Ms. Samira Sakhia reports

KNIGHT THERAPEUTICS REPORTS SECOND QUARTER 2023 RESULTS

Knight Therapeutics Inc. has released financial results for its second quarter ended June 30, 2023. All currency amounts are in thousands except for share and per-share amounts. All currencies are Canadian unless otherwise specified.

Q2 2023 highlights

Financial results:

• Revenues were $89,905, an increase of $14,085 or 19 per cent over the same period in prior year;
• Gross margin of $37,493 or 42 per cent compared with $38,295 or 51 per cent in the same period in prior year;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $14,269, a decrease of $3,621 or 20 per cent over the same period in prior year;
• Adjusted EBITDA per share of 13 cents, a decrease of two cents or 15 per cent over the same period in prior year;
• Net gain on financial assets measured at fair value through profit or loss of $3,939;
• Net income was $1,840, compared with $2,516 in the same period in the prior year;
• Cash outflow from operations was $1,486, compared with a cash inflow from operations of $13,249 in the same period in prior year.

Corporate developments:

• Purchased 2,875,020 common shares through Knight's normal course issuer bid at an average price of $4.78 for aggregate cash consideration of $13,733.

Products:

• Submitted Pemazyre (pemigatinib) for regulatory approval in Argentina and Mexico;
• Submitted Minjuvi (tafasitamab) for regulatory approval in Mexico;
• Submitted Rembre (dasatinib) and Karfib (carfilzomib) for regulatory approval in Chile;
• Obtained regulatory approval for Xetrane (pomalidomide) in Chile.

Subsequent to quarter-end:

• Submitted marketing authorization for Tavalisse (fostamatinib) in Colombia and Mexico;
• Obtained regulatory approval for Minjuvi (tafasitamab) in Brazil;
• Launched an NCIB in July, 2023, to purchase up to 5,999,524 common shares of the company.

"I am excited to report that Knight achieved record revenues this quarter. During the first six months of 2023, Knight has delivered revenues of over $172-million and adjusted EBITDA of over $32-million, a growth of 24 per cent and 4 per cent, respectively, compared with the same prior-year period. The strong performance is a testament to the hard work and dedication of our team and the continued success of our portfolio. In addition, our team continues to focus on advance our pipeline, with the submission of innovative and branded generic products across our territories," said Samira Sakhia, president and chief executive officer of Knight Therapeutics.

The increase in revenues excluding the impact of hyperinflation is explained by the following:

• Oncology/hematology: The oncology/hematology portfolio grew by approximately $5,923 due to continued growth of key promoted products including Lenvima, Trelstar, Rembre and the assumption of commercial activities of Akynzeo in Brazil, Argentina and Canada. This increase is offset by a reduction of approximately $4,000 in revenues of the company's mature and branded generics products due to their life cycle, including the market entrance of new competitors.
• Infectious diseases: The infectious disease portfolio grew by approximately $18,913, excluding the impact of the planned transition and termination of the Gilead amendment. The increase is driven by the revenues of $18,000 related to the sales contract the with the Ministry of Health in Brazil for Ambisome, and the growth of Knight's key promoted products, including Cresemba.
• Other specialty: The decrease in the other specialty portfolio is primarily driven by a net decrease of the revenues of Exelon of $1,500 due to the transition from Novartis to Knight. The revenues of Exelon declined by approximately $7,500 in Q2 2023 versus Q2 2022 due to the transition of commercial operations from Novartis to Knight. The revenues in Q2 2023 were negatively impacted due to advanced purchases in Q1 2023 in connection with transition of commercial operations, primarily in Mexico. In addition, in Q2 2022, Knight recorded higher revenues due to the advanced purchases in connection with the transition of commercial operations, primarily in Brazil and Colombia. The decrease is offset by an estimated $6,000 additional revenues recognized due to the change in accounting treatment from net profit transfer to revenues with related cost of sales upon the transition.

Gross margin: For the quarter ended June 30, 2023, gross margin, as a percentage of revenues, was 42 per cent in Q2 2023 and 51 per cent Q2 2022. Excluding the impact of IAS 29, gross margin, as a percentage of revenues, was 45 per cent in Q2 2023 and 54 per cent in Q2 2022. Exelon was recorded as a net profit transfer from Novartis in Q2 2022. If Knight had reported revenues and related cost of sales for Exelon instead of a net profit transfer, the gross margin would have been 50 per cent. The decrease in the adjusted gross margin of 50 per cent in Q2 2022 to 45 per cent in Q2 2023 is due to product mix.

Selling and marketing (S&M): For the quarter ended June 30, 2023, S&M expenses were $12,874, an increase of $1,948 or 18 per cent, compared with the same period in prior year. Excluding the impact of IAS 29, the increase is $2,245 or 21 per cent. The increase is driven an expansion of the sales force structure as well as marketing activities related to Exelon upon the transition of commercial activities from Novartis to Knight and Akynzeo relaunched in Brazil in Q3 2022 and Canada in Q4 2022. In addition, certain variable costs such as logistics fees rose as a function of higher revenues.

General and administrative (G&A): For the quarter ended June 30, 2023, G&A expenses were $9,119, a decrease of $1,447 or 14 per cent, compared with the same period in prior year. Excluding the impact of IAS 29, the decrease is $528 or 5 per cent.

Research and development (R&D): For the quarter ended June 30, 2023, R&D expenses were $4,336, an increase of $924 or 27 per cent, compared with the same period in prior year. Excluding the impact of IAS 29, the increase is $1,458 or 46 per cent. The increase is driven by an expansion in Knight's structure behind product development and medical initiatives related to key promoted products, including Akynzeo relaunched in Brazil in Q3 2022 and in Canada in Q4 2022.

Amortization and impairment of intangible assets: For the quarter ended June 30, 2023, amortization and impairment of intangible assets were $11,274, an increase of $219 or 2 per cent compared with the same period in prior year.

Interest income: Interest income is the sum of interest income on financial instruments measured at amortized cost and other interest income. For the quarter ended June 30, 2023, interest income was $3,087, an increase of $660 or 27 per cent, compared with the same period in prior year. The increase is driven by higher interest rates on cash and marketable securities.

Interest expense: For the quarter ended June 30, 2023, interest expenses were $3,004, an increase of $1,287 or 75 per cent, compared with the same period in prior year. The increase is driven by higher average loan balance resulting from IFC loan closed in December, 2022, and higher variable interest rates, partially offset by principal repayments of Itau Unibanco Brasil and Bancolombia bank loans.

Adjusted EBITDA: For the three-month period ended June 30, 2023, adjusted EBITDA decreased by $3,621 or 20 per cent, driven by the decrease in gross margin and increase in operating expenses.

Net income: For the quarter ended June 30, 2023, net income was $1,840 compared with net income of $2,516 for the same period in prior year. The variance mainly resulted from the above-mentioned items and (1) a net gain on the revaluation of financial assets measured at fair value through profit or loss of $3,939 versus a net loss of $7,692 in the same period in prior year, mainly due to unrealized revaluations of the strategic fund investments; (2) a foreign exchange loss of $4,918 in Q2 2023 versus a foreign exchange gain of $4,507 in Q2 2022; and (3) an income tax recovery of $1,628 in Q2 2023 driven by the recognition of certain deferred tax assets due to timing differences related to Knight's financial assets, tax loss in certain jurisdictions and certain intercompany transactions, offset by current income tax expense due to operating income, compared with the income tax recovery of $1,009 in Q1 2023.

Cash, cash equivalents and marketable securities: As at June 30, 2023, Knight had $141,623 in cash, cash equivalents and marketable securities, a decrease of $31,051 or 18 per cent as compared with Dec. 31, 2022. The variance is primarily due to outflows for certain regulatory and sales milestones on certain products, including Akynzeo and Aloxi from Helsinn, shares repurchased through the NCIB, repayment of bank loans partially offset by cash inflows from operating activities, principal repayment of a strategic loan, and proceeds from the disposal of Medimetriks.

Financial assets: As at June 30, 2023, financial assets were at $160,881, a decrease of $15,682 or 9 per cent, as compared with Dec. 31, 2022, driven mainly by the mark-to-market adjustments of $8,029 due to the decline in the share prices of the publicly traded equities held by the company's strategic fund investments and a strategic loan repayment of $5,357, offset by capital calls on the funds. Given the nature of the fund investments there could be significant fluctuations in the fair value of the underlying assets.

Bank loans: As at June 30, 2023, bank loans were at $72,461, an increase of $2,389 or 3 per cent as compared with Dec. 31, 2022.

Product updates

During the quarter, Knight submitted the marketing authorization applications for two innovative products, Pemazyre (pemigatinib) in Argentina and Mexico and Minjuvi (tafasitamab) in Mexico. Knight advanced its branded generics portfolio, particularly in Chile, with the submission of the marketing authorization applications for Rembre (dasatinib) and Karfib (carfilzomib) and obtained regulatory approval of Xetrane (pomalidomide).

Subsequent to the quarter, Knight submitted marketing authorization applications for fostamatinib, for the treatment of thrombocytopenia in adult patients with chronic immune thrombocytopenia (ITP) who have had an insufficient response to a previous treatment, for regulatory approval in Mexico and Colombia. In addition, the company received the regulatory approval in Brazil for Minjuvi, in combination with lenalidomide followed by tafasitamab monotherapy for the treatment of adult patients with relapsed or refractory diffuse large B-cell lymphoma (DLBCL), including DLBCL due to low-grade lymphoma, who are not eligible for autologous stem cell transplantation (ASCT). Upon obtaining the marketing authorization from ANVISA, Knight submitted an application for pricing approval to Drugs Market Regulation Chamber (CMED) which establishes maximum prices allowed for drugs sold in Brazil. The timing and outcome of the pricing approval process are uncertain and could take up to two years. The commercial launch of Minjuvi is dependent on obtaining a favourable CMED price.

Corporate updates

NCIB

On July 12, 2023, the company announced that the Toronto Stock Exchange approved its notice of intention to launch an NCIB. Under the terms of the 2023 NCIB, Knight may purchase for cancellation up to 5,999,524 common shares of the company which represented 10 per cent of its public float as at June 30, 2023. The 2023 NCIB commenced on July 14, 2023, and will end on the earlier of July 13, 2024, or when the company completes its maximum purchases under the NCIB. Furthermore, Knight entered into an agreement with a broker to facilitate purchases of its common shares under the NCIB.

During the three-month period ended June 30, 2023, the company purchased 2,875,020 common shares at an average price of $4.78 for aggregate cash consideration of $13,733 of which $215 remains to be settled as at June 30, 2023. Subsequent to quarter-end up to Aug. 3, 2023, the company purchased an additional 480,434 common shares at an average purchase price of $4.87 for an aggregate cash consideration of $2,341.

Financial outlook update

Knight provides guidance on revenues on a non-GAAP (generally accepted accounting principles) basis. This is due to both the difficulty in predicting Argentinian inflation rates and its IAS 29 impact.

For fiscal 2023, Knight has updated its financial guidance on revenues and expects to generate between $310-million and $330-million in revenues, an increase of $10-million on the lower and upper end of the range. The adjusted EBITDA is expected to be between 16 per cent and 17 per cent of revenues. The increase in the financial outlook is primarily due to an improvement in Latin American currencies against the Canadian dollar in the second quarter of 2023. The guidance is based on a number of assumptions, including but not limited to the following:

• No revenues for business development transactions not completed as at Aug. 10, 2023;
• Discontinuation of certain distribution agreements;
• No interruptions in supply whether due to global supply chain disruptions or general manufacturing issues;
• No new generic entrants on key pharmaceutical brands;
• No unforeseen changes to government mandated pricing regulations;
• Successful commercial execution on product listing arrangements with health maintenance organizations, insurers, key accounts and public payers;
• Successful execution and uptake of newly launched products;
• No significant restrictions or economic shutdown due to global pandemics;
• Foreign currency exchange rates remaining within forecasted ranges.

Conference call notice

Knight will host a conference call and audio webcast to discuss its second quarter ended June 30, 2023, today at 8:30 a.m. ET. Knight cordially invites all interested parties to participate in this call.

Date: Thursday, Aug. 10, 2023

Time: 8:30 a.m. ET

Telephone: toll-free at 1-888-664-6383 or international at 1-416-764-8650

Webcast: Knight Therapeutics website

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 on Knight's website.

About Knight Therapeutics Inc.

Knight Therapeutics, headquartered in Montreal, Canada, is a specialty pharmaceutical company focused on acquiring or in-licensing and commercializing pharmaceutical products for Canada and Latin America. Knight's Latin American subsidiaries operate under United Medical, Biotoscana Farma and Laboratorio LKM. Knight Therapeutics' shares trade on the Toronto Stock Exchange under the symbol GUD.

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