Knight Therapeutics Inc.

Thank you, Marcella. Good morning, everyone and welcome to Knight Therapeutics' first quarter 2020 conference call.

I'm joined today on today's call with Samira Sakhia, our -- and this is new, this is late breaking news, our Chief Operating Officer -- extra exciting and only about 20 years overdue and Amal Khouri, our VP of Business Development; and Arvind Utchanah, our CFO. We are pleased to report our Knight's continued progress on its mission to become a rest of world specialty pharmaceutical company.

We continue to remain focus on completing the acquisition of the Biotoscana and advancing our product portfolio in Latin America and Canada, while at the same time continuing our business development efforts for a Pan-American ex-USA footprint. Yesterday, we had our Annual Shareholders Meeting and I would like to welcome Janice Murray and Nicolas Sujoy, our two new independent Board members who bring with them valuable Latin American experience.

I'd also like to thank our existing Board members Sylvie Tendler, Nancy Harrison, and Kevin Cameron, for their multiple contributions. I'll now turn over the call to Samira, who will talk though the development of our portfolio and corporate updates.

Thank you, Jonathan and good morning everyone. We're pleased to report that Knight continues to advance its Pan-American ex-U.S.

product portfolio. On Jan 8th, 2020, Knight announced that it has entered into an exclusive agreement to commercialize triptorelin or Trelstar in Canada.

Trelstar, LHRH agonist is currently approved and sold in Canada. Subsequent to the quarter, Knight took over commercial activities for Trelstar.

According to IQVIA, Trelstar sales were $2.7 million in 2019. We're excited to be relaunching this product as several members of the Knight team were involved in bringing Trelstar and growing it in Canada when we were at .

Thank you, Samira. As a reminder, the acquisition of GBT was part of our rest of world strategy of becoming a one-stop shop for a second tier markets.

Today, Knight is the company best positioned to provide this one-stop shop for the entire LatAm region. Group of Biotoscana has provided us Knight with an immediate presence in our high priority markets, including a solid footprint across 10 countries and a diversified portfolio including a number of unlicensed specialty pharmaceutical products.

Both of our companies focus on in-licensing late-stage innovative products as well as established product. We both promote branded pharmaceutical products to physicians and we both pursue growth while maintaining a rigid focus on financial discipline.

As we previously announced, the acquisition of 100% of GBT is by way of a two-step transaction. The first step was the acquisition of 51.2% majority stake through a private transaction, which closed on November 29th of last year, giving Knight controlling interest.

In December of last year, we started the process for the second step, which is the mandatory tender offer for the minority shareholders or the BTR holders. This process has already concluded Brazilian exchange approval and is under Brazilian Securities Commission review.

We expect to complete the second step in Q3 of this year. Over the last several months, our teams have been working together to not only integrate the businesses, but also we've been busy on business development efforts to acquire and licensed innovative product for the Pan-American ex-U.S.

market. Our objective remains to acquire under promoted or legacy assets from Big Pharma and licensed innovative products and to pursue bolt-on corporate acquisitions in the region.

I will now turn the call over to Arvind to go over the financial results for the quarter.

Thank you, Amal. In the course of this conference call, I will refer to Knight’s adjusted earnings, which is a non-IFRS measure.

Knight defines adjusted earnings as operating loss or income, adjusted to exclude amortization and impairment of intangible assets, depreciation, acquisition costs and non-recurring expenses incurred but includes net interest income earned and costs related to leases. In addition, the adjusted earnings do not reflect the portion of GBT's adjusted earning attributable to the non-controlling interests.

I am pleased to report that for the quarter ended March 31st, 2020, we reported revenues of $45.8 million, an increase of $42.8 million or 1,451% compared to the same period last year.

Thank you, Arvind. The recent outbreak of the coronavirus or COVID-19, which has been declared by the World Health Organization to be a pandemic has spread across the globe and is impacting worldwide economic activity.

Public health pandemic including COVID-19 poses the risk of the company, its employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shut down that may be requested or mandated by governmental authorities. Certain countries where Knight has significant operations have required entities to limit or suspend business operations and have implemented travel restrictions and quarantine measures.

As a pharmaceutical company, Knight is working to alleviate some of the pressures of the global COVID-19 pandemic has placed on our healthcare systems and to ensure that we maintain supply of our medicines to our patients. All of our employees are transitioned to working remotely including our field sales and medical teams.

In Argentina, where we manufacture our branded generic products, we have implemented cautionary measures to ensure safety and continuity of supply. These steps are being taken to minimize personal interaction as much as possible and to stem the disease and flatten the curve.

In a field of pharmaceutical marketing, increased social contacts such as interaction between sales representatives and medical science liaisons with healthcare providers has the potential to counteract these important public health initiatives and to put our employees, patients, and healthcare professionals at risk. Knight and GBT teams have established digital and virtual channels to ensure that physicians and patients continue to receive continued support.

In addition in several of our markets, we're making contributions of supplies or products that can help patients and healthcare professionals deal with the crisis. For example, in Canada, we have launched a PROBUPHINE Access Program to allow patients who do not have public coverage to receive PROBUPHINE at no cost.

We remain committed to ensuring the safety of our employees and the uninterrupted supply of our medicines. We are actively working with our partners to minimize business interruption and to ensure uninterrupted product supply.

As of the date hereof, the outbreak has not had a material impact on the company's results. I'll now turn the call back to Jonathan for his concluding remarks.

Thank you, Samira. The team remains focused on developing in-licensing and acquiring innovative pharmaceuticals for the Pan-American ex-USA market.

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

So, now let's open up the call to questions. Operator?

Good morning, folks. Thanks very much for taking my questions and it's fantastic to hear all your voices again.

Really nice quarter here, which was actually spot on with our estimate. So, just a few questions from me this morning.

To kick it off, notwithstanding the impact of COVID-19, you guys are alluding to some seasonality in LatAm as a result of holidays and events. And if possible, I just wanted to channel check my rest of your assumptions with you guys.

Currently, I see about 21% of revenues hitting in Q1, 27% in Q2, 25% in Q3, and about 28% in Q4. Without getting into specific revenue numbers, proportionally speaking, am I on -- am I in the right ballpark here?

And I suppose on the same chain of thought, COVID is obviously continuing to disproportionately hit various LatAm countries like Brazil and Argentina. So, how should I be thinking about that impact as it relates to GBT in Q2?

Hi, David, it's Samira. And it's fantastic to hear your voice as well.

The -- honestly, the issue that I have in commenting on your numbers is the impact of COVID. We are obviously -- one of the things is GBT is in launch phase on a lot of products.

As I said earlier in the call, we're launching Cresemba in Brazil. This is -- our launch has going a little bit slower than we expected and -- so we do expect the balance of the year to improve, but we don't know how it's going to phase.

And we are working very closely and the team is working very hard to continue to commercialize through digital means having advisory -- virtual advisory boards, communications through other channels. When it comes to how is COVID impacting these markets, a lot of it is really around shutdown.

So, for example, Argentina is extremely shut down. Even movement of people is very complex.

Where we -- where you're seeing the numbers, it should be noted, sadly, in a lot of these countries, the issue isn't the -- there is -- there's two types of economies. And there is a significant proportion of the population that is -- let's say be the under-growing economy -- let's say the informal economy where social distancing and work-from-home is not feasible.

And that is where we're seeing the majority of the terrible numbers. GBT and Knight, we really are operating more in the private market and less so with public market.

There will be an impact, but we don't expect that a significant impact to this year in the private market, but as the economy adjusts, we will -- we expect to see it.

Got it. Great.

Thanks so much. And just sort of building upon your comments on Cresemba, it's something both you guys as well as GBT seem to be highlighting in your financials this quarter.

Could you provide us a little bit of insight around this asset? Is it -- I guess from a top level perspective, is this expected to become a major revenue contributor going forward?

We're -- Cresemba is a really great product. It has a better safety and efficacy profile to existing products.

And we do expect it to grow dramatically. We're excited about the launch.

I'm actually going to turn it over to Amal to provide more information.

Thank you, Samira. Good morning, David.

Yes, I mean, we're highlighting Cresemba because it's a key launch for GBT and for us. And it's a product for that's indicated for invasive aspergillosis and invasive mucormycosis, both are serious infections that affect patients who already have other serious health conditions.

So, it's -- from an unmet needs perspective, it's a really important product and that really kind of adds to why we're so -- we're excited about it. It fits very well within our portfolio, whether it's the anti-infective portfolio or even the hem-onc portfolio because some of the hem-onc patients are more susceptible to these types of infections.

So, it is a very important product and one of our key launches.

Got it. Excellent.

Thanks. And okay, just moving on to the inventory loss experienced in the quarter due to temperature excursion during transportation.

Is this a type of provision we should be expecting in the normal course of business in LatAm? Or are there any improvements we might see Knight make at GBT that could tackle this?

And again, on the same line, are there any other areas of focus that you could speak to now having spent some time with GBT that team Knight would like to amend within the company?

Hi. So, temperature excursions are -- I'm going to say, quasi normal in the industry, it's not just the GBT factor.

We obviously all try to avoid. The reason we're identifying this is because there is potential for insurance claims.

And I don't want to have a take the benefit in the margin when it shows when -- if there is a claim, so kind of to highlight an unusual item. When it comes to -- is there any other issues that we've seen that we want to see improvements on?

It's one of the things that we were saying when we acquired the company, a lot of it is really around the fact that GBT was a company that came together as four separate companies. So, GBT itself, which was a Colombian company, United Medical, which was the Brazilian arm, and LKM and DOSA, which are the two branded generic arms.

These companies never really came together. So, no, a lot of it is about systems, processes, and coordination of activities amongst each other.

And that's what the entire -- like myself, I'm all in and Arvind has been working on with the team there over the last seven months. And it is a -- it's a long slog that we have for maybe the next year and a bit as well, because it's not just putting the Knight culture, it's really building a culture for our entire organization together.

Got it. Great.

And I guess just lastly, turning our sites back to Canada. Last week that PMPRB published a second kind of draft guidelines, and announced that the Regs have been delayed to Jan 2021.

I was wondering if you could comment on whether Knight might be submitting feedback on the current draft guideline. And further any comments on how you seeing the current draft impacting Knight or the industry as a whole going forward?

So, I'm working with the Canadian team. So, it began -- the team that you're talking to right now, we've now got two levels within our organization.

So, the Canadian team has been really focused on the guidelines and I'll have a call with them later this afternoon about that. The -- what I can tell you is first blush slightly better.

What we're excited about is that -- there we have an extra six months of delay and hopefully, we're able to see going through this process that there are certain other changes, potentially a further delay. And we're going to -- we will see, but it's the -- it may not affect existing products as much.

There is still a sense early on that this will affect new product launches. So, we're -- me team -- I know our team is still in the assessment period.

I know that the industry association is still in the assessment period and I know that there will be a lot of comments submitted.

Got it, great. Well, excellent.

Thank you very much, guys. Keep up the great work and I'll hop back in the queue.

Thank you.

Good morning and thanks for taking my call. Just on the working capital in the quarter on the receivable balance, are you comfortable with those levels?

Is there any risk of collection there or bad debt expense?

Justin thanks. I'm going to turn it over to Arvind to answer that question.

Hi, thank you for your question. So in terms of the first question, in terms of levels of the receivable and working capital, what you see is the normal course of working capital, the normal course of receivable.

Typically, in that time, it takes a bit longer to collect receivable as compared to Canada, and that's so typical collection is between 90 to 110 days. And that's why you kind of see those level based on the on the sales.

In terms of the bad debts, we did have disclosed that we did have about a million of additional bad debts we recorded in the quarter. We've done an in depth analysis, and this is what we see so far as potential collection issues.

Going into the quarter and into the next future quarters at this point, there's no -- we're still collecting in most of the countries within the collection period, and we don't see any significant delays or collection issues at this point.

Thanks. Just to clarify, that's 1 million in bad debt expense?

Yeah. 1.1 million.

Okay. All right, not much.

All right. Thank you.

And then I just have a broader question on GBT’s portfolio. I believe there's 40% related to infectious disease.

Could you just expand on that a bit more on how that breaks down on a more granular basis as far as therapeutic areas?

Sure. In the GBT’s focus is really infectious diseases, oncology, onco-hematology, and a little bit in rare CNS.

I not sure, if we've provided TA data, but in -- in the infectious diseases, we have Cresemba and we have AmBisome as well as some HIV and HCV products. In oncology, we have the gambit and the HIV and HCV product -- HIV products especially we have both the Gilead portfolio as well some of our own branded generic products in Argentina.

In oncology, we have the AHI portfolio. We have the Celgene BMS portfolio, as well as several of our own BGx products.

And in the rare CNS, it's really around, and that's really and I'm going ask Amal to add some more is really where our focus of in licensing is, as well, because this is where we can build on the infrastructure that we have.

Thanks, Samira. So -- sure.

So I was on mute. So the -- in terms of BGE focus, the areas that we're looking at is really to add to those -- to those key focus areas we're in.

So oncology -- onco-hema as well, infectious disease, I think you're asking -- I don't know if you're asking with the breaks down within the therapeutic area. But if you look at the portfolio within infectious diseases, we're not really -- we're not talking about your run of the mill antibiotics, right.

So these are high specialty, infectious disease products. So they're really split between the hospital based antifungal AmBisome and Cresemba and we also have a partnership with Gilead for their HIV and HEP C portfolio, so that's really where infectious diseases.

So whatever we look for in this area was really complimentary there plus the other two therapeutic areas that that Samira I mentioned for in terms of break down I think, sales breakdown GBT disclosed last year about 40% of their revenue was for the infectious disease portfolio and a bit less than half for onco-hema and with the other specialty areas, accounting for the rest.

Okay. That's helpful color.

They're certainly seems diversified. And then I just have a question on GBT’s R&D in research programs, I believe there's around 50 in progress are you able to provide some additional color there, like, are any of these assets in the late stages as far as trials or how would you characterize the maturity of those assets?

Yeah. Amal, do you want to take that?

Sure. So I think what you need to, I guess, think about when we're talking about GBT development assets.

We are talking about a branded generics portfolio. So it's not your typical clinical development pathway that you'd be used to for an innovative product.

So we're really talking about primarily formulation development. So timelines are really much shorter.

So kind of, you know, if you're looking the same length as we would look at an NCE development, I guess all of them will kind of count as late stage, right? Because these are known molecules, it's just a question of development formulation.

And so the life cycle is -- is quite short compared to an NCE, kind of full clinical development pathway.

Okay. That's helpful.

Thank you for taking my questions.

Thank you.

Good morning. Thanks for taking my questions.

If you for me, I'll start with Canada. First, so I was worried if you have any updates on the Health Canada for us Imvexxy and Bijuva and could there be any delays there?

Are you seeing anything on that regulatory end?

Good morning. How are you?

Imvexxy and Bijuva continue through the review process. We have had a lot of questions, the team is responding as fast as they can.

And unfortunately until you get to the finish line, you don't really know what happens. So where -- the assessment is continuing when we're answering your questions.

Okay, great. Thank you.

And one more on the Canadian product side for a NERLYNX. Just kind of more, I mean, not specifically, but in terms of sales, but like when do you -- would you expect it to contribute to revenues basically?

So NERLYNX as a product that we're reaching our launch actually, and what we're doing is, unfortunately, this is a launch similar to some of the activities that we're talking about in LatAm is a launch during COVID. So we're being more measured as to the launch.

Our medical team has been conducting a lot of activity, virtual ad boards, education, we are starting to see pick up, but and our market access team is working very hard for public -- of a private reimbursement. And again, that's advancing, but slowly given what's happening in COVID.

We do expect it to start becoming more meaningful, but in a slower launch, it'll still be a couple more years to contribute meaningful to the Canadian numbers.

Okay, great. Thank you for that.

And just turning onto LatAm, you mentioned Samira that as I mean, perhaps the virus starts impacting more the private or the pandemic or other private economy in Latin America and you know, it could be impacted a little bit as well as where and if you can kind of provide a bit more granularity there in terms of what you impact -- more impact on sales, on growth or launching new products, which one of those areas you think would be more impacted in LatAm?

Hey. So what we've seen historically is when the pandemic as -- has essentially said that this is going to have a global economic impact.

And as that economic impact could starts, and we see some job losses happening in those job losses, people will lose insurance. What we know is, historically, when we've seen that in large markets like Brazil, there is a decline in sales a little bit or the growth slows down.

And then it starts to pick back up as people as the economy reinjure. What we know is that, it has happened and then the private market is -- what recovers faster than the public markets and all operations are more so in that public -- in that private market, and maybe a couple years out as there is a little bit of a dip, and then we expect to come back.

Okay. Thank you.

Thanks for color. And two more questions actually on LatAm.

And but I think the last call on Q4, you mentioned there were some potential for negotiation for renewal of some -- some existing expiring agreements, and then being impacted. Like I mean, first, like how it is going, and then has it been impacted with a pandemic at all?

Sure, I'm going to actually ask Amal to answer that question.

Sure. So, yeah, I mean, we had -- I think we had the mentioned and we there are some agreements that are existing agreements.

I think that was your question, correct. That would -- that would be up for renewal over the next few months to a year.

So we are working on that. And we are expecting to be able to renew potentially at different terms from what we have today.

But we are -- we are expecting to be able to renew. I think you're the other part of your question was on the impact of the pandemic, if that's slowing things down, I think that's more of a kind of, if I look at overall, the discussions, some discussions are continuing as, as normal and others, some discussions are being delayed because of the pandemic.

So it's really, you know, some impact and some are not impacted at all.

Okay. Thank you.

And since we are actually under the discussion, I mean, have you seen any changes in terms of multiples or prices that are being asked? I mean, especially if we contemplate a bit of a dip because of a slowdown in the economy?

Yeah. So we're not we're not seeing any -- any distant valuations.

In fact, if you look at all the financing and all the cash inflow into the sector, if anything, it may be doing the opposite. So we're not really seeing any improved valuations or any higher sales.

There is they're pretty healthy cash inflow into the sector. So no change -- no improvement on valuation.

Okay. Thank you.

And the last one, for me it's in LatAm I wondering if you can talk a little bit about the management team in there. How do you see developing I mean, especially when you finish the tender in Q3, like any comment in terms of the structure that we conduct there?

Thanks.

Hi, Endri. So, one of the things as I mentioned that earlier on the call, what we're really trying to build is one organization so to have people who are working at -- whether they're in Canada or whether they're in LatAm, they're really focused on us as a global company.

We do. There are certain gaps in the organization that we had identified.

When we were doing the acquisition as we've been working through, there's talent within the company that we -- we will continue to elevate and there's other places where we do need to continue to fill the gaps. And during this time, it's a little unusual to be recruiting over zoom, but we are putting those, we are really in the process of putting people in those positions and working through that.

Okay. Thank you.

Good morning, everyone. Just wondering, when do you think you'll be able to monetize your venture fund investments?

Sure. So we've decided, I guess, over the last couple of years that the venture funds have been very successful for us financially, but from a BD efforts they've been lukewarm at best, and that we're not investing in new funds.

When it comes to monetizing the decisions for now is to continue to hold them until their maturity. At this point in time, we don't -- we still have a nice set amount of cash.

So unless there's a need, we won't really be monetizing

Okay. Just wondering your -- your top three public equity positions right now?

I'm going to ask Arvind. I don't think that the -- I will ask Arvind to answer that question.

You might be on mute, Arvind.

Sorry, I was mute. So in terms of our -- equity position like we don't have anything that's material, in fact, if you go to the disclosures on our -- on our financial statements, it's in less than a couple of million, a couple of million dollars at best, so.

Okay, okay, that's fine. All right.

I just was curious. And also just wondering if you're going to be providing any guidance on GBT going forward?

That's one of the things we have been trying to work on and unfortunately, due to COVID. It's a little hard internally to do that, but we -- as we come out of this, we will be.

Okay. Okay, that's great.

Thanks, Samira.

Thank you for your confidence in the Knight team and joining our first quarter 2020 conference call. Please stay healthy and stay safe.