On May 14, 2021 Knight Therapeutics Inc. (TSX: GUD) ("Knight" or "the Company"), a leading pan-American (ex-US) specialty pharmaceutical company, reported financial results for its first quarter ended March 31, 2021 (Press release, Knight Therapeutics, MAY 14, 2021, View Source [SID1234580047]). All currency amounts are in thousands except for share and per share amounts. All currencies are Canadian unless otherwise specified.
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Q1 2021 Highlights
Financials
Revenues were $46,069, an increase of $230 or 1% over prior year.
Gross margin generated of $20,580 or 45% compared to $19,860 or 43% in prior year.
Adjusted EBITDA1 was $5,580, an increase of $2,383 or 75% over prior year.
Interest income generated of $1,998 a decrease of $2,651 or 57% over prior year.
Net income was $3,558 compared to net loss of $9,477 in prior year.
Cash inflow from operations was $17,207 compared to cash outflow of $21,167 in prior year.
Corporate Developments
Promoted Amal Khouri to Chief Business Officer.
Purchased 3,557,340 common shares through a Normal Course Issuer Bid ("NCIB") for an average cost of $18,592.
Products
Launched Ibsrela in Canada for the treatment of Irritable Bowel Syndrome with Constipation ("IBS-C").
Strategic Investments
Disposed of 315,600 common shares of Medexus for total proceeds of $2,624.
Received distributions of $4,336 from strategic fund investments and realized a gain of $3,031.
Key Subsequent Events
Entered into a definitive agreement with Novartis to acquire the exclusive rights to manufacture, market and sell Exelon in Canada and LATAM for an upfront payment of USD 168,000 ($211,2602) and a milestone payment of up to USD 12,000 ($15,0902).
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.
Purchased 512,271 common shares through its NCIB for an aggregate cost of $2,695.
"We are continuing to execute on multiple fronts. I am excited to report that our key launch brands in Latin America, including Cresemba, Halaven, Lenvima, Trelstar and Nerlynx in Canada grew 116% compared to the prior year quarter. We continue to progress on our integration activities and have commenced implementation of our ERP, CRM and HR and learning management systems. On the business development front, we executed on another transformational transaction with the acquisition of Exelon from Novartis for Canada and Latin America, said Samira Sakhia, President and Chief Operating Officer of Knight Therapeutics Inc. "I am humbled and honored to be leading talented Knights in Canada and across Latin America as we continue to execute on our strategy of acquiring, in-licensing and developing innovative medicines and high quality treatments for Latin America and Canada."
1 Adjusted EBITDA is not defined terms under IFRS, refer to the definitions below for additional details.
2Converted to CAD using the closing foreign exchange rate, actual amount in CAD will vary depending on the exchange rate on the close of the transaction
Revenue: For the quarter ended March 31, 2021, revenues increased by $230 or 1% as a result of an increase in sales from new product launches, partially offset by the depreciation in the LATAM currencies. Excluding the impact of hyperinflation and under constant currency, revenues would have increased by $4,123, which is mainly attributable to the launch of Cresemba, Lenvima, Halaven, Nerlynx and certain BGx products as well as Trelstar, which Knight began commercializing in April 2020.
Gross margin: For the quarter ended March 31, 2021, the gross margin increased from 43% to 45% compared to the same period in the prior year due to lower inventory provision and product mix, partially offset by re-negotiation of certain license agreements and the depreciation of the LATAM currencies. The gross margin would have been 47%, an increase of 2%, from 45% after excluding the adjustment of hyperinflation accounting in accordance with IAS 29.
Selling and marketing: The decrease of $2,501 or 25% for the quarter ended March 31, 2021 compared to the same period in the prior year is due to $1,133 of expected credit loss that was recorded in Q1 20 compared to none in Q1 21 and $783 due to the depreciation of the LATAM currencies.
General and administrative: For the quarter ended March 31, 2021, the general and administrative expenses decreased by $1,336 or 16% as compared to the same period in prior year driven by $671 in savings due to restructuring activities and $789 due to the depreciation of the LATAM currencies.
Amortization of intangible assets: For the quarter ended March 31, 2021, amortization of intangible assets decreased by $737, or 12%, mainly explained by the depreciation in the LATAM currencies partially offset by the amortization of intangible assets acquired during 2020.
Interest income: Interest income is the sum of interest income on financial instruments measured at amortized cost and other interest income. For the quarter, interest income was $1,998, a decrease of 57% or $2,651 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 March 31, 2021 interest expenses was $660, a decrease of $487 or 42% compared to the same period in the prior year due to decrease in the average loan balance outstanding.
Adjusted EBITDA: For the three-month period ended March 31, 2021, adjusted EBITDA was $5,580, an increase of $2,383 or 75% compared to the same period last year. The variance is explained by the above mentioned increase in gross margin and decrease in operating expenses.
Net income or loss: For the quarter ended March 31, 2021, net income was $3,558 compared to a net loss of $9,477 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 $9,473 in the first quarter of 2021 versus a loss of $6,730 in the prior year period.
Cash, cash equivalents and marketable securities: As at March 31, 2021, Knight had $382,381 in cash, cash equivalents and marketable securities, a decrease of $9,844 or 3% as compared to December 31, 2020. The variance is primarily due to cash outflows related to the shares repurchased through NCIB, the bank loans repaid by Knight offset by cash generated from operating activities.
Financial assets: There is no significant variance for financial assets. However, given the nature of the fund investments there could be significant fluctuations in the fair value of the underlying assets. More specifically, an investment held within Sectoral Asset Management ("Sectoral") fund, Atea Pharmaceutics Inc ("Atea"), announced in October 2020, the closing of its initial public offering at a public offering price of USD 24 per share. The shares held by Sectoral are subject to a 180-day lockup period. As at March 31, 2021, Atea’s share price closed at USD 61.75 compared to USD 41.78 as at December 31, 2020. As at May 12, 2021, Atea’s share price closed at USD 19.74 Should the share price of Atea remain at this level, the Company would record a loss of approximately $15.2M.
Bank Loans: As at March 31, 2021, bank loans were at $38,192, a decrease of $13,578 as compared to the prior period, mainly due to loan repayment of $8,848 and a further decrease of $4,854 due to the foreign exchange revaluation.
Product Updates
On March 1, 2021 the Company launched Ibsrela (tenapenor) for the treatment of IBS-C. The Company entered into an exclusive licensing agreement with Ardelyx to commercialize Ibsrela in Canada in March 2018. Ibsrela is a first-in-class small molecule treatment for IBS-C. Ardelyx received regulatory approval for Ibsrela from the US FDA in September 2019. On April 17, 2020, the Company announced that Ibsrela was approved by Health Canada.
On April 23, 2021, the Company announced that it has entered into a definitive agreement to acquire the exclusive rights to manufacture, market and sell Exelon, indicated for the symptomatic treatment of mild to moderately severe dementia in people with Alzheimer’s disease, in Canada and Latin America ("Territory"). In addition, the Company obtained an exclusive license to use the intellectual property and the Exelon trademark in the Territory. At closing, Knight will pay USD 168,000 ($211,2601) in cash and may pay up to USD 12,000 ($15,0901) upon the achievement of certain conditions. For the year ended December 31, 2020, Exelon sales in the Territory were approximately USD 47,000.
The closing of this transaction is subject to the completion of the anti-trust clearance process in Brazil. In conjunction with closing, Knight will enter into a transition service agreement 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 an additional 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 will end on the earlier of July 13, 2021 or when the Company completes its maximum purchases under the 2020 NCIB. Furthermore, Knight entered into an agreement with a broker to facilitate purchases of its common shares under the 2020 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 March 31, 2021, the Company purchased 3,557,340 common shares, for an aggregate cash consideration of $18,592, of which $44 remains to be settled as at March 31, 2021. Subsequent to the quarter, the Company purchased an additional 512,271 common shares, for an aggregate cash consideration of $2,695.
1 Converted using the March 31, 2021 closing foreign exchange rate, actual amount in CAD will vary depending on the exchange rate on the close of the transaction.
Conference Call Notice
Knight will host a conference call and audio webcast to discuss its first quarter results today at 8:30 am ET. Knight cordially invites all interested parties to participate in this call.