Knight Therapeutics Inc.

Thank you, Sherin. Good morning, everyone and welcome to Knight Therapeutics second quarter 2019 conference call.

I'm joined on today's call with Samira Sakhia, our President and CFO; Amal Khouri, our VP of Business Development; and Arvind Utchanah, our recently promoted VP of Finance. We are pleased to report that in the second quarter, we've progressed on our mission towards building a specialty pharmaceutical company that helps both patients and shareholders.

We advanced our commercial presence and product pipeline with the regulatory approval of NERLYNX and the submission of Ibsrela to Health Canada. Furthermore, we reached an agreement with the pan-Canadian Pharmaceutical Alliance, a critical milestone in ensuring that all Canadian patients have access to Probuphine in the fight against opioid dependence.

I will now turn the call over to Samira, who will walk through the second quarter financial results.

Thank you, Jonathan. Good morning, everyone.

I'm pleased to report that for the quarter ended June 30, 2019, we reported revenues of CAD 3.2 million, an increase of just under CAD 1 million or 43% versus the same period last year. For the six-month period ended June 30th, we reported revenues of CAD 6.2 million, an increase of $768,000 or 14% as compared to the same period last year.

For both periods, the increase is mainly attributable to the timing of sales of Impavido and the growth in Movantik sales. According to IQVIA Canada data, Movantik sales were CAD 750,000 for the six-month period ended June 30, 2019, compared to CAD 620,000 for the same period last year.

Our operating expenses for the quarter increased CAD 2.7 million or 78% for the second quarter of 2018 and increased CAD 4.4 million or 64% for the six-month period compared to the same period last year. The increase was driven by legal, consulting, and advisory fees of CAD 1.7 million for the quarter and CAD 3.3 million for the six-month period related to Meir Jakobsohn's shareholder activist campaign.

We expect that the activists and legal expenses to continue in 2019, but at a significantly declining pace. The remainder of the increase in operating expenses is due to an increase in both selling and marketing, as well as the R&D expenses, driven by the preparation of new product launches and the submission of Ibsrela to Health Canada.

We reported interest income for the quarter of CAD 6.2 million, an increase of 30% or CAD 1.4 million, compared to the second quarter of 2018 due to higher average cash balances, cash, cash equivalent, and marketable security balances, as well as an increase in interest rates and a higher average loan balance. For the six-month period, interest income was CAD 12.1 million, an increase of 20% or CAD 2 million over last year due to higher average cash, cash equivalent, and marketable security balances, as well as an increase in interest rates, partially offset by a lower average loan balance.

Our share of income or loss from associate relates to our investment in medicine and it's driven by our share of medicines net income net of fair value adjustments of intangibles. For the quarter, our share of medicines net income was CAD 1 million and fair value adjustments were CAD 1.4 million, whereas in the same period last year, our share of net income was CAD 1.2 million and fair value adjustments were also CAD 1.4 million.

We recorded net gains on financial assets measured at fair value through profit and loss of CAD 19.8 million and CAD 24.5 million for the quarter and six-month periods respectively. The gains are mainly unrealized and are explained by revaluation to fair value of Knight's financial assets.

Finally, for the second quarter of 2019, we reported net income of just under CAD 19 million, an increase of CAD 14.9 million or 372% versus the prior period, while for the six-month period ended June 30, 2019, we reported net income of CAD 24.1 million, an increase of CAD 13.2 million or 121% versus the prior period. Now, let's turn to our product pipeline, which as Jonathan mentioned, continues to advance with the submission of Ibsrela and the regulatory approval of NERLYNX.

During the past quarter, we submitted Ibsrela for regulatory approval by Health Canada for the treatment of Irritable Bowel Syndrome with Constipation. Ibsrela will provide a new treatment option for IBSC and will further strengthen our presence in gastroenterology.

Furthermore, on July 16, 2019, Health Canada approved NERLYNX for the extended adjuvant treatment of adult patients with early stage HER2-overexpressed/amplified breast cancer following adjuvant Herceptin therapy. NERLYNX is a novel treatment for patients with early breast cancer.

Over the next few months, we will focus on reimbursement and launch preparation in order to be able to launch NERLYNX in late 2019. Finally, we announced just two days ago that Knight has reached an agreement with pCPA for Probuphine.

And, as of today, Probuphine is listed for reimbursement through public insurance plans run by Alberta, Saskatchewan, and the NIHB. Probuphine is indicated for the management of opioid dependence in patients clinically stabilized on no more than 8 milligrams of sublingual buprenorphine in combination with counseling and psychological support and will become an important weapon in the fight against opioid dependence.

For the year – for the remainder of the year, the Knight team will continue to work with the other jurisdictions to finalize listings across the country to ensure patients have public access to this novel treatment option. Now, moving on to update on our Normal Course Issuer Bid, which we commenced on July 11, 2019.

As a reminder, under the NCIB, Knight may purchase for cancellation just over 12 million of our common shares. As of August 6th, Knight has purchased 4.6 million common shares for an aggregate cost of CAD 34.9 million or CAD 7.49 per common share, which represents just under 39% of the maximum purchases allowed under the NCIB.

I'll now turn the call back to Jonathan for his concluding remarks.

Thank you, Samira. As we embarked on the second half of 2019, I'm excited with the progress on expanding our commercial presence and maturing product pipeline.

We probably contribute to making people better and now three products on the market, two more to be launched later this year, and two more under Health Canada review. We're very excited looking ahead, we remain fully committed to building a Canadian rest of the world specialty pharmaceutical company by executing on our disciplined strategy of acquiring and in-licensing specialty pharmaceutical products for Canada and select international markets, in addition to pursuing corporate acquisitions or partnership opportunities in Canada and New York.

Thank you for your support and confidence in the Knight team. This concludes my formal remarks.

So, now, I would like to open the call up to questions. Operator?

Just actually wanted to ask a couple updates on some products. Just looking at TX-004HR and TX-001HR, just wondering if you filed an NDS with those, and if not, when you'd expect that filing?

Hi, André. That's a great question.

As we've always, we've announced earlier, we expect to be filing these this year, and our teams are working through both of submissions at this time.

And, in terms of Iluvien, I know that was approved last year. I was just wondering if you have started to launch, and if not, when you think that would be and how many reps you think you'd put on that product?

So, you're right, Iluvien was approved – has been approved and we were actually working through – the team is working through the reimbursement of this product, which is part of the critical activity. We're also working with Alimera on supply and expect to launch it later this year.

As far as commercial footprint, we've guided to somewhere between five and eight people across Canada.

And also, just looking at Profound's post approval, are you going to file for approval of that product as well in Canada?

That's certainly our expectation, but we need to first meet with Profound and wait until their complete Phase 3 data is ready.

I'm just calling in for Andre. I just have a couple of questions, mainly on the product front.

So, just on the Probuphine and following the recent announcement with pCPA, what do you guys expect for the remaining provinces, is there a timeline on when you think you get reimbursement for those other remaining provinces? Thanks.

That's a great question. Unfortunately, the predictability is very – is actually unpredictable.

This is one of the things that the industry continues to struggle with. And, what I would advise is patients who need this product reach out to their Ministers of House to get on reimbursing this as soon as possible.

And I know you mentioned a little bit on NERLYNX and Iluvien that were approved. Is there just more a concrete timeline regarding those launches?

I know you said later on this year, but is there anything more concrete?

Sure. Actually, it's later this year.

So, I would really – what we're really talking about is kind of in that mid to late Q4 period where we're actually going to start the way, but the actual effect will really be felt next year.

Okay, great. And, have you guys heard anything back from Health Canada regarding Netildex, I know you guys resubmitted, I believe?

Right. So, we did respond to the NON.

We don't expect a response until later this year.

Okay. And, I guess, moving a little bit away from the products.

For the legal consulting and advisory fees that you guys incurred this quarter, I know you said it's going to be declining throughout the year, but can we expect, I don't know, like half or a third or a quarter of that?

I'm expecting that it's a lot less. Unfortunately, it's one of those things we cannot predict, simply because we don't – we cannot predict behave.

Okay. And, just my last question here, I guess, it's kind of on the M&A front and also on Moksha8, how has that been tracking since you guys invested in it, have you guys seeing growth?

But, yeah, any insight on that would be great.

This is Amal Khouri. They have been doing well.

I mean, it's still – we're still in the early stages of the deal. So, as you know, we have – we participate to their board meetings.

So, we're happy with how the management team is performing and how the business is going, but it's still early days.

Just a couple of quick ones for me. Firstly, on BURINEX, I'm wondering if you can give us an idea of how material if at all that distribution fee is going to be?

It's a great question because it's completely immaterial, it's a nominal number. We really did it for the relationship with the company that we have the agreement with to try to kind of put this in place, so that we could be their partner of choice for Canada.

And then, on sales and marketing, again some people have asked this already, but approaching the NERLYNX launch, can you give us an idea of how many salespeople, if any you've already hired and how many you anticipate hiring over the coming months?

Sure. At this point, again, it's just because we just received approval, one of the things that our team's focus has really been on is launch preparedness, but also reimbursements.

And, over the next couple of Qs, we are going to be beginning the request – beginning the recruitment process and, similar to Iluvien, we think that the people footprint will be somewhere between kind of 5 to 10.

Thank you for your support and confidence in the Knight team, and thank you for joining our second quarter call. Have a good day.