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Knight Therapeutics Reports Third Quarter 2019 Results

/EIN News/ -- MONTREAL, Nov. 12, 2019 (GLOBE NEWSWIRE) -- Knight Therapeutics Inc. (TSX: GUD) ("Knight"), a Canadian specialty pharmaceutical company, today reported financial results for its third quarter ended September 30, 2019. All currency amounts are in thousands except for share and per share amounts. All currencies are Canadian unless otherwise specified.

Q3 2019 Highlights

Financials

  • Revenues were $4,030, an increase of $810 or 25% compared to prior period.
  • Net loss was $2,959, compared to a net income of $12,930 in the prior period.
  • Cash, cash equivalents, and marketable securities of $700,092 as at September 30, 2019.

Corporate Development

  • Launched a Normal Course Issuer Bid (“NCIB”) and purchased 7,174,137 common shares for an aggregate cost of $54,283.

Products

  • Received regulatory approval from Health Canada for NERLYNX® for the treatment of HER2-positive breast cancer
  • Reached an agreement with the pan-Canadian Pharmaceutical Alliance regarding Probuphine® and to date have obtained reimbursement through public insurance plans administered by Alberta, Saskatchewan, New Brunswick, Manitoba, Veterans Affairs Canada and the Non-insured Health Benefit Program (“NIHB”)

Strategic Investment

  • Disposed of 899,200 common shares of Crescita Therapeutics Inc. for total proceeds of $916. The common shares sold were acquired by Knight at an average cost of $0.60 per share.  

Key Subsequent Events

  • Entered into a definitive agreement to acquire 51.2% of Biotoscana Investments S.A. (“GBT”), a specialty pharmaceutical company operating in Latin America. Following the close of the agreement, Knight will launch a mandatory tender offer to acquire the remaining 48.8% from public shareholders on similar terms. Upon completion of both transactions and assuming all public shares are tendered, Knight expects to have paid approximately BRL 1,318,000 ($418,0001), including net debt.
  • Received regulatory approval from Health Canada for Netildex® for the treatment of inflammatory ocular conditions of the anterior segment of the eye.
  • Submitted Joyesta™ for regulatory approval for the treatment of postmenopausal symptoms of vulvar and vaginal atrophy due to estrogen deficiency to Health Canada.

“We delivered on the execution of our strategy to build a Canadian and “rest of world” specialty pharmaceutical company with the transformational acquisition of GBT. This transaction will establish Knight as the pan-American (ex-US) in-licensing partner of choice” said Jonathan Ross Goodman, CEO of Knight Therapeutics Inc. “In addition, during the past quarter, we have advanced our Canadian product pipeline with Health Canada’s approval of NERLYNX®, the submission of Joyesta™ for regulatory approval, and the listing of Probuphine® for reimbursement through certain public insurance plans”.

1 Amounts translated at the BRL to CAD closing exchange rate as of October 18, 2019 of 3.145. The price in Canadian dollars will vary depending on the exchange rate.

Select Financial Results

                     
  Q3-19 Q3-18 Change

    Change

      $1 %2
YTD-19 YTD-18 $1 %2
                 
Revenues 4,030 3,220 810 25 % 10,190 8,612 1,578 18 %
Gross margin 3,280 2,611 669 26 % 8,438 6,831 1,607 24 %
Selling and marketing 1,125 1,000 (125) 13 % 3,260 2,681 (579) 22 %
General and administrative 4,649 1,833 (2,816) 154 % 12,034 5,865 (6,169) 105 %
Research and development 892 438 (454) 104 % 2,502 1,499 (1,003) 67 %
Interest income 6,058 4,956 1,102 22 % 18,108 14,990 3,118 21 %
Share of net income of associate 128 89 39 44 % 448 441 7 2 %
Net (loss) income (2,959) 12,930 (15,889) N/A 21,186 23,858 (2,672) 11 %
Basic net (loss) earnings per share (0.021) 0.091 (0.112) N/A 0.150 0.167 (0.017) 10 %
                   

A positive variance represents a positive impact to net income and a negative variance represents a negative impact to net income
Percentage change is presented in absolute values 

Revenue: Variance for the quarter and the nine-month period was mainly attributable to the timing of sales for Impavido® and growth in Movantik® sales.

Gross margin: Change in gross margin was attributable to increase in revenues and product mix.

Selling and marketing: Increase due to commercial activities including preparation for launch of new products.

General and administrative: General and administrative expenses for Q3-19 were $4,649, an increase of 154% or $2,816 compared to Q3-18 mainly driven by the legal and consulting fees of $2,476 for the acquisition of GBT (“GBT Fees”).  For the nine-month period, general and administrative expenses were $12,034 an increase of 105% or $6,169 mainly due to the GBT Fees and an expense of $3,803 related to the activist campaign, public proxy battle and related litigations between Knight and dissident shareholder Meir Jakobsohn, Medison’s CEO. Knight expects to incur additional expenses related to the GBT acquisition during the remainder of the year and in 2020.

Research and development: Increase for the quarter is due to the submission of Joyesta™ to Health Canada for regulatory approval, while the increase for the nine-month period was due to submissions of Ibsrela™ and Joyesta™.

Interest income: Interest income is driven by the sum of interest income on financial instruments measured at amortized costs and other interest income. Interest income for Q3-19 was $6,058, an increase of 22% or $1,102 compared to Q3-18 due to a higher average loan balance and an increase in interest rates, offset by a decrease in the average cash and marketable securities balances. For the nine-month period, interest income was $18,108, an increase of 21% or $3,118 driven by a higher average loan balance and an increase in interest rates, offset by a decrease in the average cash and marketable securities balances.

Net (loss) income: Net loss for the quarter was $2,959 and resulted from the above-mentioned items as well as (i) a net loss on the revaluation of financial assets measured at fair value through profit or loss of $4,883 (Q3-18: gain of $10,924), (ii) other income of $1,579 (Q3-18: $385) due to fees earned on strategic loans and a strategic fund investment, and (iii) a foreign exchange loss of $638 (Q3-18: $1,117) due to relative losses on certain Canadian dollar and euro denominated financial assets as Canadian dollar weakened. Similarly, net income for the nine-month period was $21,186 (Q3-18: 23,858) and resulted from (i) a net gain on revaluation of financial assets measured at fair value through profit or loss of $19,649 (Q3-18: $14,349) (ii) other income of $1,949 (Q3-18: $1,773) due to fees earned on strategic loans and a strategic fund, and (iii) a foreign exchange loss of $3,315 (Q3-18: gain of 1,431).

Acquisition of GBT

GBT is an established and profitable Latin American pharmaceutical company headquartered in Montevideo, Uruguay with presence in 10 countries throughout the region. GBT is the LATAM partner of choice for multinational pharmaceutical companies and has a diversified portfolio of innovative products as well as a branded generics portfolio. For the trailing twelve-month period ending June 30, 2019, GBT generated revenue1 of BRL 754,000 ($240,0002) and adjusted EBITDA3 of BRL 154,000 ($49,0002) with Brazil, Argentina and Colombia representing about 86% of revenues.

On October 18, 2019, Knight entered into a share purchase agreement to acquire 51.2% of GBT (B3: GBIO33) at BRL 10.96 per share or approximately BRL 596,000 ($189,0002) (“Share Purchase Agreement”).  The transaction is expected to close on November 29, 2019, upon which 80% of the purchase price will be paid to the sellers and the remaining 20% will be deposited in an escrow account as a guarantee against the sellers’ indemnification obligations. The escrow will be released equally over a period of three years, net of claims, according to the terms and conditions of the Share Purchase Agreement. 

Following the closing of the Share Purchase Agreement, Knight will launch a mandatory tender offer to acquire the remaining 48.8% common shares of GBT (“Tender Process”) which trade as Brazilian Depository Receipts (“BDRs”) on Brasil Bolsa Balcão S.A. (“B3”), in Brazil. Assuming all public shareholders tender their shares, Knight expects to pay approximately BRL 568,000 ($180,0002). The Tender Process is expected to take 4 to 8 months from launch to close. Following the close of the Share Purchase Agreement and the Tender Process, Knight expects to have paid a total of approximately BRL 1,164,000 ($369,0002) for the common shares and an additional BRL 154,000 ($49,0002) to cover GBT’s net financial debt.

Excluding the impact of hyperinflation accounting for Argentina.

2 Amounts translated at the BRL to CAD closing exchange rate as of October 18, 2019 of 3.145. The price in Canadian dollars will vary depending on the exchange rate.

Adjusted EBITDA does not have a standard meaning prescribed by IFRS and therefore may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS. Adjusted EBITDA has been calculated based on the definition disclosed by GBT in their Financial Statements, adjusted for the impact of IFRS 16 and the impact of hyperinflation accounting for Argentina. Per GBT, EBITDA is defined as operating profit before financial expenses and income taxes, plus amortization and depreciation. Adjusted EBITDA refers to EBITDA as adjusted to remove accounting effects and costs associated with some non-recurring income and expenses considered by management to be non-recurring and exceptional in nature.

Product Updates

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 trastuzumab-based therapy. Knight plans to launch NERLYNX® in late 2019. In October 2019, the Pan-Canadian Oncology Drug Review Expert Review Committee (“pERC”) published their initial report recommending that NERLYNX® should not be reimbursed through the public insurance plans. The Company has filed a feedback to the initial recommendation and is expecting a response from pERC by the end of 2019.

In August 2019, Knight reached an agreement with the pan-Canadian Pharmaceutical Alliance and to date has obtained reimbursement of Probuphine® through public insurance plans administered by Alberta, Saskatchewan, New Brunswick, Manitoba, Veterans Affairs Canada, and the NIHB. Knight’s commercial focus for the remainder of the year will be on reimbursement in additional jurisdictions and physician training.

In November 2018, Health Canada approved Iluvien®, a sustained release intravitreal implant for the treatment of diabetic macular edema. In September 2019, the Canadian Agency For Drugs And Technologies In Health published their final report recommending that Iluvien® should not be reimbursed through the public insurance plans. Knight is working with Alimera Sciences Inc. to assess the resubmission process.

On October 23, 2019, Health Canada approved Netildex® for the treatment of inflammatory ocular conditions of the anterior segment of the eye following cataract surgery where adjunct topical therapy to reduce the risk of bacterial infection is appropriate.

NCIB Update

On July 8, 2019, Knight announced that the Toronto Stock Exchange approved its notice of intention to make a NCIB. Under the terms of the NCIB, Knight may purchase for cancellation up to 12,053,693 common shares of Knight which represented 10% of its public float as at July 2, 2019. During the quarter ended September 30, 2019, the Company has purchased 7,174,137 common shares, for an aggregate cash consideration of $54,283. As at November 12, 2019, Knight has purchased a total of 7,249,249 common shares for an aggregate cost of $54,830 or $7.56 per share and has 135,629,136 common shares outstanding.

Furthermore, Knight entered into an agreement with a broker to facilitate purchases of its common shares under the NCIB. Under Knight’s automatic share purchase plan (the “ASPP”), the broker may purchase common shares which would ordinarily not be permitted due to regulatory restrictions or self-imposed blackout periods. Such purchases are made by the broker based on parameters and instructions communicated by Knight prior to any regulatory restrictions or self-imposed blackout periods. As at September 30, 2019, the Company was in a blackout period and as a result recorded an ASPP liability of $35,987. The liability will be extinguished once the Company is no longer in a blackout period or when all purchases under the ASPP have been completed.

Conference Call Notice 

Knight will host a conference call and audio webcast to discuss its third quarter results today at 5:30 pm ET. Knight cordially invites all interested parties to participate in this call.

Date: Tuesday, November 12, 2019
Time: 5:30 p.m. EST
Telephone: Toll Free 1-877-223-4471 or International 647-788-4922                                 
Webcast: www.gud-knight.com  or https://tinyurl.com/y3sjtap3  
This is a listen-only audio webcast. Media Player is required to listen to the broadcast.
Replay: An archived replay will be available for 30 days at www.gud-knight.com

About Knight Therapeutics Inc. 

Knight Therapeutics Inc., headquartered in Montreal, Canada, is a specialty pharmaceutical company focused on acquiring or in-licensing and commercializing innovative pharmaceutical products for the Canadian and select international markets. Knight Therapeutics Inc.'s shares trade on TSX under the symbol GUD. For more information about Knight Therapeutics Inc., please visit the company's web site at www.gud-knight.com or www.sedar.com.

Forward-Looking Statement

This document contains forward-looking statements for Knight Therapeutics Inc. and its subsidiaries. These forward-looking statements, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. Knight Therapeutics Inc. considers the assumptions on which these forward-looking statements are based to be reasonable at the time they were prepared but cautions the reader that these assumptions regarding future events, many of which are beyond the control of Knight Therapeutics Inc. and its subsidiaries, may ultimately prove to be incorrect. Factors and risks, which could cause actual results to differ materially from current expectations are discussed in Knight Therapeutics Inc.'s Annual Report and in Knight Therapeutics Inc.'s Annual Information Form for the year ended December 31, 2018. Knight Therapeutics Inc. disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information or future events, except as required by law.

CONTACT INFORMATION:

Knight Therapeutics Inc.
Samira Sakhia
President and Chief Financial Officer
T: 514-678-8930
F: 514-481-4116
info@gudknight.com
www.gud-knight.com 


INTERIM CONSOLIDATED BALANCE SHEETS
[In thousands of Canadian dollars]

[Unaudited]

As at September 30, 2019 December 31, 2018
ASSETS    
Current    
Cash and cash equivalents 319,125 244,785
Marketable securities 243,790 445,003
Trade and other receivables 12,644 11,756
Inventories 472 1,136
Other current financial assets 22,758 14,030
Income taxes receivable 729 821
Total current assets 599,518 717,531
     
Marketable securities 137,177 97,274
Property and equipment 1,679 794
Intangible assets 18,948 17,475
Other financial assets 148,323 113,314
Investment in associate 73,729 79,145
Deferred income tax assets 1,305 2,959
Other receivable 41,582 23,340
Total assets 1,022,261 1,051,832
     
LIABILITIES AND SHAREHOLDERS’ EQUITY    
Current    
Accounts payable and accrued liabilities 9,298 6,100
Automatic share purchase plan liability 35,987
Lease liabilities 298
Income taxes payable 12,587 10,705
Other balances payable 100 197
Deferred other income 183
Total current liabilities 58,270 17,185
     
Lease liabilities 703
Other balances payable 5,109 4,615
Total liabilities 64,082 21,800
     
Shareholders’ equity    
Share capital 698,115 761,844
Warrants 785 785
Contributed surplus 15,965 14,326
Accumulated other comprehensive income 15,909 20,955
Retained earnings 227,405 232,122
Total shareholders’ equity 958,179 1,030,032
Total liabilities and shareholders’ equity 1,022,261 1,051,832
     


INTERIM CONSOLIDATED STATEMENTS OF INCOME

[In thousands of Canadian dollars, except for share and per share amounts]

[Unaudited]

  Three months ended September 30,
  Nine months ended September 30,
 
  2019    2018    2019    2018  
         
Revenues 4,030   3,220   10,190   8,612  
Cost of goods sold 750   609   1,752   1,781  
Gross margin 3,280   2,611   8,438   6,831  
         
Expenses        
Selling and marketing 1,125   1,000   3,260   2,681  
General and administrative 4,649   1,833   12,034   5,865  
Research and development 892   438   2,502   1,499  
  (3,386 ) (660 ) (9,358 ) (3,214 )
         
Depreciation of property and equipment 112   28   305   63  
Amortization of intangible assets 424   481   1,273   1,367  
Interest income on financial instruments measured at amortized cost (4,825  )
(3,864
)
(14,651 )
(10,956
)
Other interest income (1,233 ) (1,092 ) (3,457 ) (4,034 )
Other income (1,579 ) (385 ) (1,949 ) (1,773 )
Net loss (gain) on financial assets measured at fair value through profit or loss 4,883   (10,924
)
(19,649  )
(14,349
)
Share of net income of associate (128 ) (89 ) (448 ) (441 )
Foreign exchange loss (gain) 638   1,117   3,315   (1,431 )
(Loss) income before income taxes (1,678 ) 14,068   25,903   28,340  
         
Income tax expense (recovery)        
Current 999   1,891   3,168   3,443  
Deferred 282   (753 ) 1,549   1,039  
Net (loss) income for the period (2,959 ) 12,930   21,186   23,858  
         
Attributable to shareholders of the Company  
Basic net (loss) earnings per share (0.021 ) 0.091   0.150   0.167  
Diluted net (loss) earnings per share (0.021 ) 0.090   0.150   0.167  
Weighted average number of common shares outstanding        
Basic 137,783,892   142,831,656   141,147,239   142,821,725  
Diluted 138,154,629   143,339,800   141,519,892   143,263,836  
                 


INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS

[In thousands of Canadian dollars]

[Unaudited]

                 
  Three months ended September 30,
  Nine months ended September 30,
 
  2019   2018   2019   2018  
OPERATING ACTIVITIES        
Net income for the period (2,959 ) 12,930   21,186   23,858  
Adjustments reconciling net income to operating cash flows:        
Deferred tax 282   (753 ) 1,549   1,039  
Share-based compensation expense 484   520   1,639   1,707  
Depreciation and amortization 536   509   1,578   1,430  
Net loss (gain) on financial assets 4,883   (10,924 ) (19,649 ) (14,349 )
Other income (180 )   (180 )  
Foreign exchange loss (gain) 638   1,117   3,315   (1,431 )
Share of net income of associate (128 ) (89 ) (448 ) (441 )
Deferred other income   (4 ) (183 ) (143 )
  3,556   3,306   8,807   11,670  
Changes in non-cash working capital and other items 472   118   2,368   2,678  
Increase in other receivable   (23,340 ) (18,242 ) (23,340 )
Dividends from associate     4,159    
Cash inflow (outflow) from operating activities 4,028   (19,916 ) (2,908 ) (8,992 )
         
INVESTING ACTIVITIES        
Purchase of marketable securities (20,300 ) (115,274 ) (203,445 ) (398,791 )
Purchase of intangible (328 )   (2,317 ) (3,000 )
Purchase of property and equipment   (9 ) (4 ) (95 )
Issuance of loans receivables (1,987 ) (510 ) (20,038 ) (1,341 )
Purchase of equities   (26,054 ) (6 ) (26,764 )
Investment in funds (5,864 ) (6,358 ) (18,434 ) (20,560 )
Proceeds on maturity of marketable securities 90,543   30,755   362,091   196,164  
Proceeds from repayments of loans receivable 873   3,833   3,574   38,867  
Proceeds from disposal of equities 1,676   19,869   1,676   20,884  
Proceeds from distribution of funds 8,500   328   9,177   6,427  
Cash inflow (outflow) from investing activities 73,113   (93,420 ) 132,274   (188,209 )
         
FINANCING ACTIVITIES        
Proceeds from exercise of stock options   90     90  
Proceeds from contributions to share purchase plan 62   58   178   149  
Proceeds from repayment of share purchase loans 425     425    
Repurchase of common shares through Normal Course Issuer Bid (54,181 )   (54,181 )  
Principal repayment of lease liabilities (68 )   (205 )  
Cash (outflow) inflow from financing activities (53,762 ) 148   (53,783 ) 239  
         
Increase (decrease) in cash and cash equivalents during the period 23,379   (113,188 ) 75,583   (196,962 )
Cash and cash equivalents, beginning of the period 294,911   418,358   244,785   496,460  
Net foreign exchange difference 835   (1,948 ) (1,243 ) 3,724  
Cash and cash equivalents, end of the period 319,125   303,222   319,125   303,222  
Cash and cash equivalents     319,125   303,222  
Short-term marketable securities     243,790   416,762  
Long-term marketable securities     137,177   55,062  
Total cash, cash equivalents and marketable securities     700,092   775,046  
             

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