GUD Knight Therapeutics Inc

Knight Therapeutics Inc. (TSX:GUD) ("Knight"), a leading Canadian specialty pharmaceutical company, today reported financial results for its second quarter ended June 30, 2018.

Q2 2018 Highlights

Financials

• Revenues were $2,238, a decrease of $242 or 10% versus prior period
• Net income was $4,019, an increase of $3,560 or 776% over prior period
• Cash flows from operations at $4,059, an increase of $688 or 20% over prior period
• Cash, cash equivalents, and marketable securities of $806,746 as at June 30, 2018

Product

• Received regulatory approval from Health Canada for Probuphine™ for the treatment of opioid drug dependence

Strategic Lending and Investments

• Amended loan with 60P and disbursed US$647 out of a commitment to lend up to an additional US$2,100
• Converted $500 Antibe debenture into 2,489,899 common shares and sold the shares for proceeds of $1,011
• Received distributions of $1,856 from strategic fund investments

Key Subsequent Events

• Received notice of reassessment from CRA
• Received $3,188 from Profound representing full loan repayment and an early payment fee
• Entered into a licensing agreement with TherapeuticsMD, Inc. (“TherapeuticsMD”) to commercialize two products in Canada and Israel
• Invested USD$20,000 in common shares of TherapeuticsMD at a price of US$5.10 per share
• Accepted the resignation of Dr. Sarit Assouline and appointed Nancy Harrison to the Board of Directors

 “I am pleased with our progress at strengthening Knight's pipeline of innovative pharmaceuticals directed at touching the lives of patients. Our recent strategic investment and license agreement with TherapeuticsMD for two late stage, differentiated women’s health products successfully leverages our strong balance sheet to help Knight secure innovative pharmaceutical rights," said Jonathan Ross Goodman, CEO of Knight Therapeutics Inc.

Select Financial Results

	Q2-18		Q2-17	Change							Change
					$1		%2		YTD-18	YTD-17		$1		%2
Revenues	2,238		2,480		(242	)	10	%	5,392	4,230		1,162		27	%
Gross margin	1,900		2,008		(108	)	5	%	4,220	3,470		750		22	%
Operating expenses	3,401		4,246		845		20	%	6,774	7,493		719		10	%
Interest income	4,746		5,698		(952	)	17	%	10,034	11,558		(1,524	)	13	%
Share of net (loss) income of associate	(151	)	96		(247	)	N/A		352	415		(63	)	15	%
Net income	4,019		459		3,560		776	%	10,928	6,506		4,422		68	%
Basic earnings per share	0.028		0.003		(0.025	)	833	%	0.077	0.046		0.031		67	%

1      A positive variance represents a positive impact to net income and a negative variance represents a negative impact to net income2      Percentage change is presented in absolute values

Revenue: Variance for the quarter and the six-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 revenues variances and product mix.

Operating expenses: The decrease in Q2-18 was driven by a reduction in general and administrative expenses mainly related to lower stock-based compensation expense. For the six-month period, the decrease was driven by a reduction in general and administrative expenses mainly related to lower stock-based compensation expense, offset by commercial activities including the promotion of Movantik®.

Interest income: Interest income was driven by the sum of interest income and interest accretion. Interest income (excluding accretion) for the quarter was $4,746, an increase of 3% or $154 versus the prior quarter while interest income (excluding accretion) for the six-month period was $10,034, an increase of 7% or $660 versus the prior period. The increases are explained by an increase in the average cash, cash equivalents, and marketable securities balances and an increase in interest rates, offset by a lower average loan balance.

Net income: Net income for the quarter was driven by the above-mentioned items as well as a net gain on the revaluation of financial assets measured at fair value through profit or loss of $2,884. Similarly, net income for the six-month period was impacted by (i) a net gain on revaluation of financial assets measured at fair value through profit or loss of $3,425, (ii) other income of $1,388 due to the early repayment of fees on the Medimetriks loan, and (iii) a foreign exchange gain of $2,548 from the relative gains on certain U.S. dollar denominated financial assets as the Canadian dollar weakened.

Product Updates

On April 18, 2018, Probuphine™ was approved by Health Canada for the treatment of opioid dependence. Probuphine™ is a subdermal implant designed to deliver buprenorphine continuously for six months following a single treatment, promoting patient compliance and retention. Knight expects to launch Probuphine™ by the end of 2018.

On July 31, 2018, Knight entered into an exclusive licensing agreement for the commercial rights of TX-004HR and TX-001HR in Canada and Israel. TX-004HR is TherapeuticsMD's FDA-approved product, marketed as Imvexxy™ (estradiol vaginal inserts) in the U.S., for the treatment of moderate-to-severe dyspareunia (vaginal pain associated with sexual activity), a symptom of vulvar and vaginal atrophy (VVA), due to menopause. TX-001HR is TherapeuticsMD's investigational bio-identical hormone therapy combination of estradiol and progesterone in a single, oral softgel for the treatment of moderate-to-severe vasomotor symptoms due to menopause. Knight expects to submit both products to Health Canada for regulatory approval in 2019.

Strategic Lending Update 

On April 24, 2018, Knight amended its loan agreement with 60P and committed to lend an additional amount of up to US$2,100, at an interest rate of 15%, to support the regulatory approval and commercialization of tafenoquine. As consideration for the amendment, 60P committed to pay Knight an additional US$3,000 plus annual interest of 9% on April 23, 2023 (“60P Commitment”).  Under the terms of the 60P Commitment, Knight has the right to convert the 60P Commitment into common shares of 60P at a pre-determined exercise price at any time prior to the maturity date. Furthermore, Knight obtained the rights to commercialize tafenoquine in Latin America.

Corporate Update

Dr. Sarit Assouline resigned from Knight’s Board of Directors and Nancy Harrison was appointed. “We are grateful to Sarit for her time on our board and wish her every continued success,” Mr. Goodman commented, “Nancy’s experience as a life sciences specialist in the Canadian venture capital industry will be an asset to Knight and we are fortunate to have her join our board.”

Nancy Harrison is former Co-founder and President of MSI Methylation Sciences, a private venture backed development company with a novel treatment of depression in a Phase II clinical trial. She is a former Partner and Senior Vice President of Ventures West Management Inc. Ms. Harrison spent 13 years with Ventures West leading its life sciences practice in Canada and the U.S. She is one of the most experienced life sciences investors in the Canadian venture capital industry and was instrumental in Ventures West’s involvement in the sector and with companies such as Angiotech Pharmaceuticals Inc., AnorMed Inc., Salmedix Inc. and Oncogenix Pharmaceuticals Inc., Celator Pharmaceuticals Inc., and Caprion BioSciences. During her time with Ventures West, the firm grew from approximately $80 million to over $750 million. Ms. Harrison has an undergraduate degree in Engineering from Queen’s University and an MBA from McGill University.

TherapeuticsMD Transaction

A presentation with additional information about the TherapeuticsMD transaction can be found on Knight's website at www.gudknight.com under Presentations and will remain available for 30 days. 

Conference Call Notice 

Knight will host a conference call and audio webcast to discuss its first quarter results today at 8:30 am ET. Knight cordially invites all interested parties to participate in this call.

Date: Thursday, August 9, 2018Time: 8:30 a.m. ESTTelephone: Toll Free 1-877-855-7766 or International 248-847-2346                                  Webcast: www.gudknight.com or https://tinyurl.com/y8wmkzkr  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.gudknight.com

Currency

All dollar amounts are in thousands except for share and per share amounts. All currencies are Canadian unless otherwise specified.

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.gudknight.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, 2017. 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.gudknight.com

INTERIM CONSOLIDATED BALANCE SHEETS[In thousands of Canadian dollars][Unaudited]

As at	June 30,2018	December 31, 2017
ASSETS
Current
Cash and cash equivalents	418,358	496,460
Marketable securities	318,388	232,573
Trade and other receivables	6,298	9,176
Inventories	966	1,224
Other current financial assets	25,438	58,848
Income taxes receivable	1,002	792
Total current assets	770,450	799,073
Marketable securities	70,000	36,000
Property and equipment	710	633
Intangible assets	15,506	12,576
Other financial assets	90,676	76,988
Investment in associate	78,990	75,983
Deferred income tax assets	2,801	4,730
Total assets	1,029,133	1,005,983
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Accounts payable and accrued liabilities	4,100	5,025
Income taxes payable	8,911	7,599
Other balances payable	1,418	1,354
Deferred other income	268	282
Total current liabilities	14,697	14,260
Deferred other income	42	167
Other balances payable	1,085	348
Total liabilities	15,824	14,775
Shareholders’ equity
Share capital	761,595	761,490
Warrants	785	785
Contributed surplus	13,383	12,196
Accumulated other comprehensive income	18,575	20,907
Retained earnings	218,971	195,830
Total shareholders’ equity	1,013,309	991,208
Total liabilities and shareholders’ equity	1,029,133	1,005,983

INTERIM CONSOLIDATED STATEMENTS OF INCOME[In thousands of Canadian dollars, except for share and per share amounts][Unaudited]

		Three months ended June 30,				Six months ended June 30,
		2018		2017		2018		2017
Revenues		2,238		2,480		5,392		4,230
Cost of goods sold		338		472		1,172		760
Gross margin		1,900		2,008		4,220		3,470
Expenses
Selling and marketing		892		1,050		1,681		1,413
General and administrative		1,937		2,329		4,032		4,797
Research and development		572		867		1,061		1,283
		(1,501	)	(2,238	)	(2,554	)	(4,023	)
Depreciation of property and equipment		19		—		35		—
Amortization of intangible assets		445		320		886		646
Interest income		(4,746	)	(5,698	)	(10,034	)	(11,558	)
Other income		(37	)	(334	)	(1,388	)	(642	)
Net loss (gain) on financial assets		—		1,056		—		(2,319	)
Net gain on financial assets measured at fair value through profit or loss		(2,884	)	—		(3,425	)	—
Share of net loss (income) of associate		151		(96	)	(352	)	(415	)
Foreign exchange loss (gain)		49		1,306		(2,548	)	1,549
Income before income taxes		5,502		1,208		14,272		8,716
Income tax expense
Current		911		628		1,552		1,108
Deferred		572		121		1,792		1,102
Net income for the period		4,019		459		10,928		6,506
Basic earnings per share		0.028		0.003		0.077		0.046
Diluted earnings per share		0.028		0.003		0.076		0.045
Basic		142,819,960		142,760,357		142,816,677		142,740,562
Diluted		143,270,324		143,557,171		143,247,377		143,177,337

INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS[In thousands of Canadian dollars][Unaudited]

		Three months ended June 30,					Six months ended June 30,
		2018			2017		2018		2017
OPERATING ACTIVITIES
Net income for the period		4,019			459		10,928		6,506
Adjustments reconciling net income to operating cash flows:
Deferred tax		572			121		1,792		1,102
Share-based compensation expense		642			1,018		1,187		1,864
Depreciation and amortization		464			320		921		646
Accretion of interest		—			(1,106	)	—		(2,184	)
Net (gain) loss on financial assets		(2,884		)	1,056		(3,425	)	(2,319	)
Foreign exchange loss (gain)		49			1,344		(2,548	)	1,549
Share of net loss (income) of associate		151			(96	)	(352	)	(415	)
Other income		—			155		—		—
Deferred other income		(45		)	(84	)	(139	)	(231	)
		2,968			3,187		8,364		6,518
Changes in non-cash working capital related to operations		1,091			(2,341	)	2,559		(1,436	)
Dividends from associate		—			2,525		—		2,525
Cash inflow from operating activities		4,059			3,371		10,923		7,607
INVESTING ACTIVITIES
Purchase of marketable securities		(232,762		)	(98,182	)	(283,517	)	(142,473	)
Purchase of intangible		—			—		(3,000	)	—
Purchase of property and equipment		(44		)	—		(86	)	—
Issuance of loans receivables		(831		)	(1,807	)	(831	)	(1,807	)
Purchase of equities		(310		)	(120	)	(710	)	(2,939	)
Investment in funds		(9,925		)	(6,190	)	(14,202	)	(10,331	)
Proceeds on maturity of marketable securities		64,091			106,073		165,409		126,559
Proceeds from repayments of loans receivable		1,594			2,266		35,034		30,324
Proceeds from disposal of equities		1,015			2,806		1,015		3,515
Proceeds from distribution of funds		5,756			1,222		6,099		3,376
Cash (outflow) inflow from investing activities		(171,416		)	6,068		(94,789	)	6,224
FINANCING ACTIVITIES
Proceeds from exercise of stock options		—			—		—		345
Proceeds from contributions to share purchase plan		42			50		91		93
Cash inflow from financing activities		42			50		91		438
(Decrease) Increase in cash during the period		(167,315		)	9,489		(83,775	)	14,269
Cash and cash equivalents, beginning of the period		583,408			519,522		496,460		514,942
Net foreign exchange difference		2,265			(1,132	)	5,673		(1,332	)
Cash and cash equivalents, end of the period		418,358			527,879		418,358		527,879
Cash and cash equivalents	418,358				527,879
Short-term marketable securities			318,388		233,282
Long-term marketable securities			70,000		—
			806,746		761,161