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00:29 Thank you and good morning, everyone. Welcome to the Medexus Pharmaceuticals second quarter fiscal twenty twenty two earnings call.

On the call this morning are Ken d’Entremont, Chief Executive Officer; and Marcel Konrad, Chief Financial Officer. If you have any questions after the conference call or would like further information about the company, please contact Adelaide Capital at 905-330-3275.

00:52 I would like to remind everyone that this discussion will include forward-looking information that is based on certain assumptions and is subject to risks and uncertainties that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information. Forward-looking information provided in this call speaks only as of the date of this call, and is based on the plans, beliefs, estimates, projections, expectations, opinions and assumptions of management as of today's date.

01:20 There can be no assurance that forward-looking information will prove to be accurate and you should not place undue reliance on forward-looking information. Medexus disclaims any obligation to update any forward-looking information or to explain any material difference between subsequent actual events and such forward-looking information except as required by applicable law.

01:41 In addition, during the course of this call, there may also be references to certain non-IFRS financial measures, including references to adjusted net loss and adjusted EBITDA, which do not have standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies. 01:58 For information about both forward-looking information and non-IFRS financial measures, including a reconciliation of each adjusted net loss and adjusted EBITDA to net loss, please refer to the company's Management Discussion and Analysis, which along with the financial statements are available on the company's website at www.medexus.com and on the company's corporate filings on SEDAR at www.sedar.com.

02:22 I would now like to turn the call over to Ken d’Entremont to discuss the second quarter.

02:28 Thank you, Tina and thanks everyone for joining us on this call today. Before I discuss the financials, I would like to remind everyone that during the year-ended March thirty one, twenty twenty one, we changed our presentation currency to U.S.

dollars from Canadian dollars. We applied the changes retrospectively and have restated the compared to financial information in our unaudited condensed interim consolidated financial statements for the three and the six months periods ending September thirty, twenty twenty one, as if the presentation currency had always been in U.S.

dollars. 03:03 In the second quarter of fiscal twenty twenty two, we achieved revenue of seventeen point nine million dollars compared to seventeen point eight million dollars for the three months period ending September thirty, twenty twenty.

As a reminder, over two point five million dollars in revenue, which was originally expected to be realized in September of twenty twenty was instead realized in early October twenty twenty due to delay in receipt of finished product from one of our manufacturing partners. 03:32 So after adjusting for that event, which impacted the comparative period figures, we actually saw a drop in revenue compared to the prior quarter, mainly due to a drop in IXINITY net sales.

This decline was partially offset by strong Rupall sales, which saw unit demand growth of thirty three percent in the trailing twelve months ended September thirty, twenty twenty one. Rasuvo and Metoject remained relatively stable.

03:58 Adjusted EBTIDA decreased to a loss of two million dollars compared to positive two point three million dollars for the same period last year due in large to an increase in research and development costs over the comparative period. The significant investments we made to improve capacity for future business development and the investments we made related to the plans for the commercialization of Treosulfan in the U.S.

which we will discuss later. 04:27 Our net cash outflow was two point one million dollars for the period compared to one point one million dollars for the same period last year.

Our net income was ten point one million compared to a loss of one point six million dollars for the same period last year. This included a non-cash unrealized gain of sixteen point three million dollars in the current period on the fair value of the embedded derivatives in our convertible debentures, which is driven by a change in our share price at the end of the applicable periods.

05:00 Our adjusted net loss, which adjusts for such unrealized losses or gains on the fair value of the derivatives was six point one million dollars compared to one point three million dollars for the same period last year. As at September thirty, twenty twenty one, we had eight point one million dollars in cash and cash equivalents with nine point six million dollars of total available liquidity.

05:24 Turning to our specific product lines. We continue to see strong demand from our core product portfolios.

Even with the changes to the selling environment brought on by COVID-19, our U.S. team has seen positive trends in the utility patient unit demand indicating continued patient conversions on top of a stable existing base of patients.

In fact, IXINITY unit market demand in the United States grew three percent in the trailing twelve months ended at September thirty, twenty twenty. 05:54 While net sales for IXINITY continues to be lower in the comparative periods, we believe this trend is temporary.

Over the last few quarters, we have been implementing changes to improve the supply chain and selling process that we believe and we believe that IXINITY sales are on track to recover to previous levels in the coming quarters and well positioned to grow in the future. We're also investing in a pediatric study that, if successful, will facilitate the expansion of IXINITY product label to include the pediatric population.

06:28 The study has now completed one hundred percent of the patient enrollment and we expect to finish the study by June twenty twenty two and submit the full data set to the FDA by the end of twenty twenty two. 06:42 Turning to Rasuvo, a once-weekly, subcutaneous, single-dose auto-injector of methotrexate indicated for the treatment of rheumatoid arthritis, psoriasis and juvenile idiopathic arthritis or JIA, our unit demand in the United States remained steady in the trailing twelve months ended September thirty and continues to reflect strong payer, prescriber and patient acceptance.

Rasuvo continues to perform reliably in an increasingly competitive market. Unit sales were up as we lowered price to protect our strong market position in the auto-injector segment.

07:19 As I mentioned earlier, Rupall is experiencing very strong unit demand growth in its market with an increase of thirty three percent in the trailing twelve months ended September thirty, twenty twenty one as physicians switching patients from either the generic description anti-histamines or over the counter products. We expect Rupall will be a leading prescription anti-histamine in a total market valued at one hundred and twenty three million dollars including seventy point one million dollars from the prescription market, which is growing at an annual rate of more than seventeen percent.

During the twelve months period ended September thirty, twenty twenty one, Rupall was one of the fastest growing anti-histamines in the Canadian prescription market. 08:04 Metoject unit demand in Canada remained steady in the trailing twelve months ended September thirty, twenty twenty one, but saw a unit demand growth of sixteen percent for the three months ended September thirty, twenty twenty one compared to the same period in twenty twenty.

Metoject is a pre-filled syringe of methotrexate, which is indicated for the treatment of rheumatoid arthritis and psoriasis and is highly effective and cost efficient treatment for these debilitating diseases. Public reimbursement creates access for a large group of patients, who previously could not get the product.

08:37 We have responded to a competitive threat to Metoject from a generic entry with a commercial response to protect this market share and illegal action to defend the product's IP. On August twenty eight, twenty twenty, we along with our licensing partner, medac GmbH jointly filed a statement of claim against Accord Healthcare Inc.

regarding the launch of BioAccord of a generic version of Metoject in the Canadian market. The trial date has been set for the beginning of twenty twenty three.

09:10 During the year ending, March thirty one, twenty twenty one, we entered into an exclusive license to commercialize treosulfan in the United States. Treosulfan is an innovative, orphan designated agent developed for use as part of a conditioning treatment, in combination with fludarabine as a preparative regimen, for patients undergoing allogeneic hematopoietic stem cell transplantation, or allo-HSCT.

09:38 On August second, twenty twenty one, we received the notice from medac, our licensing partner that it had received a Complete Response Letter or CRL from the U.S. Food and Drug Administration with respect to the New Drug Application for use of treosulfan in the United States.

The FDA has provided recommendations on how to address what they see as the outstanding issues primarily around provision of additional clinical and statistical data and analysis pertaining to the primary endpoint of the completed pivotal Phase III study. These recommendations are already covered by medac’s existing development plan for treosulfan, which medac is contractually responsible to execute and fund.

10:23 We are in active discussions with medac to meet the agency's request. It is our belief that the CRL provides path to review and approval does not require additional clinical studies, provided we can satisfy the FDA’s data requirements and post marketing commitments.

We are actively working with medac to address comments of the FDA and has scheduled a Type A Meeting with the FDA on November twenty three, twenty twenty one. The resubmission plan will be discussed at that meeting and we would expect to receive minutes from the meeting within thirty days.

11:01 We continue to believe treosulfan could eventually overtake the current market leading product busulfan, which realized one hundred and twenty six million dollars in U.S. sales prior to genericization.

In the meantime, we do not expect to make additional payments to medac until we have received FDA approval. In fact, on September thirty, twenty twenty one, the company and medac signed an amendment to the licensing agreement in which, among other things medac agreed to credit the company in the amount of two point five million dollars attributable to prior regulatory milestone payments made by the company to medac, which was used to offset certain existing invoices and payments to company owned medac.

Upon FDA approval, such amounts would again become payable to medac. 11:51 As Marcel will touch on later in the call, we did see an increase in costs over the comparative period, which increases related in part to investments the company made in connection with the anticipated commercialization of treosulfan in the United States.

However, I would like to point out, we had not yet hired the additional sales representatives for treosulfan and we're reallocating certain new non-field sales hires to focus on IXINITY and that we otherwise reacted quickly to defer or cancel any further significant expenditures related to the treosulfan launch after receiving notice of the Complete Response Letter. 12:32 On August fifth, twenty twenty one, we held a webinar to discuss the Complete Response Letter in full detail, which can be viewed on our media section on our website.

On July twelve, twenty twenty one, we also formalized our licensing agreement with medac for treosulfan in Canada and subsequently announced on September twenty one, twenty twenty one that we initiated the first commercial shipment of the product under brand name Trecondyv. 13:00 The product is currently being used by a number of reputable centers, including Princess Margaret, the largest cancer center in Canada and one of the largest in the world.

We believe that a key aspect of our growth strategy will be to continue to leverage and grow our infrastructure through the acquisition of partnership of new products. We are exploring a large number of opportunities, including a portion of the deal pipeline in the negotiation phase in both the U.S.

and Canada. We will continue to look at optimizing our portfolio and leveraging our resources with the goal of executing near term accretive transactions to achieve sales growth targets over the coming years.

13:39 In summary, we believe we have built a highly scalable business model, which should provide significant incremental earnings potential. We continue to grow revenue, leverage our North American sales force across products, realize synergies of the combined entities and maintain strict financial discipline.

With the available liquidity at the end of the second quarter, we are in a good position to execute our business plan, including the launch of several new products. 14:05 I will now turn the call over to Marcel, who will discuss the financial results in more detail.

14:14 Thank you, Ken. Total revenue was seventeen point nine million dollars and thirty point two million for the three and six months periods ended September thirty, twenty twenty one, respectively, compared to revenue of seventeen point eight million dollars and thirty seven point eight million dollars for the three and six months period ended September thirty, twenty twenty.

The company has demonstrated sequential growth quarter-over-quarter in twenty twenty one growing from seventeen point two million dollars to the previous quarter -- in the previous quarter to seventeen point nine million dollars. 14:45 However, in the competitive periods for twenty twenty as Ken noted earlier, over two point five million in revenue from IXINITY sales which was originally expected to be realized in September twenty twenty for instead realizing early October twenty twenty due to a delay in receipt of finished product from the company's contract manufacturing partner.

15:07 After adjusting for that event, assuming that such revenue had been recognized in September, three and six months period ended September thirty, twenty twenty one saw a year-over-year decrease in revenue mainly due to a drop in IXINITY net sales. While patient unit demand for IXINITY continues to show positive indications, net sales were lower than in the comparative periods in the prior year as pharmacy and wholesale customer continued to work through inventory on hand.

As mentioned, this decrease was partially offset by strong Rupall sales due to a strong allergy season across Canada and further market share gained by the brand. 15:44 Gross profit was nine point four million dollars and sixteen point three million dollars for the three and six months period ended September thirty, twenty twenty one respectively, compared to gross profit of nine point seven million dollars and twenty point five million dollars for the same period last year.

The decline for the six months period ended September thirty, twenty twenty one was mainly due to a previously disclosed increase in cost of goods sold caused by additional expenses related to the IXINITY manufacturing issues. 16:10 Selling and administrative expenses were eleven point seven million dollars and twenty three point five million for the three and six months period ended September thirty, twenty twenty one respectively, compared to eight point three million dollars and sixteen point five million, for the three and six months ended September thirty, twenty twenty respectively.

Our selling and administrative expenses for the second quarter increased over the comparative quarter as we invested heavily in our personnel infrastructure to support its anticipated growth going forward. 16:44 Research and development was one point eight million dollars and four million for the three and six months periods ended September thirty, twenty twenty one, respectively, compared to zero point eight million dollars and one point four million dollars for the three and six months periods ended September thirty, twenty twenty respectively, as we continue to accelerate the IXINITY pediatric study, which is now one hundred percent enrolled and expected to be completed in June twenty twenty two.

17:10 Adjusted EBITDA loss for the three and six months periods ended September thirty, twenty twenty one was two million and six point nine million dollars respectively compared to adjusted EBITDA gains of two point three million dollars and five point nine million dollars for the three and six months period – three and six months period ended September thirty, twenty twenty. The three and six months period ended September thirty, twenty and one saw a year-over-year decrease in adjusted EBITDA due to the significant investments the company to prepare for the anticipated commercialization of treosulfan in the United States.

17:45 The impact of the IXINITY manufacturing during the three months ended June thirty, twenty twenty one and an increase in the research and development costs over the competitive period. 17:56 Net income for three and six months period ended September thirty, twenty twenty one was ten point one million dollars and three point six million dollars respectively, compared to a net loss of one point six million dollars and five million dollars for the same period last year.

Included in the six months net income is a nineteen point five million non-cash unrealized gain on fair value of our embedded derivatives in our outstanding convertible debentures, which are sensitive to, among other things, the fluctuations in our share price. 18:26 We believe that adjusted net income or loss which excludes this impact of the unrealized gains and losses on the fair value of the derivatives, provides a better representation of performance of our operations because it excludes non-cash fair value adjustments on liabilities, which may be settled for shares.

18:46 Our adjusted net loss for the three and six months periods ended September thirty, twenty twenty one was six point one million dollars and sixteen million respectively compared to one point three million dollars and two point one million for the three and six months period ended September thirty, twenty twenty. Net cash outflow was two point one million dollars and ten point six million for three and six months ended September thirty, twenty twenty one respectively.

19:14 As Ken noted, we have reacted quickly to defer or cancel any further significant expenditures related to the treosulfan launch after receiving notice of the Complete Response Letter on August second, twenty twenty one. And in another help of step for cash preservation in light of the Complete Response Letter, at the end of the quarter, we agreed to certain amendments to the existing agreement with medac.

Notably, medac agreed to provide us with a two point five million credit, which amount was attributable to prior regulatory milestone payments made by the company. This credit was used to offset certain existing invoices and payments to company owed medac.

Hence the amounts will only become repayable upon FDA approval. We're comfortable with our current balance sheet with nine point six million dollars available liquidity as of September thirty, twenty twenty one, which consisted of eight point one million dollars of cash and cash equivalents and an undrawn credit of one point five million dollars available under the our ABL facility.

As a reminder, no further milestone payments will be owed to medac unless and until FDA approval is obtained. So we have no immediate need or additional capital at this time.

20:30 We'll now open to question. We will now the call for any questions.

21:13 Hi. Good morning.

It's Justin calling from Stifel GMP. Good to see the improvement in EBITDA sequentially.

Do you have an anticipated timeline when the profits for the base business could turn positive, realize there's still the submission of treosulfan and potentially some increased costs?

21:36 I'll give some view as to the revenue line and then I'll let Marcel speak to EBTIDA. So we do think that the -- we're at the bottom of the trough with respect to the channel corrections.

So revenues should start to climb quarter, we're working on now and then into the fourth quarter fiscal. So we do see the revenue line improving which obviously will make a strong contribution to the bottom line.

Let Marcel speak to EBITDA.

22:09 Yeah. Thanks for that question.

We've made great progress in essentially, as I mentioned stopping the, sort of the variable spend on our Treosulfan launch. We still carry some fixed spend with us throughout this period, while we're heading towards a breakeven period.

As I mentioned in earlier calls, it will depend really down the uptick obviously on the revenue side where we have a good view on the cost side, but we're heading towards breakeven territory in the next few quarters.

22:45 Okay. Good to hear.

And then for treosulfan, we see that it was launched in Canada and is being used in one of the major hospitals here. Does that factor in at all for the meeting on November twenty three, with the FDA or is it completely separate, assuming that if it's in use and providing a material health benefit to patients in Canada, that seems to bode well for eventual FDA approval?

23:15 Yes. It certainly doesn't hurt.

The more approvals the drug has throughout the world, the better and the fact that it's not been rejected by any regulator in the world certainly does help, but the FDA is going to make their own decision and I think the decision points pretty straightforward. They exemptly ask for confirmation of the primary endpoint to do their own assessment of that endpoint.

So I think that tool ability issue is really just one and it's that, that I just mentioned. And so, I think it ought to be fairly straightforward.

We'll get some feedback on that November twenty third.

23:54 And if you could remind us what are the expectations for revenue for treosulfan in Canada?

24:02 We haven't put out any numbers, but broadly the range is probably five to ten million. The prices will be lower in Canada than U.S.

And there's not as many transplants per capita than in Canada yet. It's growing.

We're improving, but it hadn't been well funded historically. So the market is not as big in Canada as it is in the U.S.

24:28 And to reach that sales target, does it take a number of years, but -- or is it a bit different than your traditional drug launch just given that health benefits could ultimately save patients lives here.

24:43 Yes. It's pretty quick ramp to peak.

I mean traditionally ramp to peak is between three and seven years. Three years for drugs that are highly concentrated and various specialty centers, which is the case here, seven years for drugs that are more widely prescribed primary care for instance.

And so in this case, we think we'll go to peak fairly quickly once the key hospitals start to get to some experience with in, which is already happening, obviously we mentioned today that Princess Margaret is using it sixtieth hospital and Toronto is also usually it one of the largest pediatric hospitals in the world. So the experiences they're generating with it, we'll get communicated to other hospitals, other institutions.

We've got a lot of other institutions who are already starting to use it. So I think the time to peak will be relatively quick.

25:36 Thank you for taking my questions.

25:38 Thanks, Justin.

25:58 Research Capital. Hi, Ken, and Marcel.

Just wondering that your FDA meeting, I'm assuming you will find here what your review cycle time will be? And just wondering if you're going to disclose that after your November twenty third meeting?

Thanks.

26:16 Hi, Andre. Yeah.

Good question. So, we don't find out the review timeline whether it's type one or type two.

Type one being sixty days, type two being six months, until thirty days after resubmission. So we won't find that out in November.

What we will hear in November is whether or not the resubmission plan is acceptable to the agency for review. So that's an important step obviously if they think it's acceptable to review then obviously they're going to have something that they want to review.

And we will communicate the outcome of that meeting and certainly will communicate the timeline to approval once we know it.

27:04 Okay. And then how long like, let's say, how long would it take you actually to ramp back up your sales force in prepared of the launch?

So, I guess it could varies it depending that it’s a review cycle one or two. Could you just talk a little bit about that in terms of what you would need to do prepare for treosulfan launch?

Thanks.

27:27 Sure. So all the management infrastructure is in place, that's being applied to utility now, so the management's there, what's missing is are the sales reps.

So, we do believe that we can hire the sales reps after approval shortly after approval, have the time to get them trained before we actually receive product. So it will be a couple of months after approval before product is available for sale.

So during that period of time, we can certainly recruit higher train the sales force.

28:01 And can you also talk a little bit about the reimbursement plans for treosulfan and also pricing. I know it's still a little bit early because you still have to work things out with the FDA, but can you just talk a little bit about how that's proceeding?

28:17 Yeah. It's great question.

So, we had hired the field reimbursement agents. So those people are active in the field.

You can talk about product with the accounts as long as you believe you're within twelve months of potential launch. So that work is ongoing and we continue to refine reimbursement strategy and our revenue forecast as we collect information from the field, also remind you the MSOs are out there actively talking to the KOLs as well.

So we are gathering information. We do know it's going to be mainly part of a DRG.

So it's a roll up of all costs associated with doing the transplant so we will be part of that bigger bill, which is positive for us because we obviously, we improved survival we reduced recurrence. We reduced GvHd, which were the side effects so these are all costs associated with doing these transplants, which the institution can avoid if they use our drug.

29:30 Yeah. That's great.

Thanks, Ken.

29:44 Hi, Prasath from Bloom Burton. Thanks for taking my questions.

Could you talk about potential scenarios following the Type A meeting on November twenty third in terms of what could be the best and worst case for your resubmission plan?

30:02 Yes, that's good question Prasath. So November twenty three will be a review of the resubmission plan.

So a dossier has already been submitted to the FDA. It's necessary to submit the dossier before they grant you the meeting date.

So they have it, they’re renewing it, in that meeting, they will provide feedback and whether they accept the resubmission plan or not. So it will be a kind of a go, no go at that date.

We are assuming that it will be a go, because we believe that the plan addresses the question that they've asked. And so if they agree with that, then the resubmission will go in.

At some point, probably calendar Q1. So it's not going to go in immediately following the Type A meeting.

There is a safety update that has to be provided. So it will go in likely in Q1 of next year calendar.

And then thirty days after that, they tell us whether it's a Type one or Type two review. So I would expected by the end of calendar Q1 maybe early Q2, we'll know where the decision point is for approval.

31:25 Got it. Thanks.

And then on the operating expenses is there roughly fourteen million per quarter, a good run rate for the upcoming quarters until we start building out for the potential treosulfan launch.

31:40 I'll let Marcel address that.

31:43 Yeah. Hi, Prasath.

Yes. I would say, yes in terms of our expenses going forward up to launch, we will obviously not engage into any spend, and you may spend up to the launch so we'll be staying very pretty steady after to this point that's correct.

32:07 Okay. Thank you.

32:17 Okay. Thank you, Holly.

And thanks everyone for joining us on the call today. The last few quarters have been challenging, but we believe that we are now at a significant turning point in the business.

We are pleased that the Type A meeting has been scheduled with the FDA at a few weeks-time on schedule with what we had been anticipating. We have also made positive changes in the IXINITY supply chain process.

I believe we're on the right path to resume growth in sales to meet the increased unit demand in the coming quarters. 32:47 With treosulfan Type A meeting with the FDA less than two weeks away, we are looking forward to providing shareholders with an update shortly thereafter.

We believe that we will get further clarity on the pathway and timeline to approval. And we are now well positioned to launch a product when that time comes.

We seek tremendous opportunity across the rest of the product portfolio and continue to see new business development opportunities that have the potential to be very accretive. We have historically generated very strong organic growth and we anticipate that in the coming quarters, we will begin to reflect this.

We have a number of exciting new opportunities ahead and are determined to keep building our company into a globally recognized business. Thanks everyone for joining us today.