On August 13, 2021 Knight Therapeutics Inc. (TSX: GUD) ("Knight" or "the Company"), a leading Pan-American (ex-US) specialty pharmaceutical company, reported financial results for its second quarter ended June 30, 2021 (Press release, Knight Therapeutics, AUG 13, 2021, View Source [SID1234586563]). All currency amounts are in thousands except for share and per share amounts. All currencies are Canadian unless otherwise specified.
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Q2 2021 Highlights
Financials
Revenues were a record $65,796, an increase of $12,546 or 24% over prior year.
Gross margin of $28,871 or 44% compared to $22,237 or 42% in prior year.
Adjusted EBITDA1 was $9,396, an increase of $1,743 or 23% over prior year.
Gain from strategic fund investments of $28,479, of which $4,872 was realized.
Net income was $29,004, an increase of $13,492 or 87% over prior year.
Cash inflow from operations was $12,409, an increase of $4,337 or 54% over prior year.
Corporate Developments
Purchased 1,324,076 common shares through a Normal Course Issuer Bid ("NCIB") for an aggregate cash consideration of $6,954.
Shareholders re-elected James C. Gale, Jonathan Ross Goodman, Samira Sakhia, Robert N. Lande, Michael J. Tremblay, Nicolás Sujoy and Janice Murray on the Board of Directors.
Announced leadership change with Samira Sakhia assuming role of CEO and Jonathan Goodman assuming role of Executive Chairman effective September 1, 2021.
Products
Acquired exclusive rights to manufacture, market and sell Exelon in Canada and Latin America for an upfront and milestone payment of $217,331 [US$180,000].
Strategic Investments
Received distributions of $7,034 from strategic fund investments and realized a gain of $4,872.
Key Subsequent Events
Obtained regulatory approval for NERLYNX to treat subset of HER2-positive metastatic breast cancer patients in Canada.
Launched a NCIB in July 2021 to purchase up to 10,267,956 common shares of the Company over the next 12 months.
Purchased an additional 2,675,917 common shares through NCIB for an aggregate cash consideration of $13,865.
"After 104 quarters of leading publicly-traded specialty pharmaceutical companies since the tender age of 28 and with the majority of these quarters with Samira by my side, it is the right time for both Knight and for Canadian society for me to step aside and make room for a female superstar. I look forward to fulfilling my new role as Chair and to support Samira and our talented team to the best of my abilities. I do this not just because I am the Gudest and the largest Knight shareholder but because teams support each other during both GUD and bad times.
1 Adjusted EBITDA is not a defined term under IFRS, refer to the definitions below for additional details.
Thank you to our shareholders and to Amal Khouri, Jody Engel, Corey Richardson, Arvind Utchanah, Georgette Lessard-Boyer, Gerry Mazzei and the many others who followed me from Paladin Labs Inc. for the confidence over the last 27 years. A special thank you goes to James Gale, managing partner at Signet Healthcare Partners for assuming the role of Lead Director. Imagine what we are going to do now that we are warmed up", said Jonathan Goodman, CEO of Knight Therapeutics Inc.
"It has been a privilege to have worked hand-in-hand with and learned from Jonathan for the last twenty years. I am honored and humbled to take on the role of CEO of Knight and to lead an exceptionally talented and dedicated executive team and Knights across Canada and Latin America.
I am excited to announce that for Q2 Knight achieved record quarterly results despite the ongoing challenges posed by the pandemic. During the last 6 months we executed on multiple fronts with our business development team closing Exelon and already beginning work on integration, the commercial team delivering on strong growth of our key brands and the operational teams executing on integration and systems implementation", said Samira Sakhia, President and Chief Operating Officer of Knight Therapeutics Inc.
Revenue: For the quarter ended June 30, 2021, revenues increased by $12,546 or 24% and on a constant currency basis increased by $14,379 or 28%. The growth in revenues on a constant currency basis is explained as following:
An estimated increase in revenues of approximately $5,500 to $7,000 driven by the increased demand of certain of our infectious diseases products to treat invasive fungal infections associated with COVID-19.
An increase in revenues of $4,187 driven by the acquisition of Exelon.
An increase in revenues of $4,807 or 64% driven by the growth of our recently launched products, including Cresemba, Lenvima, Halaven, Nerlynx, Trelstar and certain BGx products.
Gross margin: For the quarter ended June 30, 2021, the gross margin increased from 42% to 44% compared to the same period in the prior year due to lower inventory provision and a change in product mix, partially offset by re-negotiation of certain license agreements and the depreciation of the LATAM currencies. The gross margin would have been 46%, an increase of 2%, from 44% after excluding the adjustment of hyperinflation accounting in accordance with IAS 29.
Selling and marketing: For the quarter ended June 30, 2021, selling and marketing increased by $133 or 1% and on a constant currency basis by $117 or 1% as compared to the same prior year period. The increase is driven by promotional activities related to newly launched products and Exelon, offset by a net reduction of $1,719 in ECL expenses.
General and administrative: For the quarter ended June 30, 2021, general and administrative expenses increased by $1,280 or 16% and on a constant currency basis by $873 or 11% as compared to the same period in prior year. The increase is driven by an expense of $1,210 related to the extension of expiry date of certain stock options held by executive officers, directors and employees, offset by a lower cost of restructuring activities during the quarter compared to the same prior year period.
Amortization of intangible assets: For the quarter ended June 30, 2021, amortization of intangible assets increased by $1,831, or 32%, mainly explained by the amortization of Exelon acquired during Q2-21, partially offset by the depreciation of LATAM currencies.
Interest income: Interest income is the sum of interest income on financial instruments measured at amortized cost and other interest income. For the quarter ended June 30, 2021, interest income was $1,786, a decrease of $1,892 or 51%, compared to the same prior year period, due to a decrease in interest rates, the average cash and marketable securities balances and a lower average loan balance.
Interest expense: The interest expense relates to interest incurred on bank loans. For the quarter ended June 30, 2021 interest expenses was $668, a decrease of $433 or 39% compared to the same period in the prior year due to a decrease in the average loan balance outstanding.
Adjusted EBITDA: For the quarter ended June 30, 2021 adjusted EBITDA increased by $1,743 or 23% and on a constant currency basis by $3,007 or 47%, compared to the same prior year period. The growth in adjusted EBITDA is driven by an increase in gross of margin of $5,665 due to the increase in revenues offset by higher operating expenses of $1,304 due to the cost of the extension of the stock options and a reduction in the adjustments of reconciling items from operating income to adjusted EBITDA including acquisition and transaction costs, non-recurring expenses and purchase price accounting adjustments by $1,354.
Net income or loss: For the quarter ended June 30, 2021, net income was $29,004 compared to net income of $15,512 for the same period last year. The variance mainly resulted from the above-mentioned items as well as a net gain on the revaluation of financial assets measured at fair value through profit or loss of $28,472 in the second quarter of 2021 versus a net gain of $16,499 in the prior year period.
Cash, cash equivalents and marketable securities: As at June 30, 2021, Knight had $166,121 in cash, cash equivalents and marketable securities, a decrease of $226,104 or 58% as compared to December 31, 2020. The variance is primarily due to cash outflows related to the acquisition of Exelon, the shares repurchased through NCIB and the repayments of bank offset by cash generated from operating activities.
Financial assets: As at June 30, 2021, financial assets were at $217,364, an increase of $23,409 or 12%, as compared to the prior period, mainly due to an increase of $27,045 due to mark-to-market adjustments in Knight’s fund investments offset by loan repayments of $2,479 and a decrease of $1,731 driven by the disposal of equity investments. Given the nature of the fund investments there could be significant fluctuations in the fair value of the underlying assets. More specifically, on May 26, 2021 Singular Genomics Systems, Inc. ("SGS"), an investment held within Domain Associated LLC ("Domain"), announced the closing of its initial public offering at a public offering price of USD 22 per share. The shares held by Domain are subject to a 180-day lockup period. During the quarter ended June 30, 2021, the Company recorded an unrealized gain of $30,522 [USD 24,626]. As at August 11, 2021, SGS’s share price closed at USD 15.23. Should the share price of SGS remain at this level, the Company would record an unrealized loss of approximately $14,030 [USD 11,320] in Q3-21. The unrealized gain recorded on SGS was partially offset by an unrealized loss recorded, in the second quarter ended June 30, 2021, of $13,533 related to Atea Pharmaceuticals an investment held within Sectoral Asset Management fund. To date, Knight has recorded a net gain of $8,881 in connection with Sectoral’s investment in Atea.
Bank Loans: As at June 30, 2021, bank loans were at $35,149, a decrease of $16,621 or 32% as compared to the prior period, mainly due to loan repayment of $14,911, a further decrease of $2,323 due to the foreign exchange revaluation partially offset by an overdraft increase of $613.
Product Updates
On May 26, 2021, the Company entered into an agreement with Novartis to acquire the exclusive rights to manufacture, market and sell Exelon, in Canada and Latin America as well as an exclusive license to use the intellectual property and the Exelon trademark, from Novartis within those territories. Exelon is a prescription product that was first approved in 1997 and is currently registered and sold in approximately 90 countries. Exelon is indicated for the symptomatic treatment of mild to moderately severe dementia in people with Alzheimer’s disease and Parkinson’s disease.
Knight has entered into a transition service agreement with Novartis until transfer of marketing authorization, on a country-by-country basis during which Knight will receive a net profit transfer. Knight will begin distributing Exelon upon transfer of marketing authorization, on a country-by-country basis.
NCIB
On July 10, 2020, the Company announced that the Toronto Stock Exchange approved its notice of intention to launch for a NCIB ("2020 NCIB"). Under the terms of the 2020 NCIB, Knight may purchase for cancellation up to 10,856,710 common shares of the Company which represented 10% of its public float as at July 6, 2020. The 2020 NCIB commenced on July 14, 2020 and ended on July 13, 2021.
On July 12, 2021, the Company announced that the Toronto Stock Exchange approved its notice of intention to launch a NCIB ("2021 NCIB"). Under the terms of the 2021 NCIB, Knight may purchase for cancellation up to 10,267,956 common shares of the Company which represented 10% of its public float as at June 30, 2021. The 2021 NCIB commenced on July 14, 2021 and will end on the earlier of July 13, 2022 or when the Company completes its maximum purchases under the NCIB. Furthermore, Knight entered into an agreement with a broker to facilitate purchases of its common shares under the NCIB. Under Knight’s automatic share purchase plan, the broker may purchase common shares which would ordinarily not be permitted due to regulatory restrictions or self-imposed blackout periods.
During the three-month period ended June 30, 2021, the Company purchased 1,324,076 common shares for an aggregate cash consideration of $6,954, of which $2,503 remains to be settled as at June 30, 2021. Subsequent to quarter end, the Company purchased an additional 2,675,917 common shares, for an aggregate cash consideration of $13,865.
Conference Call Notice
Knight will host a conference call and audio webcast to discuss its second quarter results today at 8:30 am ET. Knight cordially invites all interested parties to participate in this call.