On November 11, 2021 Knight Therapeutics Inc. (TSX: GUD) ("Knight" or "the Company"), a leading Pan-American (ex-US) specialty pharmaceutical company, reported financial results for its third quarter ended September 30, 2021 (Press release, Knight Therapeutics, NOV 11, 2021, View Source [SID1234595285]). All currency amounts are in thousands except for share and per share amounts. All currencies are Canadian unless otherwise specified.
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Q3 2021 Highlights
Financials
Revenues were $73,340, an increase of $28,101 or 62% over the same period in prior year.
Gross margin of $37,766 or 51% compared to $19,533 or 43% in the same period in prior year.
Adjusted EBITDA1 was $17,334, an increase of $13,118 or 311% over the same period in prior year.
Net loss on financial assets measured at fair value through profit or loss of $21,301 for the three-month period ended September 30, 2021.
Net gain on financial assets measured at fair value through profit or loss of $16,644 for the nine-month period ended September 30, 2021.
Net loss was $8,586, compared to $17,492 net income in the same period in prior year.
Cash inflow from operations was $10,321, compared to a cash outflow from operations of $8,412 in prior year.
Corporate Developments
Re-launched a normal course issuer bid ("NCIB") in July 2021 and purchased 2,963,022 common shares for an aggregate cash consideration of $15,361.
Hired Monica Percario as Global VP Scientific Affairs, Daniela Marino as Global VP Legal and Compliance and Susan Emblem as Global VP Human Resources.
Products
Entered into exclusive supply and distribution agreement with Incyte Biosciences International Sàrl ("Incyte") for tafasitamab and pemigatinib in Latin America
Strategic Investments
Received distributions of $2,042 from strategic fund investments and realized a gain of $1,634.
Key Subsequent Events
Received $9,243 (US$7,460) as part of the final distribution from the liquidation of New Emerging Medical Opportunities Fund II Ltd.
Re-financed Bancolombia loan extending the maturity date from December 14, 2021 to October 26, 2026.
Purchased an additional 1,009,725 common shares through NCIB for an aggregate cash consideration of $5,258.
"I am excited to announce that for a second consecutive quarter, Knight achieved record quarterly results despite the ongoing challenges posed by the pandemic. During the last 9 months we executed on multiple fronts with our business development team closing Exelon, entering into an exclusive supply and distribution agreement with Incyte while the commercial team continuing to deliver on strong growth of our key brands and the operational teams executing on integration and systems implementation. Furthermore, we strengthened Knight’s management team by adding a Global VP Scientific Affairs, a Global VP Legal and Compliance and a Global VP Human Resources, to continue delivering on growth and operational excellence," said Samira Sakhia, President and Chief Executive Officer of Knight Therapeutics Inc.
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1 Adjusted EBITDA is not a defined term under IFRS, refer to the definitions below for additional details.
Revenue: For the quarter ended September 30, 2021 revenues increased by $28,101 or 62% compared to the same prior year period. On a constant currency basis, revenues increased by $27,378 or 62%. The growth in revenues on a constant currency basis is explained as following:
An estimated increase in revenues of approximately $9,200 to $11,500 driven by the increased demand of certain of our infectious diseases products to treat invasive fungal infections associated with COVID-19. Of this amount, Knight estimates approximately $3,200 to $4,200 was not utilized during the quarter.
An increase in revenues of $9,905 driven by the acquisition of Exelon.
An increase in revenues of $6,047 or 76%, from $7,918 to $13,965, 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 September 30, 2021 gross margin increased from 43% to 51% explained by a change in product mix, lower inventory provision recorded in Q3-21 compared to Q3-20 offset by the re-negotiation of certain license agreements and the depreciation of the LATAM currencies. The gross margin would have been 54%, an increase of 3%, from 51% after excluding the adjustment of hyperinflation accounting in accordance with IAS 29.
Selling and marketing: For the quarter ended September 30, 2021, selling and marketing increased by $2,227 or 29% and on a constant currency basis by $2,165 or 29% as compared to the same prior year period. Excluding, the allowance for expected credit losses, S&M increased by $1,857 or 25% due to increase in certain variable costs such as distribution and compensation as well as an increase in selling and marketing activities related to product launches and Exelon.
General and administrative: For the quarter ended September 30, 2021, general and administrative expenses decreased by $2,072 or 19% and on a constant currency basis by $1,814 or 18% as compared to the same period in prior year. Excluding the non-recurring costs incurred in Q3-20 related to the Unified Tender Offer of $3,490, G&A increased by $1,676 or 17%. The increase is driven by an increase in the variable compensation and certain professional fees.
Amortization of intangible assets: For the quarter ended September 30, 2021, amortization of intangible assets increased by $5,496, or 96%, 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 September 30, 2021, interest income was $1,402, a decrease of $1,786 or 56%, 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 September 30, 2021 interest expenses was $959, an increase of $137 or 17% compared to the same period in the prior year due to higher interest rates.
Adjusted EBITDA: For the quarter ended September 30, 2021 adjusted EBITDA increased by $13,118 or 311% and on a constant currency basis by $13,637 or 369%, compared to Q3-20. The growth in adjusted EBITDA is driven by an increase in gross of margin of $17,901 offset by an increase in operating expenses adjusted for acquisition and transaction costs as well as non-recurring expenses.
Net loss or income: For the quarter ended September 30, 2021, net loss was $8,586 compared to net income of $17,492 for the same period last year. The variance mainly resulted from the above-mentioned items as well as a net loss on the revaluation of financial assets measured at fair value through profit or loss of $21,301 in the third quarter of 2021 versus a net gain of $12,873 in the prior year period mainly due to unrealized losses and gains on revaluation of the strategic fund investments.
Cash, cash equivalents and marketable securities: As at September 30, 2021, Knight had $156,029 in cash, cash equivalents and marketable securities, a decrease of $236,196 or 60% 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 loans offset by cash generated from operating activities.
Financial assets: As at September 30, 2021, financial assets were at $189,743, a decrease of $4,212 or 2%, as compared to the prior period, mainly due to an increase of $17,063 due to mark-to-market adjustments offset by decrease of 16,652 due to net distributions in Knight’s fund investments, loan repayments of $2,494 and disposal of equity investments of $2,624 during the period. Given the nature of the fund investments there could be significant fluctuations in the fair value of the underlying assets. During the quarter ended September 30, 2021, the Company recorded an unrealized loss of $20,629, as a result of the share price decrease of Singular Genomics Systems, Inc. ("SGS"), an investment held within Domain Associated LLC. Should the share price of SGS remain at this level, the Company would record a life to date unrealized gain of approximately $12,929 [USD 10,550] on this investment.
Bank Loans: As at September 30, 2021, bank loans were at $36,328, a decrease of $15,442 or 30% as compared to the prior period, mainly due to loan repayment of $14,911.
Product Updates
On September 22, 2021, Knight entered into a definitive agreement with Incyte Biosciences International Sàrl, for the exclusive rights to distribute tafasitamab (sold as Monjuvi in the United States and Minjuvi in Europe) and pemigatinib (Pemazyre) in Latin America. Under the terms of the agreement Knight will be responsible for seeking the necessary regulatory approvals and distributing both products in Latin America.
Knight expects to submit tafasitamab and pemigatinib in key LATAM countries in the second half of 2022.
NCIB
During the three-month and nine-month periods ended September 30, 2021, the Company purchased 2,963,022 and 7,844,438 common shares for $15,361 and $40,907, respectively.
Subsequent to quarter-end, the Company purchased an additional 1,009,725 common shares for an aggregate cash consideration of $5,258.
Conference Call Notice
Knight will host a conference call and audio webcast to discuss its third quarter results today at 8:30 am ET. Knight cordially invites all interested parties to participate in this call.