patients are treated as commercial patients, so they get conditioned as an outpatient, and then they will move to an inpatient. So what that dynamic does is it causes it, Treosulfan or GRAFAPEX, to be reimbursed as a commercial product, so it doesn't affect the DRG, their case payment. And we've observed that those get reimbursed, and so there is that dynamic that's happening.
For the inpatient, obviously, that is where the NTAP really comes into play, and, you know, we'll neutralize the cost increase in the drug budget between ourselves and Busulfan for, you know, roughly 30% of those patients. The rest, they tend to get reimbursed by the institution or paid for by the institution, and then the institution, you know, observes some cost savings within the caseload.
Okay, thanks. Second question, are you getting feedback that the lower toxicity and, you know, the general benefits with GRAFAPEX are readily tangible to the physicians? Or is this something that, you know, they have to look at the results of the clinical trial and say, "Yeah, I'm doing good for my patients, but, you know, I'm relying on that," or the patients telling them, are they seeing improvements when they use the drug?
Yeah, it's the latter. So there are visible indicators that the patient is doing better, so less toxicity, and that's visible during the hospital stay and at discharge. And so it's very clear that these patients do better. And so hospitals that have tried the product later adopt the product because there are very tangible evidence that the patient does better. Then it's obviously the longer-term benefits are witnessed within the, you know, follow-up, you know, just as we showed in the phase III clinical trial, that, you know, the survival benefit, obviously, something that plays out over a longer period of time. But clearly, there is a very tangible and obvious improvement in the patient, you know, while in the hospital and at discharge.
So wait, what is it that they see that's better, less fatigue? Or what, what is it, and is it equal across pediatric and adult patients?
Yeah, great question. Not sure I can answer it fully because I'm not a transplanter. The observation that we are receiving from physicians is that toxicity, organ toxicity can demonstrate itself in many different ways, and so can be GI toxicity, decreased mucositis . There's lots of various obvious reductions in organ toxicity that the physician can observe, and so that's typically it. In the pediatric patient, you -- those obvious organ toxicities are also observable, but the fertility issue, you know, is a very big issue, and so that's why we get significant uptake in pediatrics.
Okay, thanks. That's it for me.
Seems like we've lost Jenny, so I guess we'll wrap it up here.
Oh, nope. I am right here. Apologies. The line just cut for a second, and I, I didn't-
Sure.
- hear anything, so I do apologize for that. Thank you very much, everybody. This does conclude today's call. You may disconnect your phone lines at this time and have a wonderful day, and we thank you for your participation.