Mayne Pharma Group Limited (MYX) Earnings Call Transcript & Summary

Thank you very much, and thank you, everyone, for joining us this morning. I am Shawn Patrick O'Brien, CEO and Managing Director from Mayne Pharma. I am joined by my colleague, Aaron Gray, our CFO; and Kimberly Parker, our General Counsel. We wanted to update you on our business after completing the sale of our U.S. generics business and announced on our on-market share buyback program. Slide #2 is our disclaimer slide. So let me take you through our proposed agenda on Slide 3. As noted here, we will start with the highlights of the last 7 months, then take you through our women's health business or BPD on our update. And then the dermatology PPD update, followed by international update, then Aaron will cover the business transformation, the cost and our capital management program, and I will then conclude on the outlook and open up the call for questions. On Slide 4, over the last 7 months, we fully executed on the transformation strategy we laid out to become a more focused business with significant growth opportunities. This transformation will continue for years to come. Our first big move on Slide 5 was at the beginning of October. It was the sale of Metrics Contract Services for USD 475 million or 16.5x EBITDA to Catalent. This transaction was transformative for the company, and we're still providing TSA services to Catalent to complete the transfer of the business. Our next transaction in December was to secure the U.S. commercialization rights for the TXMD women's health assets for which we paid USD 140 million upfront or 3.8x EBITDA in our hands. This transaction allowed us to become one of the leaders in women's health care in the United States. And 1 month ago, we completed the sale of our U.S. generics business to Dr. Reddy's Lab for USD 90 million upfront with up to $15 million in 2-year contingency earn-outs. This transaction cleared HSR approval in record time and without a banker involved. We are pleased we secured a 10-year supply agreement for the products manufactured in our Salisbury facility. However, it will take up to 18 months to fully wind down all the lagging financial responsibilities associated with this business. As a result of these transactions, we've repaid approximately AUD 360 million in syndicated debt facilities, paid a special dividend of $47 million in January, and we've looked at securing new debt facilities as we wind down our receivable-based revolver. With the recent $90 million payment from Dr. Reddy's, Mayne Pharma is in a very strong net cash position of AUD 135.8 million, to support the growth of our women's health and dermatology franchise and improve the operations of our international business. On Slide 6, we've not only changed our business platforms, but we've changed how we run our business significantly over the last 7 months. Previously, I've shared with you how I look at people, products and processes being aligned on how we focus on the delivery on the needs of our patients to drive profitable growth. This summary here look at some of the key people and process changes we've made in the last 7 months. With a new U.S.-focused leadership team who are driven to create commercial and operational excellence that satisfies the needs of our customers profitably, which will, in turn, drive shareholder value. On Slide 7, we previously have shared our strategic priorities for fiscal year '23 and '24. To successfully implement our new commercial strategy for NEXTSTELLIS and Australia, and get to breakeven run rate as soon as possible. Secondly, to deliver positive EBITDA growth for women's health in the U.S. with the full franchise of ANNOVERA, IMVEXXY, BIJUVA and NEXTSTELLIS along with our prenatal vitamins. Third, to continue to improve our margin and patient access, both in dermatology and women's health through our differentiated channel strategy. Fourth, improve our dermatology product profile with better assets and continue to look at accretive assets to bring into our women's health care infrastructure. And fifth, we want to continue to accelerate the Australian growth of our specialty-based pharmaceuticals, our international sales and our CDMO business under the leadership of Grant Sport. Let me provide you more details on the progress we've made on women's health franchise. On Slide 9, within our Branded Products division, we have built a leading U.S. women's health care business. We have the infrastructure in place to successfully compete in the U.S. market with over 100 sales force members that are able to reach our target customers with the right level of frequency. In addition, we are focused on reducing access barriers for the patients with our unique approach. We will show you how our marketing mix is accelerating the growth of the women's health business in combination with our direct-to-consumer campaigns. And we are positioned to leverage the full implementation of the Affordable Healthcare Act when it comes to benefit and patients would be not paying any out-of-pocket costs. Let's focus on NEXTSTELLIS on Slide 10. Previously, I've communicated, we did not launch this product in the way I would have, had I been here at the launch. I am pleased that our new commercial approach continued to show productivity. We've seen solid second half growth today from co-payments -- speaking wrong here. Co-Pay improvements and the new targeting strategy is working. I will show you that the step changes in our commercial thrust and how it will deliver benefits to NEXTSTELLIS moving forward. We launched our full DTC campaign in February, which has driven increase in visits to NEXTSTELLIS' website and driven OB/GYN appointments for patients who are interested in NEXTSTELLIS. While our 5% weekly new Rx growth rate that we saw in February has not been maintained consistently, we've seen steady growth, with 10 out of the last 17 weeks showing weekly all-time highs for the number of cycles is spent. And in the third quarter, we've seen NRx is up 30% and TRx is up 18% versus Q2. Refill activity is accelerating because of the changes in our commercial approach. And we're seeing monthly cycles up 27% in March over December and 26,596 cycles. We expect this growth to accelerate going forward as the larger, more focused sales force has dramatically increased our sampling program. With this increased activity and positive momentum, we expect that NEXTSTELLIS to get to a breakeven weekly cycle run rate in the first half of fiscal year '24. I'm pleased to share this slide with you which shows clearly, a stepwise improvement of our commercial efforts. Looking at the green line, we show -- since December, our calls were up 50% from 12,000 a month to 18,000 calls with our target customers. These calls have become more productive as we've seen the number of calls with signatures increased fivefold from 2,400 calls a month in December to 12,000 calls per month in March. And reach, as shown in the birth control market, you can't oversample in this market, you can only undersample. We've increased our sampling 150% since December with over from 20,000 samples per month to over 52,000 samples dispensed out in the month of March. These commercial efforts will not produce immediate results. They have a lag effect on prescription productivity. However, in the next 2 slides, I will show you how this increase in commercial effort is starting to drive increased growth in the NEXTSTELLIS business. On Slide 12, we're pleased to see a 20% increase with NEXTSTELLIS new Rx in March over February. And since the beginning of January, we've seen all-time weekly highs for 9 out of last 16 weeks or 10 out of the last 17 weeks. And those 7 weeks without all-time high for them actually were during weeks with U.S. holidays. Our repeat prescriptions have been lagging from new Rx levels. And we're closing the gap through better patient targeting, which we initiated in late December. On Slide 13, we're pleased to see that our monthly cycles are up 20% -- 27% in March over December levels. This graph on Slide 13 shows our weekly cycles are up over 7,000. This increase has been benefiting from our increased DTC levels and our full sales and marketing mix that we're delivering into the birth control market as demonstrated in the previous 2 slides. Our DTC campaign as illustrated in Slide 14, initiated back in August and stimulated increase in website traffic, which leads to patients asking for NEXTSTELLIS at their OB/GYN appointments. We reduced our DTC investments in November and through January, which tends to be a more expensive as the results are less impactful when you look at your share of voice during the holiday period. Since February, we've had a full launch of our streaming video DTC program and our social media, which has led to record levels of activity on nextstellis.com. Overall, we're pleased with the progress we are making with our new commercial strategy in NEXTSTELLIS and expect to see increased productivities from these commercial activities going forward. Next slide. On December 30, we completed the transaction to acquire the TXMD assets, which are accelerating our vision to become a leader in women's health in the United States with these additional products. On Slide 16, we summarize how the integration of these new products into the women's health commercial platform is going and tracking to our business case. Our launch of these products occurred on January 12. However, roughly 45 days of inventory were in the channel which is more than we expected. This resulted in outstanding rebate [ range ] which may impact a clean integration. However, there is a mechanism in place for working capital adjustments going forward. But right now, that magnitude may be in the USD 5 million to USD 7 million range. The attractive menopausal market for IMVEXXY and BIJUVA is a slightly different target than our birth control franchise. We've increased our sampling program recently and commenced a DTC campaign for ANNOVERA and the menopause brands with encouraging website visitation increases. We plan to launch the lower strength BIJUVA in fiscal year '24, which should attract new menopausal patients looking for bioidentical hormones to treat menopausal symptoms. ANNOVERA was impacted by excess channel inventory and those Tx trade demand start to normalize recently to plan. The prenatal vitamins are creating access to new customers and opening up no-see doctors who were previously were unable to see. We're pleased with our third quarter results in that we demonstrated the acquired franchise revenue was up over the previous quarter under the TXMD ownership. In summary, this acquisition is delivering the plan, and we're pleased with the results so far. Slide 17. There's a lot of noise in the unit sales, and I want to give you a little description. So if you follow these on through Bloomberg or IQVIA. Back in May of '22, TXMD sold vitaCare, which was their specialty distribution channel for their products. Since that time, the products we're moving through the big 3 and gives more visibility to those companies such as IQVIA and Symphony, we track the prescriptions and units sold, and that's why you see an uptick. It wasn't a change in the actual demand in the market, but an actual change in how the products were being recorded in the market. Since we acquired these products, we've been funneling them through our differentiated channel strategy, and you're not seeing the big change in the demand, just a little bit with BIJUVA. We will continue to see fewer scripts recorded accurately through IQVIA or Symphony than what we're actually seeing internally. We're pleased that the entire franchise has increased sales in our first quarter in our hands over that, that experienced by TXMD in the last reported quarter Q4 of calendar year '22. Next slide. As mentioned previously, on Slide 18, we introduced DTC campaigns for ANNOVERA and our menopausal franchise. We're seeing an uplift in their website activity for ANNOVERA, BIJUVA and IMVEXXY. This campaign is effectively working to generate the awareness we want. And we're overall, as I said previously, pleased that this franchise is delivering to our business case. Shifting to Slide 19. I want to highlight some of the PPD franchise or dermatology franchise. On Slide 20, previously, I communicated, we see the dermatology franchises as a tale of two 9s. The first 9, we reported negative net sales. And with our actions on the channel discipline and effective management of new launches and a proper channel supply agreements, we are strengthening the contribution margin of our dermatology franchise. We're pleased with the launch of DORYX MPC 60 and ORACEA and how they are being accepted in the marketplace. And we will continue to execute our differentiated channel strategy through specialty pharmacy growth online platforms like GoodRx to improve patient access of our products. On Slide 21, the dermatology business performance is improving with delivering positive contribution margin, and we've seen a gross-to-net and pricing stabilization across the key products as we expected. We are actively managing our business here. And we expect that this will help sustain our contribution margin going forward and return to a positive contribution margin that we're seeing in the third quarter of fiscal year '23. This is also driven by the impact of our new product launches of DORYX MPC 60 in February and the authorized generics of ORACEA in March. The business remains focused on the development of a differentiated channel strategy for patient access, which all improve the attractiveness to future dermatology partners as we continue to add new products to this portfolio that improved the contribution margin in what we call a capital-light fashion as we've done in the past. Slide 22 really illustrates how we've returned the volume growth on the left-hand side and that we've normalized our gross to net in the third quarter going forward. Let me shift to highlight some of our international business and how that is progressing. On Slide 24, we're seeing growth internationally as we improve productivity of our facility. This is paramount to improve our business because we have, in the past, have not been able to supply to demand. We continue to make progress on launching Cadia in the opioid substitution market and recently signed an agreement to develop Cadia in Japan for the pain indication. Domestically, we have launched a ticker for actinic keratosis and some sales big facilities is developing its relationship with Dr. Reddy's to ensure that we can deliver on our 10-year supply agreement going forward. And last, our NEXTSTELLIS is starting to show that it's not tracking to plan and we are implementing what we've learned in the U.S. and leveraging that going forward so that we increased our sales force messaging and thrusts in the Australian marketplace. Looking at the Slide 25, there are 3 major areas that we're improving our approach and the development of the Australian facilities. First, manufacturing strategy is focused on cost efficiency and reliable supply at the best quality. So Brant and the team are doing a good job on improving and changing the culture within the facility. We're focused on revenue growth, not only through the efficiency improvements, but new business development in the -- with existing customers and expanding our reach in opening new markets. And then locally, we're looking at how we implement best-in-class metrics to drive efficient sales execution as we've learned in the U.S. And last, we are differentiating our contract development and manufacturing as a differentiation for growth in the target areas of the business. So I'm going to hand the microphone over to Aaron, our CFO, who can bring this up to date on the cost and the capital management. Aaron?

Thank you, Shawn. So if we would go to Slide 27, please. At the half, we put forth a goal to reduce our admin expenses by between 10% and 15%. The efforts that we've undertaken throughout fiscal year '23 have resulted in reductions to date on a full year run rate basis of approximately 9%. We do expect to achieve or exceed our goal here as we continue to keep the pressure on cost. We remain focused not on a single OpEx number, but rather investing where appropriate in the most efficient manner possible. For fiscal '23, the majority of our investments were made in the women's health portfolio with NEXTSTELLIS DTC and women's health marketing and distribution to support the expanded portfolio. Cost efficiency and productivity will continue to be areas of focus into the future as we look to further leverage the simplified structure. In addition to the reductions of the 9% of admin, we are working through reductions related to the divestment of the retail generics business. Retail generics direct OpEx space in the past was approximately AUD 7.9 million on an annual basis. Some of these costs such as direct personnel and logistics charges come out of the business quickly and some of the costs take a little bit longer time. The approximately $6.7 million of the OpEx base is expected to come out by the end of fiscal year '23, with a further amount up to a total of about $15.7 million, which we are targeting to take out over the coming 12 to 18 months. The cost that we are targeting to remove exceeds the direct cost because we are also reducing admin and support functions where possible to the extent that those functions also supported the retail generics business. On to Slide 28, please. Slide on capital management. Beginning in October, the company has executed 3 major transactions. A quick update as of now. None of these 3 transactions is fully complete. We've closed the transactions, but there's more work to do. The company plans generally to stay on a conservative footing as we complete all the open aspects of these transactions. The company does have net cash as Shawn mentioned, of AUD 135.8 million as of April 30. The receivable facility is not expected to require funds on hand to reduce it as it is going to be repaid by collections for outstanding receivables, but we are planning to hold significant cash for the near term as we complete some of these different transactions. The company is still evaluating options for a working capital facility to provide flexibility as we wind up the receivable facility, which has been -- that's a structural wind up that has been a good source of liquidity for us in the past, and we are looking at options to replace that facility. Expected capital needs for the near term are expected to be largely driven by completing those transactions. We have some remaining liabilities related to the MCS divestment. We have begun but have to complete the restructuring and closeout of remaining product liabilities net of the portion that was transferred with the retail generics business, and we have several integration topics with both the TXMD transaction and the retail generics transaction that can require -- which can result in temporary cash outflows that the nature of the transaction as we constructed it enables us to recover. So there are some timing effects there that we need to keep cash on hand to be prepared to bridge. We will continue to invest in the women's health business where such investment has a proper return. And we do remain open to evaluate complementary and accretive opportunities in both women's health and in dermatology. The capital needs of the business involves some uncertainty right now. which fits pretty well with the Board's decision to maintain a conservative balance sheet and stay on a conservative footing. However, we do acknowledge and agree that some returns to shareholders. Hence, the Board has announced today the capital management plan and the on-market buyback. I'll hand it back over to Shawn, I think.

Thanks, Aaron. Looking at the next slide, our strategic priorities for fiscal year '23 and '24 to drive shareholder value are clear, bring NEXTSTELLIS is to breakeven run rate as fast as possible in Australia and United States, deliver EBITDA growth in our women's health franchise by leveraging our full portfolio continue to create access through our differentiated channel management to improve the margin of our products. As Aaron said, secure accretive assets to dermatology and women's health that we can leverage our commercial footing in the United States and to accelerate the growth in Australia with our specialty business there, our international sales and improving the productivity of our Salisbury facility. The outlook for the remainder of the year is looking favorable. Fiscal year '23 has been one of the significant business transition with the completion of the sale of MCS and retail generics and the acquisition of the Women's house portfolio. The job is not done. In comparison to the prior period statutory accounts will be impacted by the treatment of businesses disposed as discontinued operations. [indiscernible] Mayne Pharma provides the following comments to provide the market with its progress on continuing operations. First, the momentum continues to build across our women's health franchise. Following the acquisition and investment in new products as well as our sales and marketing capabilities to support contraception and menopause and specialty brands of prenatal vitamins. While the anticipated timing for NEXTSTELLIS to achieve its breakeven run rate is now the first half of 24% based on our current growth rate. The performance of the whole portfolio is delivering steady revenue growth and positive margin contribution in the second half of '23 with the acquired assets more than offsetting NEXTSTELLIS' investments for growth. Following the stabilization dermatology has now returned to delivering positive net revenue and contribution margin during this half. This momentum is anticipated to continue through the remainder of the half supported by the recent product launches of ORACEA and MPC 60. Our operational excellence plan implementing for the international business will take time to gain traction. As a result, the flat performance is expected to continue through the second half of fiscal year '23. Overall, the computing business are expected to deliver positive revenue and contribution margin in the second half of '23 versus the first half of '23. Return to profitability will be delayed to the fiscal '24 due to stranded costs from the retail generic business and the time required for changes made to NEXTSTELLIS to deliver that top line growth. At this time, the largest driver of earnings improvement remains NEXTSTELLIS, but we're encouraged by the results we've seen recently in the prescription growth and cycle growth. We expect the fiscal year underlying EBITDA to be aligned with the consensus of the 2 analysts covering Mayne Pharma. This concludes our presentation. Operator, we will now open up for Q&A.

[Operator Instructions] First question comes from Melissa Benson from Wilsons.

First question around NEXTSTELLIS. So it seems you guys might have put through a pricing increase in January. We've kind of seen a little uptick based on the cycle announced there. I mean, firstly, is that accurate? And then, I guess, secondly, if it is have you kind of seen what kind of acceptance, I guess, has there been to any price increases there?

So Melissa, it's Shawn here. Your question on price increasing, yes, we did put a price increase for NEXTSTELLIS in January, and that's had no negative impact on how the product is being reimbursed in the marketplace. And we continue to see the script level increase as we reported all-time high, 10 out of 17 weeks since the beginning of the year. So there's been no negative impact to that price increase. And obviously, no matter how much you put it up, it doesn't all drop to the bottom line based on rebates and co-pays and contract negotiations.

So would we say that of that pricing increase, there has been a net incremental benefit to you guys, even if there are those kind of intermediaries taking some chunk? Or kind of should we think of it as a net equal to you?

No. It's a net positive, Melissa.

Okay. Excellent. And perhaps one follow-on around NEXTSTELLIS is the women's sales force, the women's sales force. You mentioned that's now up to 100 reps. I mean, how should we think about that in terms of the maturity of that sales force? Is -- are you expecting to add reps still in the coming 12 months? And perhaps if you could kind of share any kind of what does a mature sales rep in that kind of portfolio? What are your kind of targets for someone like that at maturity?

What I want to make sure I'm answering your question, right? So we have 91 reps in the field, 9 managers managing that group in the field of the that team, there's 20 of the reps that have prior TXMD experience. Some of them have been hired 2 years ago and some of them recently just after the transaction. And the age maturity, if that's your question, is late 20s to...

Sorry just to clarify, that wasn't my question. I think it was more them being mature in terms of developed in terms of understanding the sales force that they're selling. And when they get to maturity, I guess, as what they -- you would call kind of a NEXTSTELLIS sales rep where they're kind of they've gotten all their territories sorted and they're kind of operating at full capacity. Sorry, I should have clarified that.

Yes. Good question. So we -- in the end of January and early February, we completed the training exercise for the new TXMD people to be trained on NEXTSTELLIS and the entire prior team to be trained on all the acquired assets for birth control with ANNOVERA and menopause for IMVEXXY and BIJUVA, and then how to leverage the prenatal vitamins to gain access and because they're well accepted in the marketplace. Generally, that process of where to go get your business, how to effectively communicate is about a 3-month journey to 6 months journey to get to be fully productive in the sales force. So we're going to continue to see sales, individual sales force productivity gains as a result of that. But it's also enhanced by our retargeting exercise and going after as more so than Lo Lo in the past. And if you look at the -- what we've done is close the gap between NRx and repeat scripts. The ratio between NRx and repeat scripts were low because we were going after the patients that had bleeding issues with Lo Lo. And those issues may not be drug-related, but biologically related to fibroids or endometriosis. So they were going to suffer from bleeding issues on whatever birth control mechanism. So we're seeing -- we saw an 11% increase in repeat Rx the week before, and we continue to close that gap by having the right targeting. So it's a combination of skills ability and then having the analytics behind the team to drive them to the right customer with the right message.

That's helpful. And perhaps one more, if I could. Just around the gross to net stabilization you've seen in the dermatology business, kind of a 2-part. First, how is kind of the co-pay use within, I guess, that segment trending? And then secondly, are you kind of confident in your new -- because you obviously changed how you're kind of forecasting and accounting for those accruals. Now you've kind of had a little bit of time to test that. Are you now confident that that's kind of adequate and we won't see a last half?

Well, I'm confident we're not going to see the repeat of the last half, but I'll let Aaron give you the details on that question.

Melissa, in general, I would say that the -- so your first question is how is the Co-Pay support funding, Co-Pay support is trending in line with the volumes. We've had to increase -- so from a rate -- from a take perspective, so the Co-Pay support rate, the rate at which people use the Co-Pay cards we've had to vary the amount of Co-Pay support on certain products. And in some cases, that's meant increasing Co-Pay support and in some cases, that's meant reducing Co-Pay support. When Shawn earlier in the presentation mentioned that we were managing each asset. We are making certain decisions that we will not take losses. We won't have lost leaders in the portfolio from a derm perspective, just to build out the portfolio. So we've made adjustments across the last 3 months to the co-pay support. In general, I would say it's nominally higher than what it's been in the past, but is that mix is going to be heavily skewed by the volumes coming from the new products. So we -- it's a little bit of wait and see on the new products because we're just now getting into the uptick of volumes from those products. That was the first question. I'm sorry, I forgot the second question.

I was just asking around the new way that you're forecasting accruals like you [indiscernible]

Yes, perfect. Yes. So what the new method we actually with bated yesterday and have been discussing it tonight. The new method is working well. We believe we may actually be a little bit over accrued, but it's something that we have to go through some empirical evaluation and analytics to confirm -- so we've begun that process. If anything, we are not under accrued. Let me say that.

Your next question comes from Elyse Shapiro from Canaccord.

Maybe just taking a step back again on that U.S. women's health sales force. How many reps do you think you'll end up with? And do you have all the key geographies covered?

Thanks, Elyse. We're quite comfortable with the size of our sales force right now to be able to penetrate both the contraceptive and the menopause market. We're getting the right level of reach and frequency with the portfolio we have. So right now, we don't anticipate increasing the size of the sales force. We have filled in by increase -- we didn't cover the Northwest of the United States previously, and we filled that in after the acquisition of the ANNOVERA in the menopausal products. So we have really good coverage geographically with the 91 territories and 9 managers covering that field force. The one thing we are going to be changing is increasing our medical affairs effort into the marketplace. We've had a recent change in our medical leadership and are going to be more customer-facing with our medical affairs group and expanding our reach and ability to influence the market on the benefits of E4 and NEXTSTELLIS.

And of the kind of onboarded therapeutics and reps, are you seeing them selling kind of higher volumes of NEXTSTELLIS now? Or do you think they're still skewed towards the previous products?

I want to make sure I heard the question. Are we seeing the onboarded TXMD reps selling more NEXTSTELLIS now?

Yes, yes.

Are they -- certainly...

They were that was doing before but like are you I guess, how much room for growth do you see in those reps specifically?