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Operator: Good morning, and welcome to the Medexus Pharmaceuticals Fiscal Third Quarter 2026 Conference Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to your host, Victoria Rutherford, Investor Relations. Victoria, over to you.
Victoria Rutherford: Thank you, and good morning, everyone. Welcome to the Medexus Pharmaceuticals Third Fiscal Quarter 2026 Earnings Call. On the call this morning are Ken d'Entremont, Chief Executive Officer; and Brendon Buschman, 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 (480) 625-5772. I would like to remind everyone that this discussion will include forward-looking information as defined in Canadian securities laws that is based on certain assumptions that Medexus believes to be reasonable in the circumstances, but is subject to risks and uncertainties. Actual results may differ materially from historical results or results anticipated by the forward-looking information. In addition, this discussion will also include non-GAAP measures such as adjusted EBITDA, adjusted EBITDA margin and adjusted gross margin and net debt, which do not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies. For more information about forward-looking information and non-GAAP measures, including reconciliations, please refer to the company's MD&A, which along with the financial statement, is available on the company's website at www.medexus.com and on SEDAR+ at www.sedarplus.ca. As a reminder, Medexus reports on a March 31 fiscal year basis. Medexus reports financial results in U.S. dollars and all references are to U.S. dollars, unless otherwise specified. I would now like to turn the call over to Ken d'Entremont.
Kenneth d'Entremont: Thank you, Victoria, and thank you, everyone, for joining this call today. We continue to execute on our commercial launch of GRAFAPEX and are extremely pleased with the progress achieved thus far. We've had a significant presence at Tandem meeting last week, and we're encouraged by the level of interest in conditioning regimens and GRAFAPEX in particular. Product level performance to date has exceeded our prelaunch expectations. And although we experienced a quiet period in the December holiday season, we have seen a strong rebound in January 2026 and which now represents one of the strongest months of patient demand we have seen since commercial launch. For the 9-month period ending December 31, '25, we recognized product level revenue of GRAFAPEX of $8.2 million compared to $8.5 million we invested in the GRAFAPEX launch over that period. We anticipate GRAFAPEX will be accretive to quarterly operating cash flow starting in fiscal Q4 '26, so the quarter we're in right now, and will generate product level net revenue of $11 million to $12 million for fiscal year '26. The initial adoption by major commercial payers and leading health care institutions has been highly encouraging and early indicators of patient-level demand continue to validate the value proposition GRAFAPEX delivers. To that end, product level net revenue from GRAFAPEX in fiscal Q3 '26 totaled $2 million relative to $2.5 million of GRAFAPEX personnel and infrastructure investments. The $8.5 million we have invested in the GRAFAPEX launch year-to-date through December 31, continues to have a significant impact. As of today, 32% of all 180 U.S. transplant centers have already ordered GRAFAPEX for procedures in their institutions and 77% of those 57 institutions have reordered. In fiscal Q4 '26, we expect that the underlying patient demand of GRAFAPEX will be approximately $3 million to $4 million. This compares to $2.2 million in fiscal Q1, $2.1 million in fiscal Q2 and $2.6 million in fiscal Q3 '26. Considering the estimated inventory on hand at our wholesaler at December 31, '25, we anticipate patient demand in fiscal Q4 '26 will result in product level net revenue of GRAFAPEX between $3 million and $4 million. Overall, our fiscal Q3 '26 results remain solid with positive operating income, adjusted EBITDA and operating cash flows. Our results reflect the continuation of our portfolio dynamics we have discussed in past quarters, coupled with continued growth momentum from GRAFAPEX, which we view as a continuing testament to our portfolio approach. Our fiscal Q3 '26 net revenue was $25.3 million, a decrease compared to $30 million for the same period last year. Our fiscal Q3 '26 adjusted EBITDA was $4.5 million, a decrease compared to $5.8 million for the same period last year, but our third consecutive fiscal quarter of adjusted EBITDA growth since the approval and launch of GRAFAPEX in fiscal Q4 '25. We produced modest net income of $0.1 million for the quarter, a slight decrease compared to $0.7 million for the same period last year. Operating income was $1.7 million in fiscal Q3 '26, a decrease compared to $2.1 million for the same period last year. But again, our third consecutive fiscal quarter of operating income growth since the approval and launch of GRAFAPEX. On the rest of our portfolio, I have a few updates to note. We continue to invest judiciously in our IXINITY manufacturing process improvement initiative, which has been ongoing for some years now. This initiative has resulted in a 30% decrease in product level cost of goods comparing fiscal Q3 '26 to fiscal Q1 '21 being the first full fiscal quarter following the acquisition of the product in February of 2020. This progress informed our choice to commit in fiscal Q3 to a modest further investment in this process, approximately $1.2 million, of which we expect to pay in fiscal '26. Regarding Rasuvo, during fiscal Q2 '26, we learned that another product in the branded methotrexate auto-injector market had been withdrawn by its distributor. Comparing fiscal Q3 '26 to fiscal Q3 '25, we attribute the 17% increase in patient unit demand to this change in the competitive landscape. Although we expect that this onetime increase is now largely reflected in product level performance. Rupall continues to face generic competition in Canada. However, we expect that the adverse impact of this generic competition is now largely reflected in product level performance of Rupall, meaning that declines in net sales and product level performance of Rupall for future fiscal quarters will be less severe. In summary, we remain focused on delivering strong overall performance across our portfolio of products in both the United States and Canada, advancing GRAFAPEX in the United States and strategically positioning the company to capitalize on future revenue opportunities. I will now turn the call over to Brendon, who will discuss our financial results in more detail. Brendon?
Brendon Bushman: Perfect. Thank you, Ken. Our results for fiscal Q3 2026 continue to demonstrate consistent results quarter-over-quarter and continue to reflect the natural transitional changes of an evolving product portfolio year-over-year. We are very pleased with the early performance of GRAFAPEX, which, as Ken mentioned, saw strong quarter-over-quarter patient demand growth, generating $2 million of product level net revenue in our fiscal Q3 '26. As a reminder, net revenue is determined based on wholesaler buying in the period, not underlying patient demand, which in fiscal Q3 '26 was $2.6 million. GRAFAPEX is expected to begin contributing positively to operating cash flows in the first calendar quarter '26, which is our fiscal Q4 '26. Turning to the full quarterly results. Total net revenue for fiscal Q3 '26 was $25.3 million. This represents a decrease of $4.7 million compared to $30 million for the same period last year. The $4.7 million year-over-year net revenue decrease was attributable in part to reduced net sales of Rupall in Canada and the return of Gleolan in the United States to the licensor. Partially offset by product level net revenue increases from GRAFAPEX and Rasuvo. Gross profit was $13.6 million for fiscal Q3 '26 compared to $15.2 million for the same period last year. Gross margin was 53.6% for fiscal Q3 '26, which is an improvement on the 50.7% we achieved in the same period last year. We continue to expect increasing product level net revenue from GRAFAPEX, together with the absence of product level net revenue from Gleolan after fiscal year 2025 to have a positive effect on company-level gross margin. These resulting changes to gross margin have emerged over fiscal year '26 and are expected to continue to emerge over fiscal year '27. Selling, general and administrative expenses were $11.2 million for fiscal Q3 '26 consistent with $11 million for the same period last year. Adjusted EBITDA was $4.5 million for fiscal Q3 '26, a decrease of $1.3 million compared to $5.8 million for the same period last year. The decrease was primarily due to the effects of generic competition on product level net revenue from Rupall, the termination of Gleolan in the U.S. and a $2 million beneficial impact of customer buying patterns of IXINITY on net revenue in the prior year, so fiscal Q3 '25. Net income was $0.1 million for fiscal Q3 '26, a decrease of $0.6 million compared to net income of $0.7 million for fiscal Q3 '25. We continue to generate meaningful cash from our operating activities with quarterly operating cash flow of $7.8 million compared to $6.7 million for fiscal Q3 '25. Even while investing in the launch of GRAFAPEX, we have generated an average of $4.3 million of cash from operating activity per quarter in the 4 quarters since launch. Cash on hand of $15 million at December 31, 2025, compares to $24 million at March 31, 2025 -- sorry, one second. Sorry about that. As of December 31, 2025, our net debt was $10.4 million, a decrease of $2.8 million compared to $13.2 million as at March 31, 2025. In November 2025, we entered into a new senior secured credit agreement with National Bank of Canada. The delayed draw term loan feature of this facility provides us with flexibility to finance future licensing and/or acquisition transactions on a long-term nondilutive basis. Given our strong financial position on January 1, 2026, the remaining installment of a regulatory milestone payment owed to medac for GRAFAPEX was repaid -- fully repaid using cash on hand. We also initiated a normal course issuing bid -- issuer bid to repurchase Medexus common shares. As of today, we have repurchased 201,500 shares. As always, there can be variability in quarter-to-quarter results. and the operating environment also remains variable. But we are encouraged by the strength of our business and remain well positioned to continue building the company and expanding its portfolio in the coming quarters and beyond. Operator, we will now open the call to analyst questions.
Operator: [Operator Instructions]. Our first question is coming from Andre Uddin of Research Capital.
Andre Uddin: There was some very useful GRAFAPEX info provided in the release yesterday. I think all of us are trying to figure out right now what the great trajectory is to get GRAFAPEX to $100 million. So my questions are around that. Can you talk a little bit about the 180 transplant centers? And how are you working towards getting GRAFAPEX on their formularies?
Kenneth d'Entremont: Yes. Thanks, Andre. Great question because obviously, getting the product listed on the formulary is the key leading indicator to future revenue. So we've had really good success in those efforts. I think we've directed that a significant portion of those hospitals have already put it on the formulary, and that is where a lot of our revenue is coming from. So it's roughly broken down 1/3 have got it on the formulary, 1/3 have it under review and another 1/3 we're still working on. So that's kind of how it breaks down. So we're really pleased with the revenue that we've been generating from the 1/3 that have it on the formulary.
Andre Uddin: Okay. And so looking ahead, where do you think you would be in terms of getting GRAFAPEX on those formularies in those 180 centers in fiscal 2027? Is there some sort of goal that you have in mind there for that?
Kenneth d'Entremont: Yes, absolutely. So obviously, we're working primarily on the adult hospitals. I mean that is 85% of the market and those are the ones that tend to take a longer period of time. So we would expect that it takes 12 to 18 months to get around to everybody. And so we would expect that kind of in that time frame, we should see significant continued uptake in formulary approvals.
Andre Uddin: And just looking at your 75% reorder rate, I mean, that's pretty high. Do you think you can improve that?
Kenneth d'Entremont: Yes, it's 77%, but absolutely. Yes, yes. Sure. I mean, obviously, we're getting new orders -- first orders from hospitals all the time every month. And so obviously, they don't necessarily reorder immediately. So as time goes by, that rate will continue. And then as new initiations of hospitals flatten, it should go closer to 100. As hospitals are starting to utilize our product, we will see regular orders. And that's kind of the pattern that we've been observing.
Andre Uddin: That's useful. And just lastly, are there any additional transplant conferences this year that Medexus is looking to have either a sales booth or even a physician-focused symposium?
Kenneth d'Entremont: Yes. So great question. So Tandem is the Super Bowl of conferences for this specialty. So that was last week, then there's many, many regional meetings, which we will go to all of them where they kind of discuss what happened at Tandem and other related topics. And then the EBMT, which is European Transplant Meeting is next month, and we will have people there as well.
Operator: Our next question is coming from Michael Freeman of Raymond James.
Michael Freeman: Brendon, congratulations on the quarter, in this GRAFAPEX ramp. I wonder if -- sort of following on to Andre's questions, I wonder if there are -- as you slice up those 180 transplant centers, you've surely taking a look at the highest volume centers and targeted those. I wonder if you could describe your penetration of those maybe like top decile volume centers? And just a progress update there would be great.
Kenneth d'Entremont: Yes. Thanks, Michael. Good question. So 180 total transplant centers in the U.S., but recall that 76 of those 180 to 80% of the transplant. So they are highly concentrated in the top 76 and our penetration is better in the top 76 than the total. So obviously, we are focusing on those top decile hospitals. I think what I can say is that we've got some significant hospitals that are in the top quartile that are ordering product on a regular basis. So we're making good progress with the important hospitals and they simply take longer. The bigger the hospital, the more bureaucracy there is, the longer it takes to get products onto formulary. So that is the dynamic that exists, but we're making steady and excellent progress with everybody. And obviously, the top 76 is the focus.
Michael Freeman: Got you. Helpful. Now prescribing for adult patients, you described in your releases that there was a significant increase in demand among adults. I wonder if you could describe the impact of that NTAP reimbursement program has had on that ordering dynamic. And if there are further improvements to be made to the process of reimbursement for adults and further penetrating that very important transplant population.
Kenneth d'Entremont: Yes. Great question. So the reimbursement for everyone is excellent. So we haven't been running into problems where patients aren't able to get access to the drug. It seems to be quite universal. So we're really pleased with that. The NTAP or for those who aren't familiar with it, New Technology Add-on Payment, is a Medicare payment where they basically pay up to the difference between generic busulfan, our competitor product and our branded GRAFAPEX or treosulfan, and so that's $21,000. And so Medicare is -- we estimate about 30% of adult patients. And so it's a significant add-on payment for the institution. So there's basically no risk in using our product. And obviously, we're out there demonstrating to hospitals, institutions that even if they were to get that add-on payment, we still save the hospital money through shorter hospital stays, fewer readmissions. There's a bunch of factors that go into the fact that into the analysis that demonstrates that we actually save them money. When you add the add-on payment, obviously, there's no risk whatsoever. And so that just helps facilitate uptake in that patient population, and it is a significant patient population. So the add-on payment goes on top of what they receive in the case rate or the DRG.
Michael Freeman: Got you. And maybe one more for Brendon. Looking -- thinking about the balance sheet, with this new credit facility, with the final medac payment made and looking at cash from operations funding much of your endeavors. I wonder if you could speak to maybe the difference in balance sheet health between now and the last year.
Brendon Bushman: Yes. No, great question. Thanks. Yes. So as a reminder, a year ago, when we were with the BMO facility, our principal repayments were $3.3 million a quarter. Now with National, that's come down to $0.5 million a quarter. The company, as I mentioned, is still generating very meaningful cash from operations even while investing in GRAFAPEX. So we are in a much better position now from a cash flow perspective than we were previously in that currently and going forward, meaningful amounts of those cash from operations are ours to grow the business with or to buy back stock with.
Operator: Our next question is coming from Scott Henry of AGP.
Scott Henry: Ken, for starters, can you get a sense of when reported GRAFAPEX sales will more similarly match patient demand? At what point should we have consistency where those 2 would kind of go together?
Kenneth d'Entremont: Yes, Scott. Good question. I think we're entering that now. I would expect that this quarter, they will start to be pretty level. Obviously, the wholesaler wants to keep about a month on hand. And so as our monthly and quarterly revenue grows, they'll keep more on hand, but it's going to be a lot more balanced as we go forward now.
Scott Henry: Okay. Great. And as we try to -- the past questions have alluded to as we try to track GRAFAPEX, obviously, formulary participation will be a key metric to follow. Are there any other metrics that you would suggest that would be a good idea to follow? There may not be, I don't know, what you're going to make available. But anything else we can watch or is that the key thing to focus on?
Kenneth d'Entremont: That is certainly the key thing. I think the other really important factor is the split of adult versus pediatric patients. And so that's why we've been calling that out. It's 15% for pediatric patients. And obviously, they use a much lower volume of product because they're smaller. So the adult market is the key market for future growth. And so that's why we've been calling that out. We will continue to do so. So keep an eye on our uptake in adult hospitals where that's 85% of transplants and obviously, they use a larger volume of products. So really key for us. And so we're very pleased that we are seeing strong uptake in that space. That's where our growth will come from going forward.
Scott Henry: Okay. Great. And a couple of modeling questions for Brendon. I guess, first, selling and administrative was a little lower than I expected. I sort of expected there to be more increase from GRAFAPEX sales cost. How do you think of that December quarter number for selling and administration going forward? Should it be increasing? Or do you think that's a good reflection of the current run rate?
Brendon Bushman: I think it will increase a little bit. One of the reasons we saw a bit of a drop in OpEx for GRAFAPEX in this last quarter was because of the holiday season. So there was just less traveling by our field team. That will ramp up again, including the trip to Tandem. So I think that it's -- we've hit a good stable operating expense for our base business, our business excluding GRAFAPEX and then I would expect sort of modest increases to GRAFAPEX to get us back into that $3 million to $4 million that we have been guiding to and then closer to $4 million throughout fiscal '27.
Kenneth d'Entremont: Just to add to that, Scott, the variable expens is the piece that's changing. The infrastructure that we have in place is very, very flat and stable. So it's the travel and expenses for people to be in the field that can vary from quarter-to-quarter.
Scott Henry: Okay. Great. And final question, when we think about fiscal Q4, last year, it was a sequential decline from Q3. I don't really recall what the specifics to that were. But when you're thinking about this March quarter, would you expect sales to be flat to up? Or would you expect some sort of seasonal weakness?
Kenneth d'Entremont: Yes, I'll start and then maybe Brendon can jump in. So this quarter that we're working now, we'll be comparing kind of like businesses. Historically, the past 3 quarters, we haven't really been comparing like businesses. So it will be a much cleaner picture as we go forward. Brendon?
Brendon Bushman: Yes. No, that's exactly right. I think one of the reasons for the drop sort of between Q3 and Q4 of last year was the Rasuvo -- sorry, Rupall generic hitting. So that as one of the benefits of the generic erosion with Rupall is that its seasonality, tracking allergy season won't move things up and down quite as much. So as Ken said, we've got a really, really nice, stable base business that really started to emerge in Q4 and then really has crystallized over the last 2 quarters as things like handing the Gleolan license back has sort of flushed itself out. So I would sort of say, if you take out Gleolan from -- or sorry, GRAFAPEX from the last 2 quarters, you'll see a very stable, repeatable, durable base business that GRAFAPEX as it grows will increase.
Operator: [Operator Instructions]. Our next question is coming from David Martin of Bloom Burton.
David Martin: First question, the NTAP incentives that you talked about for hospitals for patients insured with Medicare, I'm wondering about those that are covered by private insurance. Is there any flow-through for the extra cost of the drug versus busulfan generics for privately insured patients? Or do the hospitals have to swallow the increased cost of the GRAFAPEX?
Kenneth d'Entremont: David, yes, thanks for asking that question because it is an important point. So there is a dynamic, and we've talked about this before, but we observed it even more strongly at Tandem last week. There is a dynamic by which more and more of these patients are treated as commercial patients, so they get conditioned as an outpatient, and then they will move to an inpatient. So what that dynamic does is it causes treosulfan or GRAFAPEX to be reimbursed as a commercial product, so it doesn't affect the DRG, the case payment. And we've observed that those get reimbursed. And so there is that dynamic that's happening for the inpatient, obviously, that is where the NTAP really comes into play and we will neutralize the cost increase in the drug budget between ourselves and busulfan for roughly 30% of those patients. The rest, they tend to get reimbursed by the institution or paid for by the institution and then the institution observed some cost savings within the case load.
David Martin: Okay. Second question, are you getting feedback that the lower toxicity and the general benefits with GRAFAPEX are readily tangible to the physicians? Or is this something that they have to look at the results of the clinical trial and say, yes, I'm doing good for my patients. But I'm relying on that. Or are the patients telling them, are they seeing improvements when they use the drug?
Kenneth d'Entremont: Yes. It's the latter. So there are visible indicators that the patient is doing better, so less toxicity. And that's visible during the hospital stay and at discharge. And so it's very, very clear that these patients do better. And so hospitals that have tried the product, later adopt the product because there are very tangible evidence that the patient does better. Then it's obviously -- the longer-term benefits are witnessed within the follow-up, just as we showed in the Phase III clinical trial that the survival benefit, obviously, is something that plays out over a longer period of time. But clearly, there is a very tangible and obvious improvement in the patient while in the hospital and at discharge.
David Martin: So what is it that they see that's better, less fatigue or what is it? And is it equal across pediatric and adult patients?
Kenneth d'Entremont: Yes, great question. I'm not sure I can answer it fully because I'm not a transplanter. The observation that we are receiving from physicians is that toxicity -- organ toxicity can demonstrate itself in many different ways. And so it can be GI toxicity, [ decreased mucositis ]. There's lots of various obvious reductions in organ toxicity that the physician can observe. And so that's typically it. In the pediatric patient, you -- those obvious Oregon toxicities are also observable but the fertility issue is a very big issue. And so that's why we get significant uptake in pediatrics.
David Martin: Okay. That's it for me.
Kenneth d'Entremont: It seems like we've lost Jenny. So I guess we'll wrap it up here.
Operator: No, I'm right here, apologies. And I just cut for a second, and I didn't hear anything. So I do apologize for that. Thank you very much, everybody. This does conclude today's call. You may disconnect your phone lines at this time, and have a wonderful day, and we thank you for your participation.