AFT Pharmaceuticals Limited (AFT) Earnings Call Transcript & Summary

Good day. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the fiscal year 2024 half year results analyst briefing. [Operator Instructions]. I will now turn the conference over to Hartley Atkinson, Managing Director. Hartley, you may begin your conference.

Thank you very much, and thank you, everyone, for joining us today. So just to do the usual format where we go through the investor presentation, and then we have question time. So look, just to start, I'll just go through the page numbers. So we've got the cover page, which we're going through the results for our first half of the financial year, which ended the 30th of September. And on Page 2, we have the usual disclaimer, so please just be aware of those details. On Page 3, the people presenting today will be a mixture of myself and also Malcolm Tubby, our Chief Financial Officer, will cover the financial pages of the presentation. So going to Page #4, what we're looking at here is a summary of the overall results. I think what we're seeing as important was the business continued to grow well. And traditionally, we've always grown in Australia and New Zealand, which again grow. But more significantly, we've always indicated we've been working very hard on Asia and also international. And we've got 50% growth in Asia and 172% growth in international, where we pretty much exceeded or we did exceed last year's sales in the first half. And that's certainly pleasing to see because as we previously said, we did have some, in hindsight, quite major headwinds during the pandemic period for the international business, and we're now seeing those recede and able to make the sort of progress going forward that we believe should be possible. We also generated $2 million of licensing income. It's probably just important to point out that a significant chunk of this, although it's called license income, was basically ongoing sales milestones, which is almost very similar to deferred royalties. So in many ways, the majority of this amount was still connected to international sales that were made by licensees as opposed to, say, signing a new agreement. We did have -- [ it depends ] with you, we did have the operating profit was $3.3 million. I think it's important, though, to point out that we have purposely loaded spend towards the first half. So just not to over -- get over tied up on the fact that the company chose to put more spend into the first half, and we are going to adjust that in the second half because we are aware of this guidance of $22 million to $24 million. But we've been investing heavily in sales and promotion. We've also investing in more in R&D, and we've also invested a fair amount to in a new U.K. affiliate as well, which we see as very important to ongoing growth. So really, once again, we have been pushing growth. We're rather balancing things together, a sort of first half increased profit, so I don't -- I just ask not to look at that as some sort of negative. That's reflective of the fact that we've gone hard at growth initiatives. You can see then, we've got the ongoing -- on the graph, the bottom one on the left, you see we've got the ongoing growth. And another thing, too, is if you look over the last 10 years, we've almost quadrupled sales. And once again, this is what we're saying to you that we are pursuing growth and pushing on. And certainly, we're not looking to button off on growth going forward. However, you can see on the bottom right, we've got our ongoing trend in terms of operating profit, where that's increasing over time. The guidance we've got on the far right, and that's sort of penciled out color, that doesn't include the potential for Hikma, which has an additional USD 6 million, and we would qualify for 65% of that, so it would end up about NZD 6.5 million. The key caveat with that, that we've always tried to be very careful to make is that this depends on the time of the launch. At the moment, we are aiming for February. And if some unforeseen events, it did slip, then that could slip into next financial year. But at this point in time, we do see that hopefully or planning to be February. So looking to the next page, Page #5, Australia. We carried on our growth. We were pleased to grow that by 18%, which is a good number. We're all aware and seeing things, headlines of economy softening and things like that, but we've still been able to grow our sales by 18% in the Australian market. We did purposely invest heavily in product marketing with some big new launches that we did feel we do need to invest in. And we certainly have done that, but we will button that off in the second half, which is in our marketing plans. So really, we're looking at ongoing organic growth and also then some additional new launches. And you can see, once again, looking at those bottom graphs, there's the sales growth. Traditionally, we do normally have a stronger second half, which we see that has been consistent this year. And in terms of the pie graph, yes, there's only little changes. But certainly, OTC has slightly increased, but much the same sort of distribution of product sales. And then moving on to Page #6. New Zealand growth was a bit flatter at 7%, but we still grow from $21.3 million to $22.7 million, with good growth, that's in the hospital market with less in OTC, and prescription was relatively flat being slightly up. And similarly, also, we are investing in the New Zealand market, in the first half more, and then we will invest less in the second half. Once again, the sort of product mix is pretty much unchanged year-on-year. Yes, and that's sort of the key for that one. So going on to Page #7, this is Asia. We basically -- what we've been working on is expanding our OTC presence, and we're making some good progress there. But look, it's very much an ongoing journey, and we've certainly got a lot more work to do. But basically, we were pleased with sales growth of 50%. So that's a good solid sales growth, and we'll be looking to keep that sort of thing going. OTC channel was off a low base and is up 88%, and we are getting improving e-commerce sales. And that is part of the strategy but only part of it. Prescription on hospital channels, we had good growth. And certainly we've had some Maxigesic IV launches. South Korea has progressed strongly, and we've also had a solid performance. We launched in Indonesia as well towards the end of last year. So as we've always said, we are targeting accelerating growth in Asia as part of our geographic expansion. And also recently, we were pleased to secure the approval, our best approval, really, of our medicine in China, where we had Crystaderm approved, and we're working on the launch of that presently into the China market, which is the -- as you know, is the world's second largest pharmaceutical market after the United States. So Page #8, looking on to that next. International revenue, as we have always said, we do foresee increase in growth in the international ex-ANZ market. And certainly, we grew that by pleasing 172% in our half year overall sales to pass the whole of last year. So that was a pleasing result. But also very much what we've been working on, as we've tried to say, yes, we really did get quite a lot of impact of the pandemic. For instance, just to give you an example, it's extremely difficult to launch something like Maxigesic IV into a German hospital when the corridors are overflowing with pandemic patients and doctors that run off their feet. They really don't want to talk to a pharmaceutical company about a new product, even if it is a nice addition to their portfolio of options to treat patients when they're just run off their feet. So that sort of thing has sort of faded into the background, and now we're able to basically get on with business as usual. So also the next -- we're pleased that we got 2 U.S. FDA approvals this year with the Maxigesic Rapid and Maxigesic IV, which we're looking to launch in reasonably close proximity with the key thing, I guess, from financial short term perspective as CIV does trigger that license payment of $6 million from Hikma. But really, the key thing is not so much that, it's the overall long-term progress and the profit share that we have with Hikma in the U.S. market. So we are continuing to organize Maxigesic Rapid in terms of there will be some involvement with Hikma, but we're also going to do some of this with another partner where we see we can basically have an improved profit share, which is our approach as opposed to upfront payments and things like that. So then we carry on, though, targeting accelerating international income growth from multiple sources. So organic growth. We still have additional countries, we still have new dose forms, and we still have new products. So we'll come back to that later when we look at our R&D pipeline. I mean some people comment and seem to think we're just a Maxigesic company, which couldn't be further from the truth. That's our first product we're rolling out, but being we do have a really good R&D pipeline where we roll other products out. So certainly, just to stress, it isn't just a Maxigesic global opportunity. There's much wider opportunity than that. So that's Page #8. And flicking on to the next, Page #9. Look, this is just the global map, which kind of gives you an idea, a pictorial of what our progress is, basically, in countries where we've launched, we had the yellow. So you can see the standard countries that we previously had were down in sort of Asia and Australasia clearly, yes, next year will be turning yellow, which is a really key point, given that's the largest pharmaceutical market in the world. Russia, we are still parked there in the meantime due to, I guess, obvious reasons, but we're hoping to revise that at some stage. And we are also starting to roll out our launches in Africa, which actually is still interesting. They're one of the companies we're working with there [ Paracetamol and IV ] and certainly thing that, they say, Maxigesic as a much better opportunity. So literally, they can convert their paracetamol customers over to Maxigesic IV customers in hospitals and swap them out. So by the time you add places up to the selling 3, 4, 5 batches a year and then you start to add multiple countries up over time, that will also be very helpful. We do still have some areas that are slower and we're working on. Brazil, you can see on the right, and that's about usually 45% or so of the South American market. It is an important market. It is kind of difficult line, tends to be very dominated by some local players, but we are making progress there. We have a negotiation underway and contractual terms we are working on with a local company. China is the other big white chunk. So basically, we actually -- that shutting yellow after we launch our Crystaderm, which will be launched this year, but also we're having discussions with Maxigesic IV with some local partners there. We have had a lot of experience work in China from right back to about 2003. So there's a market we know reasonably well. And clearly, we'd also like to sell product to them as well, which will happen next financial year. And Japan is the other obvious white pit. That's also quite a difficult particular market. We need local studies, and we're working on that at the moment and actually starting this study in Japanese patients, will start in the next month as well, which is the -- one of the first steps to being able to conclude something in the Japanese market. So that's, that page. And flicking on to the next page, Page #10. Yes, look, this is one of the things we talked about before. We have aggressively gone after new products primarily for our existing Australia and New Zealand market, but what I should point out too, though, is that there's a lot of opportunity to also extend these to our existing hubs, which have been Singapore and Hong Kong. So we are now taking those products in our pipeline from our Australasian market to Singapore and Hong Kong. We operated for a reasonable amount of time, and we're strengthening those up. The other one that's important too is our U.K. market where we're able to take a lot of our pipeline to the U.K. And what's sort of the logic behind that? Like some people have said to us, that's kind of a bit kind of crazy because the U.K. is a long way away, et cetera, et cetera, but generally, it is a good opportunity because what's happened is the U.K., as you know, has dropped out of the EU, doesn't sit in with the EU, sits out by its lonesome, so actually now fits in quite well with the Anglo-Saxon markets of Australia, New Zealand. There is an element still though that fits in with Singapore, and even though Hong Kong has gone from Britain back to China, it still does for them reasonably well with Hong Kong. So really, that grouping them together does make sense, and that's one of the reasons we've also started up our U.K. business and looking to leverage our existing pipeline into these additional markets, which we see going forward will really drive our international sales because U.K. will sit in international and Singapore and Hong Kong obviously sit in our Asia area. And we've slightly increased by 5 products our number of new products kind of over the next 2 or 3 years. And also we're able and pleased we've got some very innovative products as well. Just one example, our French company, Crossject, has a nice product called ZENEO. This is an auto-injector you can use instead of an IV. So literally, it works through denim. So someone's having a fit, they're going to have quite nasty serious health consequences and literally you can treat them by using this, and it will inject through jeans, through the skin and get the same blood concentrations of midazolam, which is an antiepileptic drug, as you would get from using an intravenous formulation. So that's certainly a very nice and useful type of example of some of our innovative products coming down the line. But obviously, we've got lots of others as well. That's Page #10. On Page #11. This is just a repeat really of what I started to talk about on the last slide. So we are just building up our international presence. So Amazon, we started that also in the U.S. and that links some of Australia. These are the things that they won't straightaway make a difference, but over time, they are useful and will contribute to sales. So we are making progress on that. And there is spend and investment around that. So we're not making money on that straightaway. So once again, this is investing to aim for growth going forward. China as well. We've got, as we mentioned, our cross-border e-commerce. Part of that is Tmall, where we have other parts that you probably won't be able to see that we work with various partners in China on cross-border. And also, we've registered Crystaderm locally in the Chinese market and then that opens up the opportunity for e-commerce sales directly in China. And I mean, there's a lot of talk about the cross-border channel, but the local China based e-commerce is about 20x bigger than the cross-border, but certainly, that is part of the logic behind having that local approval. And as we said, we have our new hubs in the U.K. So basically, right now, as we speak, we are launching this week Combogesic, which is the U.K. name for Maxigesic, as a general sales medicine and to Boots, which is one of the, as you'll know, one of the biggest pharmacy chains in the U.K. market. And we ourselves are also launching our intravenous formulation. We've already started to promote it, and we will be introducing that in January into the U.K. market. And we have a couple of other hospital products on top of that we're launching and we have -- at the moment we have a CEO, a well-experienced CEO, based in London, and we have 3 staff as well. So we will beef that up going forward. And as I've mentioned, we've also got our sales hubs in Singapore and in Hong Kong to take advantage of our pipeline. So that's the slide. And moving on to Slide #12. Yes, look, as we always start do work on our strategy and our plan going forward, we've shown these pie graphs at our AGM. And basically, we are looking at expanding, as we said, our significant international and Asia business. And you can see that starting to happen now, I think with that, if you look at ex-ANZ, we've got 94% growth in sales, and that's certainly a key focus. So there are sort of our ongoing new product launches in Australia and New Zealand. Then we do -- another key project is Maxigesic IV and the rapid formulation in the United States. And also, it's Asia, where we are looking at growing our presence and also launching in additional countries, we still have a number of countries where we have Maxigesic still under regulatory approval, which we expect to come through relatively soon, and then we can expand the number of countries. The thing to maybe I should make clear is sales do build over time. I like just to give you an example, just recently concluded a lecture tour helping one of our licensees. And they launched Maxigesic IV a couple of years ago. They sold 2 batches in the first year, then last year, they sold 4 batches. This year, they're selling 6 batches, and they still haven't gone to the government market. So part of the purpose of then they turned to lecture tour was to make sure we got the government doctors in and talk to them, and that was all part of it. But it isn't that thing where sales suddenly go wham, vertical straight up. They build over time, and this is another sort of key point in building the business going forward. So we mentioned these other parts, and Kem, we'll come back to that as well on the next slide is our R&D pipeline as something that's kind of very important. So that leads on to Slide 13. And we are using some of the operating cash flow for continued R&D investments. And this is actually really important at the moment because in markets like the U.S., there's a real tightness with funding, and we're able to pick up R&D assets for almost nothing. Or actually, we're not paying anything, but we're funding the R&D over time to build the value. But look, 3, 4, 5 years ago, it wouldn't have been possible to do that. And I mean, there's one example in that bottom box, just to give you an example. There's a company in Singapore called Tessa Therapeutics. That had raised USD 200 million. Hadn't made any money. Tried to raise more money. Couldn't. The market just said sorry, we're not interested, and they actually had to fold the whole company down. So literally having investment USD 200 million, they closed the whole thing up. So we're seeing some good advantages and good opportunities. We're not looking to raise capital to buy things because we don't think at our particular share price at the moment, that would be a good idea, but we see it's a good opportunity, which we're doing to acquire assets and then we develop them. And the original owners of the IP get some sort of share down the track. So we look at it on the left, we have our Maxigesic portfolio. We're making good progress. The NasoSURF, we have had some problems with the device, but actually we've 95% fixed those and we're looking at heading into our first clinical studies very soon. And certainly, we always believe we had a compelling business case for the NasoSURF device where instead of having an injection, you can take the drug intranasally, and we still see that as a really good opportunity, and we're continuing with that program. We're able to pick up an antibiotic eye drop for drug-resistant eye infections. Currently it's compounded. So this is used around the world, and we have been working on that in terms of the formulation side and preparing to go to FDA next year for what's called a pre-IND meeting. So we're making good progress on that project. Pascomer, we have filed our first indication. And then also, we have another project we picked up as well, strawberry birthmarks, and that is also -- we're looking at a pre-IND meeting last -- sorry, next year, where we've made some very good progress on that. And there's another project as well, sorry, just above that, I missed that out. We called it SD, and that is certainly filed, and we're making some approvals we're expecting next year and launches for that. So this, as you can see, there are a number of projects that aren't just Maxigesic that will come in and help with our sales and the kind of even the short term, but also going out in terms of growth. In another 3 or 4 years, these sort of projects can really have some significant impact on our sales. Gastroenterology, we've got a number of projects there we call KW, which we're looking to file next calendar year for some of those. And we had a project, BT, which we picked up for almost nothing. We bought the whole thing globally. So what, Malcolm, it was about EUR 300,000 or something, wasn't it? Yes. So look, that's an example of kind of something that was almost crazy that you never could have happened years ago, and we're able to acquire that, and we're just aiming to file that at the end of this year. But in terms of money, we have spent a little bit more in the first half generally as well, relatively at -- we can either expense it or capitalize it. We are tending to expense more at the moment as well because a lot of the projects at earlier stage are under the accounting guidelines you do expense them rather than capitalize them. But look, that's the R&D page, and that kind of leads into finance, which I'll hand over to Malcolm. Thank you.

Thanks, Hartley. Yes. So Slide 14. Revenue growth of 27% as we've been through in detail. Gross profit up 25%, a little bit behind revenue, with the margin going from 43.6% to 43%. We do a little bit more work on the gross profit at the bottom of the page where we take out the license income. Although as Hartley did correctly pointed out, the $2 million that's in there is to do with -- on the commercial sales of license fees. So we take it out because it's a little bit lumpy, and we find it easy to explain the underlying product sales and royalties. So that's down 2 percentage points, and that's due to the product mix that we've been through. A little bit of pricing lag. So some price increases coming through from our suppliers, and we -- it depends what the channel we're selling into, how quickly we can respond and adjust our prices accordingly. There's a little bit of foreign currency in there, but we still hold around about 6-month stock. So it's not that significant in this half. Then when we look at the operating expenses, so heavy investment into the marketing, which is skewed into the first half, an increase in spend in R&D and then the product development pipeline, which is in licensing of some products. So it ends up with an operating profit of $3.2 million to $3.4 million last year. And if we go to profit after tax, that's up 17% to $1.8 million. If we move onto the balance sheet on Slide 15. Net debt, still hovering around that $30 million mark in line with the year-end and with the first half of last year. And then on the noncurrent assets, that's the investment primarily into R&D. Working capital has increased around the same sort of -- so working capital is current assets minus current liabilities. That's increased at around the same rate as the revenue growth. We are working on -- our inventory days are still around about 6 months, which we've had for a couple of years now. As things stabilize, we're looking to reduce them. But that's on a one-by-one case as you put orders in, we're ordering on average is 6 months ahead. Some supplies need more than that, so it does take time. And then equity towards bottom of that table, grown by $10 million. So if we move on to the cash flow on Slide 16. So growth in the operating cash flow, investing is into the R&D. Net cash used in finance activities around about the same number, but there has been a switch. Interest up a little bit, as you would expect. Last year, we bought debt down by a couple of mil. The facility we're on now, it's now interest only. There's no debt repayments, but the increase in cost was the maiden dividend that we made at the end of the last financial year. So I'll pass back to Hartley for Slide 17.

Yes. Look, thanks, Malcolm. So just a sort of summary and outlook, the sort of key points. I mean, we are working on our growth momentum continuing in the second half to add to our improved first half sales results. And then it's that really ongoing rollout of Maxigesic. But plus the line extensions, like just for example, we're launching the oral liquids in about 12 European countries over the next sort of few months, and we obviously have additional IV launches as well, including the United States, which we're targeting for February, maybe March. So we've got that as well. And then really on top of that and following that, it's like rolling in products from our expanded R&D pipeline. And look, apologies, I'm now seeing some comments that people say, well, we need more details on this in terms of our R&D pipeline. A lot of companies don't give out all the details because [ Travere ] like a lot of companies also, you get databases that all your competitors get and they glean a lot of information, and it's really not helpful to the overall business. So sometimes, we do have to have those code names on things because it's probably not helpful competitively-wise to tell people everything about the R&D pipeline. So -- and then we're targeting, as we've always said and I think you can start to see now, that increased growth in international and Asian markets. I mean this 6 months, we had 94% growth, but after 2, we have ramped up things like expanding into the U.K., which we didn't have previously, and that's certainly something we spend a lot of time and also a reasonable amount of money on. And then we have our e-commerce, which we previously talked about. We are getting organic growth from products as well. I know we are talking a lot about new products, but obviously, organic growth is still important. I think I mentioned the example of that IV. And we are one of the export markets, literally goes 2 batches, 4 batches, 6 batches. That's typical of what we see. These things don't takeoff straightaway, they grow over time. And then we have our new product launches in the ANZ markets. We are still working on increasing our R&D pipeline at the moment, working on 2 -- at least 2 new projects, and they're under diligence and discussion where. As I've said, there are a lot of very nice R&D projects. And if you look at markets like the U.S. for a prescription product that covers something that there aren't existing treatments. For example, you don't have to have too many successes to make it really interesting. So that's one of the key focuses that we have. And we're able to do this and fund this out of existing cash flows, which I know I talk to people in the U.S. that almost can't believe we're able to do this. So our efficiency at doing R&D projects is exceptional in terms of the value for money that we're able to generate, where a lot of companies spend many, many millions, and we're getting very good results for a fraction of that due to the way that we target our R&D and conduct our R&D. So we have got that target of $200 million in sight. I don't think we're going to make it this financial year, but certainly, we do see we'll be able to get there in the near future. We are continuing with our operating profit guidance of $22 million to $24 million. We have said the only caveat is just whether there is some additional U.S. Maxigesic Rapid expenditure. We have got various options at this stage. We're not looking at that, but we're still working out the final details. But we would rather avoid that sort of approach. And look, as we said, we haven't declared an interim dividend, but we're certainly looking to continue our policy of declaring a dividend for this current 2024 financial year. So we're walking that kind of tightrope where we're going real hard for growth but we're also paying people [ and tell them ] at the same time. So that's all part of our approach. So look, thank you very much. That finishes things up and just to hand over for questions that Malcolm and I can try and answer for you.

[Operator Instructions] Your first question comes from the line of Soo Romanoff from Edison Group.

It's nice to see the solid results and your business scale. There's a lot going on, so I'll keep my questions short. For the first one, I think you may have covered this, but the FDA approval for Maxigesic IV is so important and mainly because of the size, and it's nice to see your international growth -- fuel your international sales growth. Is that -- are we expecting that to be in fiscal '25 or '24? I think I might have heard end of fiscal '24.

Yes. Thanks, Soo. So look, basically, we will have some opening orders. I mean we basically do have opening orders from Hikma. They are under manufacture next month at the factory in Italy. So we will -- we are anticipating on booking some orders this financial year. I don't think they're going to be significant in terms of affecting our sales forecast [indiscernible] because they are really opening orders and then they will have following up orders going forward, which will be booked into the FY '25 financial year. But just to answer your question, yes, there will be some opening orders in this financial year.

Okay. For the second one, can you give me a little bit more details on that -- the deal with Hikma? I mean, I know we covered the $6 million in the launch, but as far as the potential milestone payments in the future and then royalty rates. And then what kind of opportunity do you see in the U.S., especially in light of the opioid crisis?

Yes. Look, the deal that we did with Hikma, so as you've seen, we did receive some upfront payments and some milestone payments. But the major economics, we would plan and hope to come from our profit share agreement with them. So basically we have a profit share. So that will be lumpy payments though and that's where the major source of income comes from, going forward, would be the profit share arrangements. I mean, we have various deals with different people that have different structures, but where possible, we kind of like a profit share because that gives us an upside. And often it's better than a royalty. But obviously, they can both achieve a similar endpoint. But often with a profit share, you can potentially make more money. So as long as sales progress well, it's always difficult to put an exact forecast on it. And I guess we do have some forecast. I think we don't really feel comfortable in sharing them at this stage because they are really from Hikma and that probably are confidential. But yes, we do see it can and should build and be significant over time, given the size of the U.S. market.

For my last question, I'm really interested in the international launches, right? So the U.K. is actually one. Trying to get a better understanding of when that will be and what products will be first. And kind of shoehorning this one in, but also there's Maxigesic IV for South Korea, and I think that's going to be really important to you. So if you can kind of cover both of those, that would be great.

Yes. In the U.K., we weren't allowed to use the Maxigesic name so it's called Combogesic. So we basically managed to get a GSL listing, which means we can sell Combogesic into supermarkets and in front of counter in pharmacies, which is actually really important. It doesn't get hidden behind the pharmacy counter. So we've got an agreement with Boots. And literally, this week, the stock has been shipped into Boots. We've got a good shelf positioning, so that launch right now is underway. The IV, Combogesic IV, we have been promoting that and getting good feedback. The key to the U.K. is normally focusing on London. So we're getting some good feedback from London doctors and London hospitals. And the stock arrives in the U.K. in early January, so we'll physically launch it then. And then we do have a couple of other hospital drugs, which are injectables, and we launched those towards the back end of the financial year. In terms of Korea, as you touched on, that's gone well. We're selling significant quantities, a lot more than they originally planned. In fact, it was pretty much screaming at us that they sort of needed stock, and even airfreighted in some stock in, which is very expensive, given it's quite a heavy item, but that's all proceeding fine. And we're getting some good growth -- very good growth in the South Korean market, and that has certainly had an impact on the Asian business.

Your next question comes from the line of Matt Montgomerie from Forsyth Barr.

Well done on the Rest of World growth in the OTC segment. Looks like a pretty good step-up in throughput per country. I'd just be interested if you could expand on sort of where the growth is coming from, specifically in terms of regions, particularly given you didn't actually roll out into too many new countries in the half. So I'd like if you could just expand on where it's coming from and what you're seeing. And I guess, any sense of your degree of confidence in the sustainability of this?

Yes. I mean, like you say, there actually hasn't been that many new countries. It's really been organic growth that we're seeing. We're getting some good growth in markets like Germany. Markets like Italy have carried on growing. Middle East is going well -- as well. So it's really primarily driven by good organic growth. I mean, we did really get hit during the pandemic and often, people got stuck with extra stock, and that's kind of receded into the background now. So really, it's that kind of ongoing growth, which is what we'd expected. But yes -- but I mean, we don't see that going away. There's still additional dose forms like we're launching the oral liquid, but still getting good growth on the tablet, and the IV, we're getting good growth. But also to that, people are very keen on the new patented rapid release formulation, which has a pattern that goes down to 2039 and we're aiming to get that filed next year across most of our current countries and to launch out as soon as possible. Hopefully towards the end of '24 calendar year, but maybe the start of '25. So really, it's just executing on those things and then also starting to get some of our new pipeline products in as well.

Great. That's useful. Then just secondly, on the gross margins in the half. I know you made a comment just with respect to mix impacts. But if I look at -- even accounting for this, it looks as though as part of the number delivered, OTC gross margins have gone down quite materially versus what's being delivered historically. I'd be just keen if you could try and give us a little bit more comfort that this is, I guess, more one-off in nature as opposed to reoccurring.

Yes. I think it's probably more one-off in nature. And I think it will be -- I think it's in the actual annual -- interim report itself where we talk about the effect of the pandemic. There has been an easing of post-pandemic, in -- particularly in pain and in vitamins. So they've had a softer half and they are at the better end of the margin scale.

Yes. I mean once again, just to add to what Malcolm said. I mean we've always said, it is quite important to have a breadth of products across our portfolio, and certainly, we have seen sales go up and down depending on various impacts. And I mean, last year, I think that what we were told, there's a lot of stocking up where even people bought analgesics, stocking their bathroom cabinets just in case. So there are some impacts like that, yes. But going forward, we'll see our margin coming back, won't we?

Yes, when that stabilizes.

We don't, it's been a long-term effect, yes. But I mean, we have, as Malcolm touched on, we have had some price increases, and it does take quite a while to be able to kind of build those in and adjust pricing as well, which itself is something that we're looking at as well.

Okay. I might just go with 1 more. Just on the IV product in the U.S., I know you said you had forecast, which I'm not expecting you to share, but I'd just be interested if you could expand on sort of how Hikma is prioritizing the product within their portfolio and getting the IV product onto formularies within hospitals. And then related to that, is there any preliminary feedback you're getting from those within hospitals at this early stage that sort of helps build up the underlying forecast that you have with them?

Yes. So certainly, we have regular, what's called JSC or joint steering committee meetings with Hikma, and we do physically go there. I think the last one was about a couple of months ago. We went to New Jersey and met with them. So certainly, they are doing a lot of work. They're also working with another big promotional company called Syneos, which is very well regarded in the U.S. to help also with additional [ rigs ] as to give additional cloud for when it's launched. And I'm personally going to New Jersey on the 29th of January to train all their workforce as well. So they certainly do seem to be able to putting effort behind it. I mean, they do seem to be the right sort of size partner where I think they're #3 or something in the U.S. hospital injectable market. We're somehow -- it's better having someone is maybe not #1 or something like that where they don't really care about it, it doesn't make much difference. So I think there is enough upside that it would make a difference for Hikma. They're certainly working hard on it, so the signs look positive at this stage. I mean the sort of comments we're getting in general from licensees and doctors is people actually are pleasantly surprised at how well it works, and that's going to be one of the key questions. The U.S., as you know, is very opioid-weighted in terms of their medical practice, and they are under pressure from payers and funders to avoid that because one of their worst problems are people come back with problems and that costs more money, so other than the obvious societal things they are wound up about that. So we still do see that there's a good opportunity within the U.S. market. We just have to work through the yards to make sure -- with Hikma that it works. But it's still risk, mainly with Hikma, but they're certainly approaching it in the right manner.

Your next question comes from Christian Bell from Jarden.

If I could just start on my questions on the guidance. So it's caveated on the Rapid commercialization. Just want to confirm, is that up or downside risk? And are you able to please give a quantum of that contribution?

So I think you asked on the...

I think it's on the Rapid commercialization into the U.S.

Commercialization of the Rapid into U.S. Yes, so basically, we haven't really factored that into forecast yet. So that data is an upside, but we don't really say that, that's going to start contributing until the FY '25 financial year. But we've done a lot of work in terms of working with funders and payers, and we're also working with our preferred partner at the moment in the U.S. to arrange a launch. But I guess in short, we haven't factored that into any forecast going forward yet.

Okay. So that could be a little bit of upside [indiscernible]. And then you also mentioned that you're planning on a decline in investment spend in the second half. Selling and distribution was $24 million in the first half. Are able to please give some guidance on what you're expecting for that second half number?

What is the percentage of net revenue?

[indiscernible]

We see the dollars are going to be -- we see the dollar as being smaller in the second half.

Okay. I think previously, you sort of guided to an increase of $8 million on the budget, so an increase of $8 million over the $23 million number. Does that still stand? Or are you seeing a little bit more now in '24?

We tend to -- when we give the guidance, we normally only give the operating profit guidance, not the -- we don't break it into its component parts.

Okay. I just -- I think last year, when you sort of indicated that you were going to increase your spending in the markets [ and circulate ], you sort of mentioned that you were increasing the budget by $8 million. I was just wondering if that the assumption was still correct.

$8 million for the second half, are you saying?

No, no, for the full year, an increase of $8 million over what the $23 million number was the selling and distribution.

Yes, probably. But maybe, yes, about that will make it a bit less.

Okay. Yes. So there is a second half [indiscernible]. And then just on ANZ, so you've increased the investment in growth, but the pipeline for FY '24 has declined by 6 products. So are you able to just please explain the guidance for that.

So saying there's a decline of 6, can't hear you very well. What 6 products have declined?

Yes, yes. I was just wondering. Yes.

Yes. I mean, look, we launched -- yes, we launched a number of products in the first half, and it's more weighted towards the back half in terms of new launches. We have had some delays with regulatory things. You can't always forecast them with 100% certainty. So yes, it's fair to say we've definitely had some delays in launching some of our new products. And this sort of thing does happen when you have a lot of moving parts. But we're still -- we're relatively seeing, I guess, more launches in the second half. We probably wouldn't spend money on those until the first half of next year, really. We're focused on getting distribution, the selling and all those sort of foot traffic things, and then we look at promotions for those in the first half of next financial year.

That's all the time we have for questions today. I will now turn the call back over to Hartley Atkinson for closing remarks.

Good. Thank you very much for joining us. We hope that the information presented today gives you an understanding of our sort of long-term focus, which is on growth and growing the international, the Asia business, but also Australia and NZ. We're still committed to paying dividends and things like that going forward, but it is definitely a growth focus, and hopefully, we got that across today. Thank you very much for joining us.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.