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

Thank you for standing by and welcome to the Mayne Pharma Group Limited Full Year 2023 Results. [Operator Instructions] On today's call, we have Mr. Shawn Patrick O'Brien CEO, and Mr. Aaron Gray, CFO. I would now like to hand the conference over to Mr. Shawn Patrick O'Brien. Please go ahead.

Thank you, operator and good morning in Australia and good evening in the U.S., everybody. Thank you for joining us to discuss Mayne Pharma's fiscal year '23 results. Also joining me on the call is Aaron Gray, our Chief Financial Officer. On Slide 2, our disclaimers slide is there for you to review, but I would like to bring to your attention that these results are preliminary final report. And that's our unaudited results. We fully expect that our audited results will be ready very shortly, and will not materially be different from the results we are sharing with you today. We're excited to share these results as they demonstrate that we are progressing with our transformation journey for Mayne. Yet we have lots of work in front of us to realize the full potential of our 3 business units. All numbers today are reported in Australian dollars, unless otherwise noted in U.S. currency. So looking at Slide 3, fiscal year '23 has been a transformative year for Mayne. We began the year with a new management team and a clear set of objectives and I'm proud to say the team is executed on multiple fronts. First, we set out to reduce the complexity of the business, refocusing on 3 core segments; women's health, dermatology and international. To this end, we sold our metrics contract services and our U.S. retail generic businesses for a combined total of USD 565 million and expanded our position in the U.S. women's health market by acquiring the exclusive commercialization rights for 3 branded products, ANNOVERA, IMVEXXY, BIJUVA and a portfolio of prenatal vitamins. Mayne Pharma is now one of the top 2 women's health companies in the U.S. from a commercial footprint view and our ability to reach the OB/GYN customers. We transformed our balance sheet in April and ended the year with a net cash position of $172.6 million compared to a net debt position of $317 million at the end of fiscal year '22. This represents a [ 480-plus ] million improvement in our net cash position. While we continue to maintain a conservative capital management, we were able to provide a $46.7 million special dividend and initiate an on market share buyback program, up to 10%, of which, we have purchased $6.2 million by June 30. Another major objective was to ensure the successful commercialization of our flagship product NEXTSTELLIS an oral contraceptive pill with unique estrogen. Under new leadership and the refreshed marketing plan, we'll relaunch the product in the second half of fiscal year '23 to stronger results. For the full year, NEXTSTELLIS revenue was up 267% compared to 2022. The momentum is building with cycles increasing 80% from the first the second half of fiscal year '23. The strength of NEXTSTELLIS launch combined with the successful integration of the products acquired from TXMD resulted in a 484% year-over-year increase in revenue in our women's health division. Our goal is to grow the top line and improve the contribution margin of all 3 business units. And our Australian-based specialty pharmaceutical and CDMO business saw 19% year-over-year increase in revenue due to improvement in manufacturing performance and commercial execution. As reported in our last call, dermatology businesses face challenges due to copay charges, pricing pressure. But I'm pleased to report that we saw a significant rebound in the second half, the 314% increase in revenue over the first half. Our final fiscal 2023 objective was to set Mayne on a path towards generating operating cash and returning the business to profitability in their near future. Our revenue growth in the second half fiscal year '23 was across all 3 segments, $131.3 million versus $52 million in the first half. Moving over to the next slide, fiscal '23 was an important year for Mayne. And this momentum has carried into fiscal year '24 nicely. We are pleased with the trends we are seeing already in July and August for the entire business. We still have a lot of work to complete the integration of our 3 major transactions that occurred in fiscal year '23. We are focused on execution and delivering on commercial operational excellence. We expect that all 3 business units to generate positive contribution margin, which will help return Mayne to positive EBITDA and cash generation in fiscal year '24. In our women's health, or BPD's division, we will compete complete the integration of the licensed women's health portfolio in fiscal year '24 with improved focus on net selling prices. For NEXTSTELLIS, we're targeting a break even run rate in the first half with continued growth throughout fiscal year '24. And we also plan to launch low strength BIJUVA and menopausal symptoms leveraging our salesforce scale and effectiveness. For dermatology, we continue to see capital-light accretive business opportunities while driving commercial excellence. We are further refining our channel strategy to better leverage our ability to drive market share to expand partnerships. Improved profitability is a clear objective for this side of the business. And finally, in our international segment, we'll pursue targeted investments, and new manufacturing revenue streams, which reflects our investments to drive growth going forward in all 3 segments. So let's look at how each of the units is performing overall. Slide 7. We want to focus on the movement here from the first half to the second half of fiscal year '23 in all 3 segments. All 3 segments women's health, derm and international showed improvement in revenue gross profits indirect contribution while our cost went up as planned only in women's health as we invested in NEXTSTELLIS and our portfolio of new products and ANNOVERA, IMVEXXY, BIJUVA and our prenatal vitamins. Overall, we delivered about $1 million in contribution in the second half versus a negative contribution in the first half of $42.7 million. Sometimes I get questions, why don't you sell the international business but as you can see here, fiscal year '23 international represents 35% of our revenue, only 9.7% of our OpEx, 22.6% of the gross profit and delivered the only positive contribution was $6.9 million. This helps us invest in other higher growth segments such as women's health and dermatology. I'd like to hand it over to Aaron Gray, our CFO, to provide more financial details. Aaron?

Thank you, Shawn. There we go. Thank you. This slide is a group overview showing the consolidated group comparable between fiscal '23 and fiscal year '22. These figures have been converted to be shown on a comparable basis, meaning that we have carved out all activity from both fiscal years from the MCS business and from the retail generics business that was divested. What you can see looking at these results is that the reported revenue is up year-on-year. We'll go a little further into the halves and what the halves look like. The company sees about a 17% growth driven by the women's health portfolio and the international business. These businesses have actually over driven revenue, offsetting some of the declines that we've seen in the dermatology business, which links back to the channel inventory topic that led to the restatement in the first half. Gross margin has risen -- in absolute terms has risen year-on-year. However, the margin percentage has declined year-on-year driven by some movements and some challenges facing the dermatology and the international business. We'll go a little bit more into those. Underlying EBITDA comparing the results for fiscal year '23 compared to what may have been seen in the past is reflecting far fewer adjustments as a result of the sale of the retail generics business and the cessation of the discontinued products phenomena that was affecting that business. Would you please jump to the next slide, please. Thank you. Looking at this slide, you'll see significant differences between the first half and the second half. This slide basically is read revenue from each individual segment, operating margin from each segment and back to the top on the other side, therefore group profit. Basically, subtracting group profit minus OpEx equals direct contribution. Between the 2 halves, you've got the first half, which was heavily burdened by dermatology and the excess channel inventory topic, which again led to the restatement in the first half. And the second half includes not only a higher run rate of NEXTSTELLIS cycles, but also the integration of the TXMD assets. The women's health assets are driving revenue growth year-on-year and half-on-half. And I think it's important also, though, to note that we are continuing to work through a number of integration topics on the women's health expansion, which are the products that we've licensed from Therapeutics MD. Dermatology revenues have recovered as Shawn mentioned, roughly 81% of the total revenues for the fiscal in dermatology came in the second half. However, some of the margins have lagged on higher charges against revenue. We've maintained a conservative footing with respect to this topic, and we continue to refine our approach on analytics and other levers to be able to improve the overall dermatology performance. Overall, the group has returned to positive contribution in the second half. Slide, please. Thank you. This is a table, which reconciles from the reported results to the underlying results across revenue, gross profit EBITDA and PBIT. One thing that one would note compared to historical results is that the adjustments while some of the headings are the same, some of the quantum is the same. A number of the volume of adjustments from discontinued products has drastically reduced as a function of the divestment of the retail generics business. The largest movement that we see here is really related to the depreciation and amortization, which in majority is coming from depreciation of intangible assets. Next slide, please. Slide 9, thank you. This is a view to give a little bit more detail, it gives me a chance to talk in a little more detail about some of these specific movements. Similar to the prior slide, it walks on the EBITDA only from the reported number to the underlying number, reported EBITDA one or 2 loss. We then had an earnout assessment, the earnout assessment change was basically a non-cash movement which comes from a change in the fair value of earnout liabilities. Basically, this is the payments that we owe to the licensed partners that we have licensed the assets from. We are increasing the earnout liabilities overall, which is reflective of a change in the forecast for NEXTSTELLIS and to change some amounts of change in the forecast for TXMD as well. The NEXTSTELLIS change really is driven by the revised strategy which is also being seen in some of the growth rates and some of the other topics that Shawn mentioned. The next item is restructuring. We have taken on considerable restructuring to transform the group. Some of this geared at reducing stranded costs, which are present because of the -- as a result of the metrics divestments, some to reduce stranded cost as a result of the retail generics divestment and some to reduce overall our cost profile. The next item down, doubtful debt this is one specific item, we have a large receivable, which is still outstanding. We have fully reserved for this receivable based on difficulty trying to collect this for the past 15 months. Next item down supply chain disruptions this refers to LEXETTE. LEXETTE is the product, it's a dermatology product that was discontinued in fiscal year '22. We're in the process of relaunching that product based on our ability, the fact that we've been able to find an alternate supplier. So the activity through fiscal year '23 was treated as part of discontinued operations as that we were selling through inventory until such time as we were able to find another supplier. Insurance recovery is a one-time topic, a windfall gain that comes out of a business interruption insurance claim for the Salisbury plant. We booked this entry even though we've become aware of the recovery claims have been approved effectively after the fiscal year ended and so the cash has not come in yet on this. The derivative FDA topic is a basically a mark to market on the convertible note that the company took out in support of the TXMD transaction, it's a noncash movement, the INTI settlement is basically our loss on disposal as we exit that partnership and exit that agreement. Another noncash movement, there was a loss on the INTI disposal overall and there were payments due on INTI. However, this was paid by the insurance company. Litigation, we've had an increase overall and litigation specifically related to drug pricing and healthcare investigations, the U.S. Department of Justice and a couple of other topics. So where we land we moved from 102 to minus 102 to minus 95.3 on an underlying basis. Next slide, please. Slide 10. Thank you. Group financial overview, looking basically at the group financial overview looking at a walk from that 95.3 million number that I just showed you down to what the total change in cash is a lot of detail on here, but a few things to note. First of all, the company generated positive cash flow in the second half of fiscal year '23, positive operating cash flow. This on the on driven really by improved business performance and by a large item that you can see in the operating cash flow line, which is total working capital movements. The working capital movements comes as a function of some efforts to reduce overall our cash conversion cycle, but it's really driven in large part by the divestment of primarily the retail generics business. The other big topics here, the transaction costs are related to costs that we've incurred to divest those businesses. Any costs related to TXMD would not -- I'm sorry, this is the cash. So it would include also cost to acquire TXMD. The other topics that we have -- so if we look at cash used in operating activities, it's a minus 42.7% for the year, but a positive 14.1% for the second half. So significant improvement there. Continuing down the cash flow from operation -- I'm sorry, the -- we did have a very active year with respect to both cash flows from investing activities and cash flows from financing activities. Cash flows from investing activities totaled $473.5 million. Cash flows from financing activities totaled minus $431.5 million. And so overall, where we land is an overall change in cash of minus 1. One thing that should be noted on this view is that we have -- we carry a deposit in the United States and overnight deposit in short-term marketable securities. That item specifically is reflected as a movement of cash out. This is actually an accounting classification, not really related to our inability to access those funds. If that's added back, the total cash change would actually be a net positive number. Next slide, please. Looking at the consolidated balance sheet. It's been a year of change. We have massive changes across the business. I mentioned already the cash and cash equivalents topic. This is linked to the marketable securities, which are included below in other assets. The major changes that we have here are PP&E, which comes from the divestment of the MCS business, the inventory and receivables topics, which are -- those are the divestments of net working capital. Our income tax receivable is still classified as a current asset as we do expect to be able to collect that in the near future. Other items of note on this page are the payables. Payables will have been reduced as a function of the divestments that we've made. But we've also increased our gross to net reserve substantially, both on a conservative footing as we integrate the TXMD assets, but also as a function of some accounting method changes that we've made that we'll talk a little bit more about further on. At the bottom, you'll see the points that Shawn referred to, which is the net cash, net debt, $172.6 million to -- from negative $317 million, so a reversion of almost AUD 490 million. Next slide, please. Slide 12. Thank you. We've talked in the past quite a bit about cost. And we've talked about cost reduction programs that we've been working on. The company undertook to make a number of investments and a number of process changes in fiscal year '23 that basically we're going to increase cost and some of these things did increase cost. What we have undertaken though is a program that's geared at trying to find money for investments. So where we need to invest, what reductions can we make in order to fund that investment. What you see on this slide really is a fiscal year '22 OpEx base of $143.1 million, along with then some changes walking down to what would have been the fiscal year '23 OpEx base at $195.2 million. Where we land ultimately is $189.9 million on the lower box, which is a net savings of about $5.8 million. This really comes from reductions in headcount. It comes from basically restructuring the retail generics business and reducing costs there. There are other measures that we are focused on. The headline has more work to do. There is more work to do. And so with that, next slide, please, number 13. Thank you. So what this slide attempts to do is to talk about reductions in process reductions made and investment spending. In fiscal year '23, we targeted to make a number of investments investing a total of AUD 39.4 million. And that was primarily the NEXTSTELLIS DTC, the Australian NEXTSTELLIS launch, but then also the additions of cost for TXMD on a half year basis, when we acquired those assets. We invested some money into disintermediation. We had a number of topics, inflation, software changes, et cetera, et cetera, that impacted us. But in fiscal year '23, we were able to save about $5.8 million. What we're targeting for fiscal year '24 is AUD 10.5 million. Some of that is -- it's basically all in execution and budgeted. Some of it is a flow over from fiscal year '23, actions taken in '23, but now add to the total fiscal year cost number, some of it is new actions that are going to be taken. On top of that, we still have some additional costs that we have targeted for reduction. We just haven't quite gotten to it yet, and that totals a further $3.5 million. One point on the far right-hand side, we are making investments, and we continue to invest where it makes sense. In the past, we've said we'll save where we can and invest where we need to. And so that is really where the focus lies for the future. I think with that, I'll turn it back over to Shawn.

Thank you, Aaron. And let me just briefly go through some of our sections and then the first section is our branded portfolio section, which is women's health. So looking at Slide 15. Out of the 17% growth that our group saw to bringing revenues up to $183 million in fiscal year '23, we saw the women's health growth from $10 million to actually $62 million or 1/3 of the business in fiscal year 2023. So #1 driver is women's health, driven by NEXTSTELLIS and also with a result of our refreshed marketing strategy. NEXTSTELLIS revenue was $14.1 million with both the first half and second half in line with each other. We had some one-off impact on the profitability, but we're still seeing our path to profitability, i.e., a breakeven run rate in the first half of '24. And I'll show you with some of the growth that we're seeing in the cycles. So if we look at the expansion portfolio of products, the revenues were $24.5 million roughly in the second half and the volume demands there, and I'll share those curves for you. There was a onetime accounting charge of $5.7 million. So this revenue would actually have been $30 million in the second half of '23. If you look at our contraceptive products, NEXTSTELLIS and ANNOVERA actually represent 63% of the women's health revenue followed by IMVEXXY for menopausal dryness at 20%. So we're excited about where the women's health business is heading and we're maintaining a very vigilant cost management to support the growth of our sales team and the marketing efforts to drive profitable growth for these products. So let's look at Slide 16, and we can see what our refreshed marketing strategy is done to the number of cycles on a monthly basis for NEXTSTELLIS. It's been steady, up 80% second half over the first half since we've been targeting Yaz and Yasmin with selectivity messaging and reach and frequency. We've improved, as I communicated before, the number of samples, the number of calls and the calls that we're getting signatures from our customers. We are seeing about 2.2% weekly growth. And to date, we're on track to the expected trend, so that will allow us to deliver a breakeven run rate for NEXTSTELLIS. So let's quickly look over at the expanded portfolio of products IMVEXXY on the left. These are unit sales of IMVEXXY, followed by ANNOVERA to the right. ANNOVERA has some of nonreporting pharmacies that are reflected here. We're seeing growth in the product. And then BIJUVA units are a consistent slope upward over a significant period of period there. So there are no change to the business case of the acquisition of TXMD as they're delivering to expectations. So moving over to dermatology on Slide #19, I believe it is. We -- next slide, sorry. Second half '23, dermatology is in a turnaround situation since the first half poor performance and the second half improved the sales dramatically. The inventories have normalized and the pricing is more stable, and you can see the unit growth slightly going up over time, and you're not seeing the spikes in the buying patterns. So we're taking a conservative approach to the copay methodology, and we're excited about the successful launch of MPC, DORYX MPC 60 and our generic -- authorized generic ratio. While it's underperformed due to unplanned channel inventories, we think this will wash out from the prior distributor of this product and we'll see significant growth in the first part of fiscal year '24. So we're excited about the dermatology turnaround. There's a lot of work to be done, and we'll continue to drive that forward. So briefly, let's look at our business and how we're just looking at the pain points that patients and customers have in the pharmaceutical value chain. We call this disintermediation. There's -- you get your manufacturers, your plan sponsors, the wholesalers, providers of the prescription and then the patient and with increasing out-of-pocket expenses for patients, they are getting selectivity and that affects adherence to the medications. Dermatology is one of the areas, where adherence is poor and patients shop around to get their prescriptions. So our goal is really to help patients receive quality drugs quickly at the best possible price, while increasing prescriber efficiency and effectiveness, physicians do not want to spend times on the phone getting prescriptions change back and forth. So looking on Slide 21, looking at why we're focused on this initially in dermatology. This is an area that's undergone a lot of pricing pressure in the past on the topical and on the orals in dermatology. And it's a repeat business. There's a lot of long cycle times for the treatment chronic therapy for many conditions such as psoriasis and acne. So it's value, but the insurance coverage is very poor and seems to be getting worse in some areas. So we have ability to fulfill roughly 33% of all retail prescriptions that are written by the number of products we have for psoriasis, acne, atopic dermatitis, et cetera, in our bag. And we have established relationships with manufacturers for generic and branded products. So we have a pharmacy network, and we're working with GoodRx to expand this. We have Adelaide Apothecary that's now a licensed operator in 50 states, and we have over 400 specialty pharmacies contracted with us to ensure the patients get the product that the physician ordered. We have an ability to drive the market with a combined sales team of over 145 reps between our dermatology and women's health franchise. So we can reach over 50,000 prescribers and drive that. So this is allowing the various companies with dermatological agents to come our way, Galderma, Sandoz, Upsher-Smith to name a few are coming our way, and they see our ability to drive market share through our unique model and working with AssistRx and GoodRx, we expect to expand on this model significantly in fiscal year '24. So let's look at our international business briefly. We've invested in a new leadership team here. Solid progress you saw on a segment basis, we had nice revenue uptick in the second half versus the first half. This is the only business that provided contribution in fiscal year '23 at $6.9 million. The operating costs were maintained flat at $6 million in the 2 halves, where we drove increased revenue coming forward. So we have a $12 million investment in partnership with the Australian government who provided a $4.8 million grant on the MMI grant, our modern manufacturing initiative, and this is going to allow us to improve the capabilities and effectiveness and efficiency in the Salisbury facility. We'll continue to drive growth in our Australian domestic business, driven by NEXTSTELLIS and other products in the market. We continue to expand our international businesses, especially with KAPANOL and the opioid substitution therapy opportunity in Europe. And we continue to invest in the growth of NEXTSTELLIS in the Australian market. So we're delighted on the solid growth that we're seeing out of the international business going forward. So if you look at Slide 24, I've talked about there's people process and products. We've made some people changes. We're improving processes. We've learned a lot more about gross to net and how to manage that more directly in the company. We've offered new products. And these 3 elements, whether our people, products and the processes that we put in place are all here to serve the patients and drive profitable growth. So we're excited at what we're doing in women's health, dermatology and international. We'll continue to broaden our women's health and dermatology franchises with accretive assets. We're continuing to create access for our patients through disintermediation in our relationship with GoodRx and AssistRx, and we're going to continue to drive improved profitability with dermatology and also with our international business. So looking at the outlook for fiscal year '24, the company expects to complete the integration of the licensed women's health assets focused on growth for those products and improve the net selling prices of all those brands. We're going to continue our growth and investment strategy for NEXTSTELLIS. In addition, we have a half strength BIJUVA launch expected in January of calendar year 2024. And we're going to continue to leverage our sales force and our efforts for NEXTSTELLIS. So that breakeven run rate of first half of '24 is on target, and we're going to continue to drive growth for NEXTSTELLIS beyond that. For dermatology, we continue to plan to enter in the capital-light accretive business agreements and drive commercial excellence throughout fiscal year '24. We are going to continue, as I said, to develop our channel strategy and create access for patients and improved profitability is a clear objective for the dermatology franchise. So in international, it's targeted investment and new manufacturing revenue streams, investing in our local domestic business and especially in NEXTSTELLIS. And then looking targeted investments in Salisbury facility to improve that productivity and capabilities with the capital improvements we talked there. So when we look into fiscal year '24, we'll see all 3 business units contributing positive contribution margin. The company then expects that we'll return to positive EBITDA in '24 with the contribution margin coming out of all 3 units and generate operating cash flow. So we now can turn to the Q&A and answer questions that you may have on our business. Operator?

[Operator Instructions] Your first question comes from Melissa Benson with Wilsons.

Perhaps first one on NEXTSTELLIS, just around the status update on payer coverage and kind of tiers of reimbursement, where that's sitting?

So not much has changed on the payer coverage with NEXTSTELLIS in the last 6 months. We still do not have United coverage because their approach to it is too punitive for us to go ahead with them. There is -- the ACA is still working its way through the American Care Act, Affordable Care Act and the requirement that no patients have out-of-pocket expense. As you know, President Biden did write executive order and most of the agencies are working through that, and we expect some positive outcomes of that effort by the President in the next 6 months. But one of the things we did early on, Melissa, was improve our copay card and the cost of the patient that's driving business. And another thing that we're doing is making sure there's not abuse of our copay cards in the marketplace and working with [ Rise ] Rx, and we've already seen on a per unit basis, a 7% improvement on a per unit basis there. So the overall network for us on reimbursement hasn't changed in the last 6 months, but we're improving how we manage each prescription for NEXTSTELLIS.

And just starting with NEXTSTELLIS, on the gross margin front, has that largely kind of remained stable for that product?

Yes. Gross margin, yes.

Okay. Yes. And then if we're speaking about women's health division, we've seen that the OpEx is around $45 million in the second half. So is it right to think that, that $90 million is kind of on an annual basis, that's a good run rate. And that's kind of -- you've completed the expansion there, and so it's just leverage now with that being the full cost base for women's health?

Yes. Actually, the run rate of the second half, if you were to take that and multiply it by 2, it's slightly lower than that going into fiscal year '24.

Okay. And then how much of that cost base should we think is attributable to the TXMD assets? Or is it a case that is that the women's health force and they're selling NEXTSTELLIS as well as the others, that's the combined, you can't really separate...

Yes. So it's a fair question. So we've had 72 reps and we went through roughly 93 reps. We've had some rep changes, who were not productive throughout the year and improve that. So when we took on the TXMD assets, we indicated that we thought we'd be running an incremental investment of roughly $20 million, and that includes salesforce and direct-to-consumer advertising and marketing. That wasn't a light switch turn on, and we certainly are not a $20 million run rate yet for those brands. But we have, since April improved -- increased our DTC advertising on social media for ANNOVERA, IMVEXXY and BIJUVA, and we're seeing that increased activity of the website for all 3 of the brands. But DTC is an area that we are cautious about because we're not seeing the ROI, and we've seen several other companies in the women's health area overinvest in DTC and create negative results for themselves. So we're measuring that effort quite significantly going forward. But overall, we allocate roughly 60% of our sales force allocation to NEXTSTELLIS and the rest to the acquired assets.

Okay. And one final one. Just around the 5 and a bit million TXMD, that one-off accounting charge, just what was that?

Yes. Hey, Melissa, this is Aaron. Happy to explain that. Basically, what we've done, what are the topics that, that a company has had to deal with when you deal with gross to net charges against revenue is how much inventory is sitting in the channel. This is the same topic that came up from dermatology in the past, albeit a little different. What we've done basically is rather than expense managed care charges, which are typically charges that come when somebody who has a covered script, it's a charge that comes from the pharmacy benefit manager rather than expense those managed care charges as they come in, what we've done is use the inventory channel estimates to set aside monies on the managed care charge. So it's a onetime adjustment, where in effect, what we've done is incurred an additional period of charges that won't happen in the future.

Okay. So that is a one-off week and then just look at, say, the $30 million as kind of the exit run rate? On a revenue basis, sorry...

I mean we can talk a little bit. Yes, yes, correct. Correct.

Okay. And then just a final one. The restructuring cost, the $12 million you have as an adjustment to EBITDA. Should we think is there any further kind of restructuring or now we're moving into '24 as kind of clean slate?

We expect minimal additional restructuring. There could be some nominal charges here and there, but I would say Melissa quantum, we're probably talking $2 million or less.

Your next question comes from Elyse Shapiro with Canaccord.

Looking at derm, you're kind of talking to a positive contribution in '24. And when we look at the year-to-date performance, is that running positive through August?

So actually, Elyse, we haven't closed August yet. And we've been so heavily consumed with the results. I can't answer your question. It's a great question, but I'm not in a position to answer it at this time. What we do expect is based on some of the new product launches that we have and based upon some of the levers that we've been able to pull with respect to the channel, we do expect the positive contribution to BA, it's not a to-do, it's largely done and we now monitor the results.

Yes . I would say earlier, I did mention that ORACEA because of Prasco had more inventory than we expected of the authorized generic that is still coming through and that should be pretty well flushed through by now. And those are patients that we're actually going to have better margin. And we've also negotiated a cost of goods reduction of 12% for that. So we'll be able to move the margin up for ORACEA and drive increased volume at the same time.

Got it. And do you anticipate having any negative impact from the IRA discussions that are going on?

Not as yet. I think those are hitting the bigger branded companies than ourselves. As you know, many of the large pharma companies are in a suit against the Inflation Reduction Act, but where we're positioned, we rather let them lead the path and we'll exploit the opportunity.

Got it. And then just on salesforce with women's health, are you seeing really positive cross-selling coming through yet for the Therapeutics MD team selling an NEXTSTELLIS and vice versa? Or do you think there's a bit more to come in terms of the benefit there?

I would say, honestly, yes, there's more to come. We had our national sales meeting a couple of weeks ago in Miami. I was there with the team and part of the exercise was to demonstrate the ability to detail NEXTSTELLIS and then pivot to over ANNOVERA. There's not 100% crossover between the menopausal prescribers and the contraceptive prescribers in the OB/GYN market, maybe less than -- about 70% overlap. And so there are customers, where the focus is BIJUVA and IMVEXXY and then the common denominator basically prenatal vitamins are seem to be enjoyed by both segments. So the cross-selling is a big effort that we're putting forward going now, and we had effective training on this exercise at the recent national sales meeting.

Next question comes from Andrew Goodsall with MST.

Just looking at Slide 16 and the growth in NEXTSTELLIS. Just wondered where we're at in terms of that July number and in terms of your reach with the number of prescribers and how many prescribers you'd ultimately like to be reaching?

So Andrew, sorry. I didn't understand the back half of the question.

I was just trying to understand where you are in terms of signing on with prescribers or your reach with prescribers are you sort of 50% away there or 100% just in terms of that exit rate?

Sure, sure. So yes, we ended up with roughly 31,000 cycles in July or in June up to 33,000 plus in July. As we said, our target is to get to a breakeven growth run rate. And so what we mean a breakeven run rate, that means the number of cycle times, our revenue is on an annualized basis, taking that weekly results and analyzing it would equal the cost that we're putting in or the investment we're putting in the sales force, marketing, et cetera, and we see visibility of that happening in the first half of this year. And what's the major driver we've shared previously, and I don't have that slide here with us, but we've had a dramatic uptick in our commercial reach and thrust into the marketplace. It's softened a little bit in July and August. We had the reps out of the sales meeting for a week. We had vacations, et cetera, but we're seeing a dramatic uptick in our reps reach and frequency. So the number one thing that we're communicating with the reps, your sales potential is really driven by your knowledge and that is your knowledge of your customer and the market and the competition in your brand relative to the competition, your skills and looking at your target list. So we have our target list is really focused on Yaz because they have the same progesterone and the better estrogen here and that skills that they have at closing the customer and building their business plan and going to the right customer at the right time with the message and being able to close. And then it's the activity, and I've talked about the activity in the number of calls. We've got consolidated shows you can't oversample in the birth control market, and we're taking advantage of that and driving that forward. And one of the deficits we've had in the past, not just on the commercial side, but is our medical education, and we've hired 6 new medical science liaisons and a new leader in medical affairs, who is [indiscernible] OB/GYN, who is a leader in menopausal therapies and contraceptive. So we're expanding our reach of not just the reps, but also the scientific meetings and the various speaker programs that are running. We have a whole new speaker kit that's out there driving new speaker programs and the customers are very enthusiastic of how they share the data with NEXTSTELLIS and clearly see why potentially could be seen by their patients as the best estrogen in the marketplace and the best oral contraceptive. So we're hitting our targets, not 100% in every territory, and we're keeping active maintenance with the leadership in the field to ensure that the activity rates are there. And then lastly, the passion. So it's KSAP, its knowledge, skills, activity and passion that's going to drive the results and all the managers and the leaders in the field are focused on making sure we're 100% on all of those. Does that answer your question?

That's very comprehensive. I appreciate it. And I was just going to follow up with a question around some of the PBM reform proposals that are before the Congress, just whether there's any implications for your business in a positive way coming out of those?

So the positive trend for us is really the Affordable Care Act and the implementation of the executive order that President Biden put through and driving that through to implementation or that nobody pays anything out of pocket. And that obviously will be a significant driver for a product like ANNOVERA where you get a month therapy, a year therapy, sorry, on each prescription over $1,000 revenue and then ensuring that repeat scripts happening with NEXTSTELLIS. That's the most important thing in the launch is launching new brands is not getting a one-off for NEXTSTELLIS, but getting the repeat script and making sure that the patient and the physicians are seeing the benefits for them going forward. So on the payer front, the biggest driver we see happening that will benefit us is a successful implementation of the laws of the ACA with the PBMs.

And I think some of the reforms of the PBM are also pushing to help reduce patient out costs. So being that that's directionally positive for you?

Absolutely.

There are no further phone questions at this time. I'll now hand the conference back over to address any webcast questions.

So there aren't any more questions on the web. So if there's any -- I'm going to try to read what's here.

So if there aren't any more questions, there are some web questions asking for specifics regarding profit, gross margin, operating costs for certain products and businesses. But since we do not provide guidance, we would like to refer the participants to the outlook statement for some high-level indicators of what we're expecting for fiscal year '24.

Yes. And thank you for that, Kimberly. And I just want to reflect some investors who've been in the main game for a long time. We're shifting this business from a low-margin business to a higher-margin business, selling the U.S. generic business was part of that journey. MCS, we are very happy with the level of sale that we got for that business. I don't think we would attract that level of price today based on how the markets change, but that was a capital intense business and a slower growth business. So all our investment is driving higher-margin products and higher growth products in both women's and health and dermatology. So that's a major shift that everybody should be thinking about the gross margin of this business is totally different than it was a year ago. Any other questions? Well, thank you, everybody, for joining us tonight and or today, this morning in Australia, and we look forward to the next time an opportunity to share the main story. Operator, we're complete here.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.