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

Thank you for standing by, and welcome to the Mayne Pharma Group Limited Full Year 2024 Results. [Operator Instructions] I would now like to hand the conference over to Mr. Shawn Patrick O'Brien, CEO. Please go ahead.

Thank you, operator, and thank you all for joining. My name is Shawn Patrick O'Brien, and I am the CEO and Managing Director of Mayne Pharma. We are here to present our financial results for the 12 months ended 30th of June 2024, namely FY '24. Joining me on this call this morning is Mayne Pharma's CFO, Aaron Gray. On Slide 2 is an important disclaimer. Today's presentation contains forward-looking statements and non-IFRS financial measures, which I draw your attention to. All dollar amounts presented today are in AUD unless otherwise noted. Now turning to our operating metrics on Slide 3. I'm delighted to announce today that in FY '24, Mayne Pharma has achieved 100% of our key operating metrics or goals we set for ourselves during the financial year and were previously communicated to the market at the start of FY '24. There were 5 key pillars underpinning this performance, namely deliver positive direct contribution in all 3 segments, return the company to positive underlying EBITDA in FY '24, optimize our cost base with reductions of greater than USD 10 million, achieve a breakeven run rate for NEXTSTELLIS and return the company to positive operating cash generation in FY '24. We will discuss in detail each of these results in later slides, but suffice to say, the FY '24 performance is a significant improvement when compared to FY '23 and historically over the last 8 years, posting strong growth in revenue, driving a positive underlying EBITDA performance through targeted cost base reductions that have turned -- resulted in the generation of positive continuing operating cash flow for FY '24 with positive free cash flow generation occurring in the second half of FY '24, the first time reported free cash flow in several years. NEXTSTELLIS was a key contributor to this growth. On Slide 4, our financial highlights demonstrate in these tiles reinforces simplification of our business model combined with our strong operating and financial discipline, which has delivered a much improved set of financial results. Revenues increased 112% to $388 million, driven by strong growth in our Women's Health and Dermatology segments. Our gross margin expanded materially to 56.3%, representing a 24% improvement and underlying EBITDA of $22.9 million was up $118.2 million from the negative $95.3 million EBITDA in FY '23. All segments delivered a positive direct contribution, which in total, was $88.5 million versus a negative $41.8 million in FY '23, representing $130.3 million improvement overall. We generated positive underlying operating cash flow from continuing operations of $8.1 million versus minus $51.5 million in FY '23, an improvement of $59.6 million. We're pleased that our cash position remains strong with cash and marketable securities of $149.3 million at June 30, up $2.5 million from the 31st of December 2023. Now looking at Slide 5 on our operating highlights. For Women's Health, we achieved 3 new U.S. FDA Orange Book listed NEXTSTELLIS patents expiring in June of 2036, which extends our runway of opportunity. NEXTSTELLIS achieved a breakeven run rate from December 2023 and continued to deliver a positive contribution in the second half of FY '24. This performance was a result of 85% growth in the demand cycles driven by effective sales force execution of targeted calls on key customers. This sales force execution also drove 31% growth in total prescription demand for our license portfolio, namely ANNOVERA, IMVEXXY and BIJUVA. This execution by our sales force would not be possible but for the first-in-class Women's Health portfolio that meets the needs of Women's Health community. For Dermatology, during the financial year, we completed an asset purchase agreement to acquire the global rights to RHOFADE from Novan, Inc. and EPI Health, LLC. We are very pleased with the results of this acquisition in that RHOFADE generated [ USD 29.6 million ] in revenue in the first 9 months to June 30, 2024. And the gross margin we achieved was 3x that of the USD 8 million purchase price. In addition to the RHOFADE launch, new product launches during the year included WYNZORA, SOOLANTRA, generic ACCUTANE, and the previous launch of Authorized Generic ORACEA were the key drivers to growth delivered in the Dermatology franchise in FY '24. As we will discuss later, our channel strategy [Technical Difficulty] spent considerable effort has been validated throughout FY '24, and we are moving to scale this opportunity further. The revenue shift towards products with more favorable gross-to-net profile, such as RHOFADE has also assisted in the performance that we have seen in the Dermatology segment in FY '24. On the International front, we are pleased with the growth of NEXTSTELLIS, oxycodone, and UROREC in Australia. Our investments in the modernization of our facility is enabling the growth of our opioid substitution product, KAPANOL in Europe and Canada. Last point I'd like to make, under the leadership of Grant Swart, the facility has improved every key performance indicator in FY '24 over FY '23. This efficiency and efficacy improvement results in higher customer satisfaction and facilitates future profitable growth. I would like to turn the presentation over to our CFO, Aaron Gray, who will walk investors and analysts through our financial results in more detail. Aaron?

Thank you, Shawn. As Shawn mentioned at the commencement of the presentation, we are presenting our audited results under IFRS accounting standards. Investors should be aware that certain financial information such as EBITDA is a non-IFRS item, but is considered by directors to be a meaningful measure of performance. Our financial information is presented in Australian dollars unless otherwise noted. The company has provided some additional financial information for investors and analysts as an appendix to today's discussion. These slides will not formally be discussed as part of the presentation, but maybe referred to during today's question-and-answer session following the main presentation. Slide 7. Slide 7 provides an overall summary of the company's financial results. For purposes of this slide, the words reported matches our statutory reporting. The results will be discussed in more detail in later slides, but it is worth reiterating here what Shawn has already mentioned, fiscal year '24 marked a significant improvement in the business performance across the group. Group revenue growth of 112% was driven by strong performance from Women's Health and Dermatology in particular. During the year, we focused on our cost base, which saw our operating expenditure growth moderate significantly, driving strong operational performance. Our reported contribution from our 3 segments showed a $130.3 million turnaround from fiscal year '23 to $88.5 million in fiscal year '24. Direct contribution represents the gross profit less direct OpEx for each segment. Underlying EBITDA, which excludes earnout assessments, restructuring charges, class action settlement costs, derivative fair value adjustments and certain litigation expense improved by $118.2 million in fiscal year '24 and was $22.9 million versus an underlying EBITDA loss of $95.3 million in the PCP. In terms of conversion from underlying EBITDA to free cash flow before our investment into growth initiatives, we were pleased to get to almost breakeven at the free cash flow level with a minus $1 million free cash flow result. This reconciliation of these figures is demonstrated as an appendix on Slide 33. The reason I raise this point in the context of the strong improvement in underlying EBITDA is that we have made considerable inroads in fiscal year '24 towards a sustainable business model that pre-cash investment into growth initiatives is now rightsized from a cash generation perspective over the longer term. Slide 8. Slide 8 highlights the significant operating cost leverage the business has shown in fiscal year '24 at the segment level. The 112% growth in revenue when combined with cost containment measures that resulted in direct operating expenditure growth of just 4%, delivered a $130.3 million improvement in direct contribution from minus $41.8 million in fiscal '23 to positive $88.5 million in fiscal '24. The cost containment measures executed in fiscal year '24 were offset somewhat by inflation and certain incremental increases in variable costs, which are associated with revenue growth. This would include things such as samples and distribution costs in conjunction with investment in our R&D, medical and regulatory affairs activities, where costs did increase as a result of some required studies and our investment in medical education to increase scientific awareness of the advantages of the products. In effect, the reduction in our cost profile against the expansion of our top line in fiscal '24, improved cost leverage, being the OpEx divided by revenue. Comparing fiscal '23 to fiscal '24, we did additionally see a translational difference in operating expense. FX deviation increased expense by $4.7 million when expressed in constant currency removing that FX translational difference. Admin and other expenses and employee costs declined 2% compared to the prior fiscal year. In summary, OpEx as a percentage of revenue fell to a more sustainable level at 33.5% in fiscal '24 versus 68.2% in fiscal '23. Slide 9 shows a waterfall reconciliation between the company's cash and marketable securities position as at 30 June 2024 versus the prior financial year. Cash from continuing operations was positive $8.1 million, reduced by earnout payments made during the year of $10.1 million. Continuing operations with earnouts, therefore, resulted in 2.8% of overall net cash used for the year. The 39.8% of net cash used in discontinued operations reflected earnout payments of $11.7 million and cash outflows for discontinued operations of $23.4 million, partially offset by a $6.9 million cash inflow, which was proceeds -- a second payment of proceeds associated with the retail generics business -- the sale of the retail generics business rather. The majority of cash utilization for the period was attributable to investing and financing cash flows, which accounted for 57.3% of net cash used. This was the result of the acquisition of RHOFADE, the payoff of a receivables facility equating to $10.9 million, the on-market share buyback, which also was $10.9 million and other investing and financing cash outflows of $5.9 million. At June 2024, Mayne Pharma holds cash deposits and marketable securities. The marketable securities consist of an investment in a money market fund with underlying investments in short-term U.S. government debt and repurchase obligations. For purposes of statutory reporting, these marketable securities are not included as cash. However, given the nature of these securities, I combine the 2 for this slide. Total cash and marketable securities at 30 June 2024 were $149.3 million versus $220.1 million in fiscal '23, noting that we reported $146.8 million at the first half. So the cash consumed in fiscal '24 was effectively consumed in the first half. Our second half performance was, therefore, slightly cash generative, highlighting the progress we are making with our business initiatives. I will now hand it back to Shawn.

Thanks, Aaron. I will discuss the FY '24 performance of our 3 segments, namely Women's Health, Dermatology and International. And Aaron will be commenting on the financials for each of these 3 segments over the next few slides. Slide 11 provides a summary of the improvements observed in direct contribution from each of our segments at FY '24. The benefits of scale in the business and the cost base leverage through financial discipline is now being demonstrated with $130.3 million turnaround in direct contribution driven by Women's Health in red and Dermatology in blue to $88.5 million versus a loss of $41.8 million in the prior comparable period. Our portfolio of 4 branded Women's Health and 6 branded and 20-plus generic Dermatology products are performing well. Aaron?

Thank you. Turning to Slide 12. This summarizes the financial performance of the segments versus the prior year and half-on-half. As investors will recall, the company acquired the license to the expanded Women's Health products at the beginning of our H2 in fiscal '23. The reflected figures here are therefore comparable structurally. Our business transformation initiatives have delivered improved momentum and a strong positive contribution in '24. Dermatology revenues were up 207%, Women's Health up 131% and International up 9%. Total revenue growth of 112% was delivered against a backdrop of solid financial discipline over operating expenses with total OpEx growth of 4% comprised of 26% in Dermatology, minus 4% in Women's Health and 3% growth in International. The net effect was a 162% improvement in gross profit, including depreciation to $218.8 million versus $83.5 million in the PCP. Shawn, back to you.

Thanks, Aaron. I'd now like to turn to specific trends we are seeing in Women's Health and the financial performance of this segment. On Slide 14, there are 3 major trends underpinning the attractive market growth in Women's Health today, namely the growing addressable Women's Health market, continued increases in awareness and education and recent government initiatives to support the Women's Health market. The global menopause market reached USD 15.4 billion in 2021 and is projected to reach USD 24.4 billion by 2030, according to data from Grand View Research. BIJUVA is the only available FDA-approved combination bioidentical treatment for vasomotor symptoms associated with menopause. Vasomotor symptoms include hot flashes and night sweats, which are often considered the cardinal symptoms of menopause and are experienced by the majority of women during menopause transition. According to the National Institutes of Health, over 1.3 million new women enter menopause each year in the U.S. For the contraception market, there is now an increased need for contraception options for females in the United States as a direct result of the Roe versus Wade decision. NEXTSTELLIS and ANNOVERA are Mayne Pharma's unique contraception solutions for this growing market. More recently, there has been greater emphasis on clinical education and training for obstetricians and gynecologists in the United States as it relates to menopause, where historically just 31% of Ob/Gyns specialists reported receiving menopause education in their curriculum during medical residency. There has been increased awareness of the impact of menopause, including numerous published articles and celebrities drawing awareness to the effects of menopause. To leverage these industry tailwinds, Mayne Pharma has made additional investments in medical science liaison to raise product scientific awareness with clinicians and we are supporting education programs on the use of hormones for both contraception and menopause. We have a dedicated sales team of 85 able to reach the target customers and grow sales and market penetration. Finally, we are seeing government's driving support and providing initiatives in the area of Women's Health. For example, under the U.S. Affordable Care Act in all 50 states, the ACA guarantees coverage of women's preventative services for all individuals and cover dependent. The U.S. government has introduced a USD 2 billion investment in Women's Health research and education with bipartisan support. Mayne Pharma is actively participating in efforts to provide information and feedback to lawmakers on the ACA. And in parallel, we're working to develop programs that will benefit from the USD 2 billion Women's Health program recently announced. Aaron will now give you a snapshot of the financials in the Women's Health area.

Slide 15 summarizes the Women's Health segment financial performance. In U.S. dollar terms, fiscal year '24 revenue was $93.7 million, up $52 million or 125% compared to fiscal year '23. The revenue increase, '24 versus '23 was driven by improved leadership -- improved sales performance of NEXTSTELLIS as a result of refreshed sales leadership and marketing strategies, volume growth of all of the key Women's Health products, including NEXTSTELLIS, ANNOVERA, IMVEXXY and BIJUVA. And finally, of course, the full year impact of ANNOVERA, IMVEXXY and BIJUVA, recalling that the first 6 months of these assets under Mayne Pharma was the second half of fiscal year '23. Direct OpEx decreases in each half of fiscal year '24 versus second half fiscal '23 was driven by territory optimization and realign marketing spend. The main driver to the slightly lower second half fiscal year '24 revenue, noting that 2H fiscal '24 declined 2% versus 1H fiscal '24, was associated with legacy ANNOVERA short product dating leading to returns. This had a USD 7.2 million or approximately AUD 11 million negative impact to our revenue and gross profit. Mayne has taken steps related to this topic to minimize the risk of this recurring, including improvement on the shelf-life of ANNOVERA management, more active management of inventory at wholesalers and education of the channel on expiry of the product. Importantly, 2H fiscal year '24 total prescription growth or TRx for ANNOVERA demand was up 15% on 1H fiscal year '24, reflecting growth in the underlying demand. Second half revenues are also impacted by the seasonality of patient deductibles on the copay costs. Turning now to Slide 16. The summary pie charts highlight the total revenue mix by product in U.S. dollars. On a sequential basis, revenues grew 44.6% in first half fiscal '24 versus second half fiscal '23. I discussed the driver to the slightly lower revenue performance in 2H fiscal '24 versus 1H fiscal '24 on the previous slide. NEXTSTELLIS accounted for 35% of Women's Health revenues in the second half of fiscal '24, up from 22% of total revenues in the PCP. Stratifying by half, the company recorded 2H fiscal '24 gross margins of 78% versus 81% in the first half of fiscal '24. The lower second half gross margin was a function of the ANNOVERA returns mentioned a couple of times on the prior slide in response to which we have made the changes mentioned to minimize the future risk. Discipline with OpEx spend is highlighted by direct OpEx falling $3.8 million from 2H fiscal '23 to 1H fiscal '24, a decline of 13%, with an additional $1.7 million decline in direct OpEx in the second half of fiscal '24 versus the first half, equating to a 6% improvement. Turning to Slide 17, which focuses on the performance of NEXTSTELLIS. NEXTSTELLIS remains the first and only FDA approved contraceptive pill that contains E4, which is plant-derived and identical to human estrogen E4 that is found naturally in the body during pregnancy. Mayne Pharma has a 20-year exclusive license and supply agreement in the U.S. and in Australia for NEXTSTELLIS. NEXTSTELLIS showed fiscal '24 demand cycle growth of 85% on the PCP. I wanted to explain a little further the meaning of a demand cycle for investors and analysts on today's webcast as we've had a lot of questions around this. Demand cycles are units prescribed to patients. We determine demand and track demand by taking IQVIA total prescriptions or TRx data, converting that data to units interchangeable with cycles and then adding volumes from non-reporting pharmacies, non-reporting to IQVIA, including Mayne Pharma's own distribution channel. TRx is converted to units by taking the number of pills in the TRx divided by 28, the number of NEXTSTELLIS pills included in 1 month of therapy. NEXTSTELLIS prescriptions can be prescribed in 1 month and 3 month increments. On average, 1 TRx equals 1.9 units or cycles. The strong Q4 fiscal year '24 performance of 10.4% sequential growth and 55% PCP growth is attributable to the first full quarter with new sales leadership and improved sales force execution. NEXTSTELLIS net sales increased 113% to USD 30.1 million in fiscal '24. The net selling price for NEXTSTELLIS was steady versus the PCP, with the continued volume growth coming through. Slide 18 examines our branded product performance measured by demand volumes of our licensed portfolio from TherapeuticsMD. For the period from 1 January 2023 when Mayne Pharma started to sell these products, we follow an identical method to that use to track NEXTSTELLIS demand, i.e., what I just walked through on demand cycles. The fiscal '24 reporting period represents the first full year of sales performance since this portfolio was licensed from TXMD. Mayne saw solid total prescription demand growth for both BIJUVA, IMVEXXY and ANNOVERA, impacted by increased focus from the sales force. IMVEXXY, BIJUVA and ANNOVERA showed a combined 31% total prescription growth for the year versus the PCP. In terms of net sales, ANNOVERA generated net sales in fiscal year '24 of USD 30.6 million followed by IMVEXXY with USD 19.2 million and BIJUVA with net sales of USD 9.5 million. I will now hand it back to Shawn.

Thanks, Aaron. Turning now to the performance of our Dermatology segment by first addressing the specific trends we are seeing in the dermatology market and then the financial performance of this segment with Aaron. Slide 20 talks to the key macro trends in dermatology and Mayne Pharma's positioning within the market. As investors will recall, in the U.S., Mayne Pharma can fill approximately 1 in 3 prescriptions written for a medical dermatology product currently. So we are in a position to participate in the inherent growth within this market. The key trends in Dermatology relate to an expanding treatable population, a general retreat by big pharma from medical dermatology and disintermediation of patient access for dermatology prescriptions. Within dermatology, there is a rising incidence of skin diseases and a growing awareness of increased spend on personal care. For example, in the U.S., there are 15 million people living with acne, which is a large patient demographic overall. Despite this exciting macro theme, there's limited innovation occurring in the development of improved or novel treatments for common dermatological conditions. For Mayne Pharma, this means we have a good market access to patients with our existing approved dermatology product portfolio. Our portfolio of branded products, RHOFADE, DORYX, WYNZORA, SORILUX, LEXETTE and FABIOR, plus our 20-plus generic products gives a focus and presence within dermatology writers in the market and solid points of difference for our sales reps. As the market success of RHOFADE under our dermatology portfolio this year has demonstrated, we have ample opportunity to expand this portfolio in the near term via capital-light transactions. We will talk to our disintermediation strategy in more detail shortly, but it's worthwhile pointing out that within dermatology, the design and structure of the health care insurance benefits in this segment has meant a large cost burden, has shifted to the patients, which has impacted demand as patient co-pays have steadily grown over the years. As a result, large retailers often carry limited dermatological products due to high cost and often call back prescribers to switch patients to prescriptions that are older and cheaper options. By leveraging our existing 400-plus specialty pharmacies, which are very convenient for repeat prescriptions across the brands and generics, this will mean uninsured patients receive the prescribed product at a reasonable and predictable costs with limited special assistance from their dermatologist required. This is good for sales and is beneficial at the growth to net level, but even better for patients and their prescribers. Aaron will now summarize the Dermatology financials.

Thank you. Our dermatology segment is delivering on new product launches and the effective implementation of the channel strategy in fiscal year '24. Our fiscal '24 Dermatology revenue is up 199% in USD or USD 76.2 million compared to fiscal year '23, driven by a number of factors. These included sales from RHOFADE, additional new product launches, which included, as Shawn mentioned, ACCUTANE, SOOLANTRA and WYNZORA and the effect of a full year of sales of Authorized Generic ORACEA, which was launched in fiscal year '23. Co-pay charges across the portfolio improved in fiscal year '24 on a per unit basis compared to '23. Generally, fiscal '24 benefited from improvements and a product mix shifting towards products with more favorable gross to net profile. This drove a very strong improvement in gross margins to 48% from 19% in the prior comparable period. Slide 22 shows the revenue, margin and contribution summary in fiscal '24 versus '23. Our top 5 products account for 80% of Dermatology revenue compared to 88% the top 5 products in fiscal year '23. As I mentioned, we saw a large improvement in gross margins across the segment. We made additional investments into direct OpEx, which grew $4.7 million to a total of USD 26 million. The direct contribution showed a sizable turnaround in performance to USD 29 million from a loss of USD 14 million, representing a USD 43.1 million overall improvement year-on-year. Back to Shawn.

Thanks, Aaron. Now, turning to Slide 23 on our channel strategy. I will provide further comment on our disintermediation strategy, which creates easy access for our patients to obtain our dermatology products. As investors will recall, Mayne Pharma is leveraging the inefficiencies in the dermatology value chain through new partnerships aimed at improving patient coverage, co-pay, inventory management, pharmacy stickiness and higher patient switching costs. Our strategy involves reduced reliance on wholesalers, large retailers and pharmacy benefit managers, or PBMs, as they drive significant gross to net liabilities without patient or prescriber benefit. These are the middlemen. For example, in the U.S. market, a PBM is a third-party administrator of prescription drug programs for commercial health plans, self-insured employer plans, Medicare Part D plans, federal employees' health benefits program and state government employee plans. Today, PBMs are part of a large vertically integrated organizations, which allow them to profit at multiple points along the pharmaceutical supply chain and gives them unprecedented control of over what prescriptions are covered, what people will pay out of pocket and what pharmacy patients -- what pharmacy patients can use. Removal of these middlemen allow Mayne Pharma to invest in gross to net or GTN savings into the patient assistant programs to the benefit of health care providers and their patients. The key highlights of our channel strategy execution in FY '24 were our specialty pharmacy additions now allow us to work with more than 400 specialty pharmacies across the U.S. Adelaide Apothecary, our mail order pharmacy currently represents less than 10% of our dermatology gross revenue in FY '24. However, during that period, we saw a ten-fold increase in revenue over the previous year and we see further opportunities ahead to grow this channel. In addition, we've seen improvements in gross to net savings. The strategy was a contributor to the dermatology margin improvement in FY '24 compared to the prior comparable period and product returns were lowered. Disintermediation refers to removing intermediary or wholesaler between Mayne Pharma and the manufacturer in the specialty pharmacy. This strategy has delivered excellent growth in FY '24. This is enabled by GoodRx prescription services, AssistRx, Adelaide Apothecary and others to deliver seamless prescription fulfillment at the lowest out-of-pocket cost for the patient. Approximately 75% of dermatology patients received no insurance coverage for products on various dermatological diseases. Dispensing via Adelaide Apothecary generates a significant improvement to Mayne Pharma margins that can be used to fund other patient savings programs or other investments in dermatology. So in summary, we have reduced the burden for both the prescriber in the patient in that with our unique GoodRx, AssistRx platform, the prescriber can see within 30 seconds, what the out-of-pocket expense will be for their patient and where the patient can get their prescription filled at the lowest cost to them. And if it's a full cash transaction for a prescription medical derm product, we can still make a profit through our mail order pharmacy Adelaide Apothecary. Aaron?

Thank you. For me, the final segment is the International segment. Slide 25 provides the financial snapshot of International for the fiscal '24 period. The key highlights for International were fiscal '24 revenue up $6 million or 9% compared to 23%, driven by growth of NEXTSTELLIS in Australia, which showed a 163% increase on fiscal '23, growth of oxycodone and UROREC in Australia and increased demand for KAPANOL/ KADIAN in European and Canadian markets. The modernization project at Salisbury is progressing well with a new encapsulator in commercial production, enabling launch of KAPANOL 200 milligram during the 2024 financial year. We've been very pleased with the step change in sustainable operational performance that the Salisbury team has made. Additionally, we partnered with Sandoz for distribution of oxycodone and metaraminol, which is used in the short-term management of acute hypotension in Australia. That concludes the discussion today on the financial performance for Mayne Pharma for fiscal '24. Now, handing back over to Shawn.

Thank you, Aaron. Let's look at Slide 27. The company expects to improve shareholder value with continued growth in underlying EBITDA in FY '25 via revenue growth and continued cost leverage. We anticipate all 3 segments will make a positive direct contribution. Now, turning to each of the segments with our focus and our key drivers. For Women's Health, we are focused on delivering the profit potential inherent with this current asset portfolio and driving growth through sharpened focus on sales execution and targeting marketing efforts to deliver improved direct contribution. We will continue to raise product scientific awareness via medical science liaisons and key opinion leaders and further our operating leverage to accelerate EBITDA growth in Women's Health. In Dermatology, we're focused on differentiated channel solution we've built that enables a preferred solution for patients, prescribers and partners and ensure our channel strategy processes are easy to use. We expect to see growth from RHOFADE with a full year of sales in FY '25 and we will continue to evaluate capital efficient and accretive business arrangements to drive growth in the revenue and margin. The continuous development of our channel strategy will leverage our ability to drive market share, access for patients and financial performance within Dermatology moving forward. Finally, to International. We're focused on driving the profitability via new revenue streams, a continuation of the modernization of the facility and leveraging our capacity created by these operational improvements I spoke of earlier, to grow and further operating leverage. In FY '25, we expect to complete the modernization upgrade program in the Salisbury facility to improve our productivity and capabilities. And finally, we expect to continue to drive specialty and generic product sales, including driving growth in NEXTSTELLIS domestically in Australia. That concludes the formal part of today's presentation. Thank you, everybody for taking the time to join us this morning during a busy reporting season. I'd like now to turn the call over to the operator for the Q&A period. Please go ahead, operator.

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

Shawn and Aaron, I just had a question, first, a couple in Women's Health and then one on Dermatology. With the ANNOVERA impact and that $11 million channel impact, is it right to think that, that might have been -- was that channel inventory that you acquired at the time of acquisition of TXMD? And I guess, just remind us on, I guess, the shelf-life of that ANNOVERA product and why -- how, I guess, future planning to avoid that or if this is really a one-off?

Aaron?

Thanks, Melissa. This is Aaron. So yes, the products that were returned were inventory that we paid TXMD for. That's one of the challenges with the dating ANNOVERA has been a difficult product to manufacture. And so tending -- both TXMD and we have tended to hold a little more inventory on that product to ensure that we can continue to drive growth there given the size of the market. It's -- so yes, it was related to inventory that we acquired from TXMD. What are we doing about this? So specifically, there's a few things. First of all, we've done some work with the FDA to increase the shelf-life of the product from 18 months to 21 months and we're doing some additional work to try and push that further, which helps. We've -- I mentioned we did a little more hands-on management with the wholesalers. Fundamentally, what we do is we try to monitor what product with what dating the wholesalers have in stock using some data analytics and some dashboarding techniques when we decide which inventory to ship to which channel and how much to ship. And then -- what's my third point. I forgot my third point. So was the management of the inventory, educating the channel, sorry. So part of the challenge that we have with [ rings ] in general is that the wholesalers think of expiry like NUVARING. NUVARING has to be -- complete its use before the date of the product expires. ANNOVERA is not structured the same way. ANNOVERA has to be inserted for first use before the product expires. And given that it's a long-lived product, it's one of these things that we've had to write letters and explain to people and try and be a little bit more hands on with respect to getting some of the folks in the channel. It's obviously the big 3 wholesalers to understand the difference in the products. And so yes, that is -- that's where we're at.

Okay. Excellent. And then if I think about the half-on-half kind of revenue of the TXMD assets, I think you showed on Slide 16. It's good to see, obviously, the ANNOVERA one makes sense. With IMVEXXY and BIJUVA that was slightly lower in second half. Is that kind of co-pay seasonality impact you were speaking to there?

That is a big piece of it, Melissa. Yes, the co-pay is reset. And so the company has increased out-of-pocket or increased out of bank account support for patients using those products after the December time period. That's exactly correct.

Okay. No problem. And then a question I had just on the Dermatology side of things. Obviously, you've seen some good gross margin lift. And I think you explained that there was a much more favorable gross to net product mix that you were seeing. Maybe just some more color on that. Is it that the new launched products? Or how could we expect that the 3 that you launched this year, is that really what's driving that or...?

There's a couple of things driving the gross to net overall. I think we've spoken previously about some partners and the ecosystem that we've assembled as part of the disintermediation strategy. We've got some analytics basically running around the co-pay cost per unit. So the legacy portfolio performance improved as a product of some pricing changes. We made some price increases and we made some adjustments to the co-pay support that we have around the products. And then additionally, we obviously saw a large amount of revenue from RHOFADE, which has a favorable gross to net profile compared to the rest of the portfolio. So given that the $29.6 million that Shawn mentioned, USD and RHOFADE revenues with the higher margin profile or the better gross to net profile that changed the overall mix.

And as I mentioned, Melissa, we realized 3x the price in direct contribution from RHOFADE that we paid for of $8 million.

Yes. Okay. That makes sense. And maybe a final one for me. Just on the Dermatology, you had 3 launches this year. How should we think about -- and obviously, RHOFADE sitting there, which was launched in the prior year and still going strong. I mean how should we think about like your forward pipeline for launches in FY '25? I mean are you expecting to have kind of these 1 to 5 launches per year or to kind of keep that balance or that's not necessarily required to continue the growth for Dermatology?

Well, I'll answer that in 2 parts. We'll see full effect of RHOFADE growing in this year. And it's a significant -- you're going to get at least 20% to 25% more because of the 1 quarter [ loss ], more of the opportunity. Against that backdrop, we've seen 2 launches of generic ORACEA, which has decreased our opportunity there, but that is in the wholesaler channel. And what we're seeing in our specialty channel and what we're seeing in Adelaide Apothecary is holding quite nicely on that. So it's really eroded what we call the big retail box market for generic ORACEA. And then WYNZORA, these are not -- and SOOLANTRA are not large products like what we see with RHOFADE. But we all -- just recently did a deal to bring Retin-A 0.8% product to the market. And we hope to have launched that early in the new calendar year and into January and that was done on virtually no capital to bring that into the portfolio and it's one of the key topical Retin-A products that our customers were looking for. So like we did last year, we'll continue to find opportunities where we can bring these assets in. But the team is really focused on growing SOOLANTRA, growing generic ACCUTANE, growing ABSORICA and growing RHOFADE and DORYX in the market.

Your next question comes from Elyse Shapiro with Canaccord.

Maybe just especially in Women's Health looking at the resourcing that you have right now, you've done a great job with the cost out. Would you say that the organization is now rightsized? Or do you think you have to kind of add a few more heads or capabilities to better coverage the geography and the docs?

Yes. It's really about taking this opportunity to leverage our cost base and driving that growth. As you know, we took costs out of the Women's Health last year, and we're still highly productive. We see this year the sales team is out selling ANNOVERA, out selling NEXTSTELLIS and BIJUVA and the menopause market has really lit up in the United States recently. A lot of celebrities are talking about menopause and getting proper treatment. So we see growth opportunities and so there's investments required to penetrate those markets, but we're going to remain disciplined as we go forward. But as far as increasing the sales force size, we have no desire at this point to increase the sales force to execute on the Women's Health plan.

And with BIJUVA, are you starting to see a positive impact from having the low dose offering and then potentially having users kind of convert on to the high dose?

The low dose offering has certainly brought new patients to the opportunity and physicians like the opportunity to adjust the dose according to the patient's profile and needs. And so that's proving to be a worthwhile introduction in the marketplace. But not everybody is going to go from the low dose and escalate to the high dose. And we've had people go from the higher dose down to lower dose since the product has been on the market, but not everybody goes from low to high.

And then now that you're through the pilot of RIS Rx, the disintermediation strategy, are you able to better quantify the impact of that kind of asset now that you've more fully rolled it out?

So yes, let me -- to be clear, we have a platform with GoodRx and AssistRx and GoodRx pharmaceutical services in conjunction with the AssistRx is what -- when a physician goes on the computer, pops up GoodRx with -- in the background, AssistRx is able to adjudicate a claim, as I said, within 30 seconds and determine what is the co-pay cost for that patient and where is the cheapest location or type of store for them to get that prescription. And if it's cash pay, it will always be out of Adelaide Apothecary. And that's resulted in us improving our margins by 14% using that channel strategy for our products. So that is helping. RIS Rx is more about making sure that our co-pay cards are used as intended and also helping ensure that patients once they get on a chronic therapy, they get the repeat scripts. So there's -- we're using the GoodRx and AssistRx to get them into our portfolio and using RIS Rx to make sure we adjudicate the proper use of our co-pay cards to benefit the company and benefit the patients.

Next question comes from Andrew Goodsall with MST.

Just a little more around the sort of top line. I think at one point during the second half, you called out some impact from Change Healthcare. And I think you might have ultimately said that was not material. But do you think there's -- or I guess is that past and do you think there's sort of any upside to get into the next period, but you're not having that -- having that impact?

Sure, Andrew. The Change Healthcare impacted a lot of companies, a lot of health care services and et cetera, but our impact was nominal. And I think that's something market misunderstood. I communicated that, but it had almost virtually no effect on our Dermatology franchise and what we could equate on the impact that it had by looking at the demand curve is roughly $340,000 on NEXTSTELLIS. That is nominal compared to what I saw some other products that were impacted by Change Healthcare. So -- and that's just taking what was the dip in the curve against the slope of the line that existed at the time and where we ended up. And as Aaron has highlighted, that slope of the line changed in the last quarter. It's deeper now. So to answer your question in 2-fold, one, it's nominal impact, $340,000 what we could calculate. And 2, we have a steeper curve now going for demand growth on NEXTSTELLIS under Tony's new leadership in the field.

Right. And just NEXTSTELLIS, from what I can tell NEXTSTELLIS manufacturing is now in the hands of Gedeon Richter, and I guess, the -- so is your contract. I just wondered whether this -- how happy you are with that relationship or whether it's working well? And then secondly, whether there's an opportunity to reexamine or renegotiate in the mix of what's taking place there?

The quick answer to that, Andrew, is yes and yes. We are happy with our relationship with Gedeon Richter. They are committed professionals to run this in the position. Back in April, we did get our approval of the Gedeon Richter API. So we now have 2 approved sources of API for NEXTSTELLIS and -- or the E4. And then from the manufacturing front, all that -- the full manufacturing front to end has not changed as yet. It wasn't manufactured by Mithra in the first place and we see opportunity to work with our friends at Gedeon Richter to improve the manufacturing supply chain and the economics there and we're working on that.

They talk about putting more effort into marketing globally. Is that going to have any sort of tailwind for you? Or is it just where they're the distributor?

Sorry, I didn't hear the first part of the question. They talk about what?

Yes, they seem to talk about promoting the product globally. I think it's a just -- you care to comment and just whether it helps you.

The relationship is the same. We are still the license holder for the United States. We're the NDA holder and then Fuji has it for Japan. And so for them, having the global ownership of the NEXTSTELLIS and E4 franchise, including Donesta, they're correct in saying that they have this global, but it's through the partnerships of us and Fuji how they penetrate the U.S. and the Japanese market.

The final one, just for me, just obviously, the political landscape is a bit favorable at the moment. You mentioned Roe versus Wade. I guess, if anything was to change in the November elections sort of what's -- do you think -- what side is going to be more favorable for yourselves? Or does anything sort of change in that landscape?

Well, the good thing on the $2 billion investment that's happening in NIH and education and all that was a bipartisan program. So I don't see a change in that. The data, there was a report by McKinsey showing the real need to improve upon that. And secondly, on the Affordable Care Act, that's been a law since 2012. It's really on enforcement and there's a lot of things happening on getting that enforcement in place. So there would have to be a dramatic change. If the Republicans did get into the power they still haven't articulated on the campaign trail, they actually have a plan for changing health care like they did in 2016. They thought they had a plan, but didn't have a plan. So we don't see a short-term risks to it and we see continued potential upside on the enforcement of ACA in the short term.

Your next question is a follow-up question from Melissa Benson.

Just another one for me. Just finally on litigation. Obviously, the class action you've settled and closed out, but you mentioned, I think, in July about a new patent infringement litigation against Sun. Just wondering if there's any like cost provisioning or anything for that, that would be material in FY '25?

Aaron, do you want to take that one?

So, Paragraph IV litigation is a normal occurrence in the U.S. branded pharmaceutical space. Basically, a generic drug manufacturer would file a challenge potentially to patents that we hold for our product. We filed the Paragraph IV suit to protect the IP basically. Paragraph IV litigation can take anywhere from 3 to 5 years. And obviously, that's highly subjective because in some cases, Paragraph IV litigation might be settled and then very quickly, and in some cases, it might be carried all the way through. But it can take anywhere from 3 to 5 years to come to a conclusion, that's if it goes to litigation and it can cost anywhere from USD 5 million to USD 10 million. Generally speaking, we have had the challenge against IMVEXXY we have filed the Paragraph IV. And -- sorry, we filed to protect our rights. So fiscal '25 will focus on preparing for cost to prepare for Paragraph IV litigation.

Thank you. There are no further questions at this time. I'll now hand back to Mr. O'Brien for closing remarks.

Well, thank you very much, and everybody, for joining us this morning. Our FY '24 results have set the foundations for long-term sustainable growth in Women's Health and Dermatology for Mayne Pharma. If you have any follow-up questions or comments, please feel free to contact our IR team, either Dr. Tom Duthy in Australia, Lisa Wilson in the U.S., and we look forward to meeting with our investors in person at our upcoming Annual General Meeting in November. So thank you, everybody. Good morning, and have a great day.

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