Knight Therapeutics Inc.

Good morning, everyone and welcome to Knight Therapeutics' second quarter 2020 conference call. I'm joined on today's call with Samira Sakhia, Chief Operating Officer; Amal Khouri, our VP of Business Development and Arvind Utchanah, our Chief Financial Officer.

Despite the setback due to COVID we continue to answer acquisition of Grupo Biotoscana with the launch of our tender offer to buy remaining 48.8% of GDP. Furthermore, we've advanced our commercial presence and product pipeline with the regulatory approval of the Ibsrela in Canada, Lenvima in Ecuador, and the Canadian in-licensing and onboarding of Trelstar.

I will now turn the call over to Samira, who'll walk through the development of our portfolio and corporate update. Samira?

Thank you, Jonathan and good morning everyone. I'll provide an update on our products which has continued to advance in the quarter.

As announced in January Knight has partnered with Debiopharm in an exclusive agreement that grants Knight the Canadian rights to commercialize triptorelin in market as Trelstar, an LHRH agonist for the treatment of prostate cancer. This quarter with the transfer of the marketing authorization Knight took over the commercial activities of Trelstar in Canada.

In addition, as we discussed in our last call, in April 2020, Knight obtained Health Canada's approval for Ibsrela or tenapenor for the treatment of irritable bowel syndrome with constipation. We expect to be launching in Ibsrela in early 2021.

In addition on June 30, 2020, our partner our Ardelyx announced that it has submitted a new drug application to the US Food and Drug Administration for the control serum phosphorus - the control of serum phosphorus in adult patients with chronic kidney disease on dialysis. Finally, in July 2020, Knight obtained regulatory approval for Lenvima or lenvatinib in Ecuador for the treatment of advanced liver cancer as well as advanced kidney cancer in combination with everolimus and differentiated thyroid cancer.

Lenvima is sold by GBT under an exclusive license agreement with Eisai.

Thank you, Samira. Good morning, everyone.

As we previously announced the acquisition of 100% of Grupo Biotoscana was by way of a two-step transaction. The first step was the acquisition of 51.2% majority stake through a private transaction that we closed on November 29, 2019 and that gave Knight a controlling interest state.

In December of last year, we started the process for the second step, which is the mandatory tender offer for the minority BDR holders. On July 15, 2020, following approval by the Brazilian Exchange and Securities Commission, we launched the tender offer to acquire the remaining 48.8% of GBT.

In accordance with the offer BDR holders are eligible to tender their BDRs at the auction which will take place tomorrow August 14. At the end of the auction, Knight to its wholly owned subsidiary will take up all BDRs tenders at the auction and will settle within two business days.

If at least 67% of the participating BDRs to the auction are tendered, all as further described in the offer notice, Knight will discontinue the BDR program and delist GBT. If after the tender the remaining BDRs represent less than 5% of the total shares outstanding, which include both BDRs and common shares then Knight will proceed with a squeeze out process all as outlined in the offer notice.

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

Thank you, Amal. During 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 cost related to lease. In addition, the adjusted earnings do not reflect the portion of GBTs earning attributable to the non-controlling interests.

Thank you, Arvind. Since the outbreak of coronavirus or COVID-19, our focus has been on ensuring the continuity of product supplied to patients in Canada and Latin America, while at the same time ensuring the safety of our colleagues throughout the region and their families.

While we continue to work from home, we're continuing to execute on the integration of the Biotoscana, closing 100% acquisition and working on business development opportunities to grow the business. I'll now turn the call back over to Jonathan for his concluding remarks.

Thanks Samira. We remain committed to improving the health of Canadians and now Latin Americans while delivering sustained shareholder value.

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

Now I would like to open up the call to questions. Operator?

Hi, good morning. Congratulations on the good quarter.

First question, in Brazil, you had some shipments that were supposed to occur in Q1 that moved into Q2. I'm wondering how much of an impact - how big were those orders in Q2?

We didn't - we don't usually provide the kind of the shift that happened. But it explains a bit of the growth that we have, this .

Okay. Also in Q1, you mentioned several things to slowdown in new cancer diagnoses and slowdown in the use of other hospital drugs.

Also the impact of COVID on your Cresemba launches in various countries and your integration of GBT. I'm wondering if any of those issues normalized at all or are you still feeling a full impact?

So throughout the market, there is a slowdown. We're seeing this in all of the markets.

It's really depends - very dependent on a market-by-market. The –certain pay - like certain main treatments are continuing depending on the market.

We have some products that are in the retail, we have some products that are institutional and specialty. And depending on the product it - depending on the product or the territory and the level of shutdown, we're seeing a different response.

There is slow pickup, but similar to - and this is not just a Knight or GBT impact, you're seeing this throughout the industry where fewer patients are going in and fewer diagnosis are happening. We are seeing that in oncology.

We are seeing that a little bit in - we're seeing that also in cytology. But our sales teams - our medical teams are continuing to deliver the message digitally in most - in all markets.

And there is interest in the products. It's just it is going to take time to normalize back.

Okay and what about your integration of GBT? Have you been able to accelerate that process?

We're continuing to work really hard, both here and in South America. Everybody's really focused on execution.

The teams are looking at things like - basic stuff like systems and processes, where things are slowly starting to advance. And integration is on multiple fronts and multiple teams and things are starting to come together.

But this is going to be a long process over the next - still over the next few months.

And is adding products to the portfolio kind of in the background until the integrations finished or are you looking at that in parallel?

Absolutely not, so I'm going to ask Amal to add, but her priority is really to add products.

Yeah. No, absolutely.

Yeah, David, it's always been the BD never took the backseat. It's always been front and center.

And we haven't at all de-prioritized or stopped working. We're actually - we've been quite busy on the BD front from - even from as soon as we close the first - the private transaction we've been active.

Are you seeing opportunities where you'll be able to get products for both Canada and South-central America?

Yes.

Okay. And then last question, Trelstar, a mature product that hadn't been promoted.

Have you started to see a positive impact on sales of the product now that you've started promoting it?

Yeah, it is a little bit too early because it was in middle of Q2, we've had really good interactions with physicians that it's a little too early to tell and remember at this point, any and all of those interactions are all virtual.

Okay, thank you.

Good morning and thanks for taking my call. I was just wondering if there was any type of pandemic relief program that contributed to the profit in the quarter and if that's an opportunity in the near term.

Hi, Justin. No, we I assume you're talking about things like government grants.

Correct.

That we would have taken advantage of, so the - I think the - and we did look at this early on. The only market that is providing of the ones that we're working in and that is providing pandemic relief is in Canada and we wouldn't be eligible.

And in the rest of this is really continued work by the teams on executing.

Okay, understood and then just a bit of a broader question. Just as far as business development opportunities, now obviously the business is more focused LATAM, is Canada still a priority?

Are you looking at new assets here or is the shift more to the LATAM region?

Yeah. Sure.

We're looking across our territory. So we're looking at opportunities for Canada and LATAM.

Ideally, we'd like opportunities for the entire territory, but we remain flexible for some opportunities that may either only be available for one versus the other or may have a better fit in one portfolio versus the other. But we continue to look for opportunities in Canada as well as LATAM.

Okay, and I know Mexico was mentioned as a possibly a good opportunity to increase that exposure of GBT. But obviously, they're having some challenges there with the COVID-19 outbreak.

Has that changed your opinion at all as far as potential acquisitions in the area? Has that dilated or the conversations are they continuing?

Some, so it hasn't really changed the interest and the importance of the Mexican market. But there has been some delays, not just for Mexico, but across the board, some conversations and some processes have been delayed or temporarily put on hold because of the pandemic and some conversations continue.

Okay, and then just one last question, just on the EBITDA or gross margins. Is this a good level to use as far as modeling in the near term with possibly some expected improvement ahead or should we maybe anticipate some greater costs in the near term?

That's a great question. I'm going to turn it over to Arvind

Hi. So on the EBITDA just as a reminder like - on the gross margin, like what you see on our financial statement includes hyperinflation, so one thing to consider is the gross margin without hyperinflation.

And we do provide the schedule in the press release where we show the gross margin without hyperinflation. So that's one thing to consider.

In terms of impact to gross margin in the long to medium term, it's really a multiple factor question and it's quite - it's not a straightforward answer. So there's really three things I would consider.

So one is contract renewal, so as we have negotiation for renewal of contracts, we generally would expect a diversion on margin. The second one is FX, we do have high volatility in the LATAM currency and that too would create volatility in the margin.

And the third point to consider is your product mix. So as we launch product in the year-end and in the coming years like we will have a change in product mix and that too will impact the market.

So given all the multiple factors that I just mentioned, it's hard to predict the gross margin and really where we will land in the medium to short - long-term. But I believe we could look at the historical situation of GBTs margin.

And if you go back into the last few years, it's usually fluctuating plus or minus 5% on average on a yearly basis.

Okay, that's helpful direction. I appreciate you taking my questions.

Thank you.

Thank you.

Thank you for your confidence in the Knight team and for joining our Q2 2020 conference call. Please stay healthy, stay safe and stay connected.