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

Thank you for standing by, and welcome to the Mayne Pharma Group Limited Half Year 2025 Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Shawn Patrick O'Brien, Managing Director. Please go ahead.

Thank you. Thank you all for joining. My name is Shawn Patrick O'Brien, and I am the CEO and Managing Director of Mayne Pharma. Today, we are here to present our financial results for the 6 months ended 31 December 2024, namely 1H FY '25. Joining me on the call this morning is Mayne Pharma's CFO, Aaron Gray. Today, our focus will be presenting our first half FY '25 results and answering questions about them. We will briefly cover the recent scheme implementation deed signed with Cosette Pharmaceuticals under which Cosette has agreed to acquire 100% of the shares in Mayne Pharma by way of a scheme of arrangement for $7.40 cash per share. Further information in relation to this transaction will be shared in the future as we're able to do so. Looking at our Slide 2, which 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. Turning now to our financial highlights on Slide 3. In short, we have delivered an excellent set of financial results consistent with the financial guidance we issued on the 10th of February 2025. The results represent a significant improvement on the prior corresponding period or pcp. Revenues increased 13% to $213.1 million, driven by strong growth in our Women's Health segment. Our gross margin expanded materially to 61.4% versus 56.3% in the pcp. And underlying EBITDA of $31 million was up 288%. First half underlying EBITDA exceeded the total underlying EBITDA recognized in the full FY '24 financial year. All segments delivered a positive direct contribution, which in total was $65 million, up 60% or $24.4 million on the pcp. We generated $25.9 million in positive underlying operating cash flow from continued operations versus minus $19.2 million in the first half of FY '24, an improvement of $45.1 million. Our cash position remains strong with cash and marketable securities of $124.9 million at the 31st of December, down from $149.3 million as of June 30. However, there was a onetime class action payment of $33.3 million cash made during the half, which impacted our reported cash. Looking at Slide 4 on the operating highlights. For Women's Health, we recorded continued growth across the Women's Health portfolio with increased operating leverage delivered during the half. In particular, we recorded 33% growth in demand cycles for NEXTSTELLIS and 30% growth in total prescriptions demand from our licensed portfolio consisting of ANNOVERA, IMVEXXY and BIJUVA. However, ANNOVERA's revenue was flat due to the lingering effects of legacy inventory returns on gross to net sales. This is in contrast to ANNOVERA total prescription volumes, which were up 17% versus the prior comparable period. Our label change has added 33% to the product shelf life or 6 months additional [ data ] now with a 24-month expiry date. As we indicated with our market update ASX release, in the second half we expect higher co-pay and managed care expense health plan deductibles reset in the new calendar year. In addition, we are budgeting for an increase in promotional expenses for Women's Health products to drive additional long-term growth. For Dermatology, we added 1% growth for the half versus the pcp. However, gross margin percentage increased to 53% versus 45%, driving overall profit improvements. RHOFADE continues to record strong performance with total prescription growth of 129% versus the pcp. The main drag on sales for the half was our authorized generic version of ORACEA, which was impacted by several generic launches in 2024. However, we are happy to see that our market share remains at approximately 50%, which is down from a peak of around 70% when it was just us as the AG and the brand on the market. Pleasingly, pricing remained stable, which reflects the stickiness of the Dermatology channel strategy in terms of price and volume as our volume declines were mainly with the big 3. In terms of new products, we launched branded Retin-A microsphere 0.08% topical gel in December for the treatment of acne. We believe this product will make a meaningful contribution to sales during the calendar year 2025. For International, the operating highlights include our modernization upgrade, which is nearing completion and is expected to be fully operational during the current quarter. This will significantly expand our capacity and drive production efficiencies in the business. We note our delivery in full on time or DIFOT rate for the half was 91% of the Salisbury facility, up from 76% at the pcp. I will now hand the call over to Aaron Gray, our CFO, who will walk you through our first half FY '25 group financial performance. Please go ahead, Aaron.

Thank you, Shawn. As Shawn mentioned at the commencement of the presentation, we will be presenting our audited results under IFRS accounting standards. Investors should be aware that certain financial information, such as underlying EBITDA is non-IFRS information, 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 be formally discussed, but may be referred to during today's question-and-answer session following the main presentation and are part of the full package that we've released. Slide 6 provides an overall summary of the company's financial results and matches our statutory reporting. Group revenue of $213.1 million reflects growth from Women's Health attributable to volume growth across the Women's Health portfolio of NEXTSTELLIS, ANNOVERA, IMVEXXY and BIJUVA, and from Dermatology with solid growth in RHOFADE, offset by the erosion of AG ORACEA. We saw strong improvements in our business during the half year with continued operating leverage delivering strong growth in reported and underlying EBITDA of 219% and 288% respectively. Underlying EBITDA, which excludes earn-out reassessments, restructuring charges, class action settlement costs, derivative fair value adjustments and certain litigation expense, improved by $23 million in first half fiscal '25 to $31 million. This half year result was well ahead of the total fiscal year '24 underlying EBITDA recorded at $22.9 million. Our underlying free cash flow from continuing operations was $25.9 million. The principal driver between the underlying measure and the reported operating cash flow being the class action settlement payment made during the first half of $33.3 million. Next slide, please. Slide 7 highlights the operating cost leverage the business has shown in first half fiscal '25. The 13% increase in revenues, primarily driven by our Women's Health segment delivered improvement in group gross margins to 61% from 56%. Women's Health delivered an 82% segment gross margin. Direct operating expenses were controlled with a 1% increase in direct OpEx, delivering a 60% increase in contribution versus the pcp. As a percentage of revenue, direct OpEx improved to 31% in 1H fiscal '25 from 35% in the pcp. Slide 8 shows a waterfall reconciliation between the company's cash and marketable securities position as at 31 December 2024 from 30 June 2024. Cash from continuing operations was positive $25.9 million, driven by the strong underlying EBITDA performance of $31 million. Earn-out payments made during the half for continuing operations totaled $6.4 million, and we paid the one-off class action settlement of $33.3 million. Excluding the class action settlement, Mayne Pharma delivered positive $19.5 million in cash flow from continuing operations. Cash outflows for discontinued operations of $9.3 million were recorded. We now have less than $7 million in remaining obligations for discontinued operations. Investing and finance cash flows were modest at $1.2 million outflow for the half. At 31 December 2024, Mayne Pharma held cash deposits and marketable securities with marketable securities consisting 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 31 December 2024 were $124.9 million versus $149.3 million at fiscal year '24, mostly impacted by the class action settlement payment. I will now hand over to Shawn to run through the segments.

Thanks, Aaron. I will discuss first half F '25 results of our 3 segments, namely Women's Health, Dermatology and International. And Aaron will be commenting on the financials for each of the 3 segments over the next few slides. So on Slide 10, provides a summary of the improvements observed in direct contributions from each of our segments in the period. As was the case for our full year results, the half continued to show the benefits of scale and cost base leverage through financial discipline. Our total direct contribution from our 3 segments was up $24.4 million to $65 million, representing growth of 60%. Women's Health was a strong contributor with direct contribution increasing by 117% on the pcp. Despite a flattish revenue growth, the positive product mix of our Dermatology segment resulted in direct contribution growth of 22% to $22.1 million. Finally, International declined to $3.6 million from $4.4 million due to the timing effect of certain shipments and production schedules. We've seen a rebound in the month of January already on that. On Slide 11, we're going to turn it over to Aaron.

Thank you. This slide summarizes the financial performance of the segments versus the full prior year and the prior year halves. I don't intend to go into the slide in too much detail, as Shawn has commented on most of the key drivers already, but I'm sure investors can see the obvious trends here in the business with continued double-digit revenue growth and solid contributions from our branded portfolio in Women's Health driving improvements to earnings. As we indicated at the U.S. sales educational seminar last year and our AGM in November, we have carefully managed our costs towards a more focused sales and marketing strategy against which we are executing well. This can be seen via the group segment contribution of $65 million versus $40.6 million in the pcp. In short, an increase of $25.2 million in revenues versus the pcp delivered a near equivalent increase in our direct contribution recorded. Back to you, Shawn.

Thanks, Aaron. I'd now like to turn to the specific trends we are seeing in Women's Health and the financial performance of this segment. On Slide 13, which summarizes the Women's Health segment half year highlights. Our continued focus on sales execution and targeted marketing has delivered improved sales, higher margins and direct contribution. Overall, the Women's Health portfolio was a strong performer for the half with revenues up 30%, gross profit up 31% and direct contribution up 117%. In the U.S., ANNOVERA is very promotionally sensitive. And late in FY '24, we appointed 6 new regional sales leaders. And in FY '25, we've actually upgraded 41 of the existing sales to now fully trained and active. With this new improved sales team, we anticipate that we will deliver further sales improvements across the portfolio, including ANNOVERA, during the 2025 calendar year. Looking at our growth drivers for Women's Health, we are delighted to be granted another U.S. patent claiming certain aspects of NEXTSTELLIS with an expiry out to February -- sorry, 2043. We also have received positive feedback from the U.S. FDA on the clinical development plan towards securing a label for continuous use of ANNOVERA, which market research would make this product much more attractive in the U.S. market. Our sales strategy for Women's Health is undoubtedly bearing fruit. As we mentioned in late October during our U.S. sales education webinar, we are building product awareness, optimizing our territory and population coverage and over time, aim to generate more reimbursement coverage for NEXTSTELLIS and other products based on superior product characteristics and drivers associated with contraception and menopause awareness, and the benefits to these segments under the Affordable Care Act provisions that may be coming. I will now turn the call over to Aaron, who will provide further details on our volumes and sales for our Women's Health portfolio. Go ahead, Aaron.

Thank you. Turning to Slide 14, which focuses on the performance of NEXTSTELLIS. NEXTSTELLIS remains, as a reminder, the first and only FDA-approved contraceptive pill that contains E4. E4 is plant-derived and identical to human estrogen E4 that is found naturally in the human body during pregnancy. Mayne Pharma has a 20-year exclusive license and supply agreement in the U.S. and Australia for NEXTSTELLIS. NEXTSTELLIS showed first half fiscal '25 demand cycle growth of 33% on the pcp. Our definition of demand cycle is footnoted for convenience on the slide and covers IQVIA total prescriptions data and volumes from non-reporting pharmacies, including Mayne Pharma's own distribution channel. Simply stated, demand cycles are units prescribed to patients. We saw sequential demand cycle growth of 5.8% and 4.1% in the first 2 quarters of fiscal year '25. I am pleased to report that demand units in January hit an all-time high. Our latest 4-week results are up 11% versus the preceding 4 weeks. Currently, our NEXTSTELLIS run rate for fiscal year '25 is 644,000 demand cycles based on annualizing January. We've seen records in repeat prescriptions and our most recent unit to TRx ratio was over 2, also an all-time high. This measure reflects longer prescriptions being filled, which improves economics for Mayne Pharma and implies more confidence in our product at the prescriber level. Overall, NEXTSTELLIS net sales increased 62% versus the pcp to USD 22.4 million in first half fiscal '25. The net selling price was steady versus the pcp with the continued volume growth coming through. Slide 15 shows our branded product performance measured by demand volumes of our licensed portfolio from TherapeuticsMD or TXMD. Mayne saw solid total prescription demand growth for IMVEXXY and BIJUVA with total prescription growth of 29% and 36% respectively. The menopause category continues to be an attractive opportunity based on greater awareness of the effects of menopause and treatment adoption at the prescriber and patient level. ANNOVERA TRx grew 17%. I will now hand back to Shawn to discuss Dermatology.

Thanks, Aaron. Just before we go on to Dermatology, I think it'd be worthwhile to reflect on the fact that when we inherited this licensed portfolio, the run rate was USD 10.4 million a quarter, and now we're achieving USD 20 million a quarter in revenue. So well done. Looking at Dermatology. On Slide 16, the performance of our Dermatology segments, which delivered very modest growth in revenues overall, but improved mix benefits and higher contribution along with clear benefit of our channel strategy against generic ORACEA entrants. On Slide 17, I want to talk about the highlights of our first half and the Dermatology performance and channel strategy. Dermatology sales grew marginally for the half with our direct contribution improving 22% to $22.1 million, driven by positive mix effects. RHOFADE sales increased 121% to USD 19.6 million versus the pcp. Our acne portfolio delivered solid growth for the half with DORYX sales up 60% on the pcp and generic ACCUTANE delivered sales over $5 million for the half when we only launched it 12 months ago. Authorized generic ORACEA sales were down by USD 13 million versus pcp due to new generic entrants in current year '24. However, Mayne Pharma market share is holding around 50%, ranking us #1 for the category. Pricing continues to remain stable. As I mentioned, we launched a new branded Retin-A, tretinoin, microsphere 0.08% topical gel for the treatment of acne vulgaris in the U.S. market during the half. In relation to our channel strategy, we continued the deployment of our disintermediation strategy across both Dermatology and Women's Health. As investors will recall, this involves removing the intermediary, the wholesalers or the big 3 as we call them, between the manufacturer, Mayne Pharma and the specialist pharmacy. We saw a good growth in Adelaide Apothecary, our mail order pharmacy, with sales up 103% from the prior comparable period. Aaron?

Thank you. Slide 18. Slide 18 for Dermatology shows the revenue margin and contribution summary in 1H fiscal '25 versus 1H fiscal '24. Our top 5 products account for 77% of total Dermatology revenue, down from 83% in the pcp. The primary contributors to growth were RHOFADE, generic ACCUTANE and DORYX. Total Dermatology growth was low at the 1.7% in USD due to the impact of generic competition on AG ORACEA, which had a material impact on our revenues for the half. Despite headwinds, Dermatology gross margins improved to 53% from 45% in the pcp, although we invested an incremental USD 2 million in direct OpEx versus the pcp. We were able to deliver some leverage through to direct contribution, which improved 23% in U.S. dollar terms for the half. Back to Shawn.

I will now briefly outline the performance of our International segment. On Slide 20 provides a financial snapshot of the International for the first half. The key highlights for International were improved revenue and gross profit, although direct contribution was negatively impacted by the timing of certain shipments and product schedules -- production schedules. At the product level, NEXTSTELLIS in Australia sales increased by 40% to $0.7 million compared to $0.5 million in the prior comparable period. We are very excited to report that our Salisbury manufacturing transformation is nearing completion. This world-class facility will provide us with significantly higher capacity and the ability to fill and finish certain products on site, which over the long term will improve our margins. Coupled with the Australian government MMI grant, Mayne Pharma's investment into the facility reflects our commitment to create new business opportunities and growth for International. Now turning to our recently announced scheme implementation deed with Cosette Pharmaceuticals. On Slide 22, as I mentioned at the time of the release, attracting an offer from a strategic buyer who is active in the U.S. Dermatology and Women's Health markets like Cosette reflects the excellent work our teams have been doing to strengthen our company over the last year or more. Having broadened our portfolio in Dermatology and Women's Health, and improved patient access through a refined U.S. channel strategy, we have executed against our corporate strategies with precision. The cash price of $7.40 per share values the equity of Mayne Pharma at AUD 672 million and represents a strong premium to our last traded price prior to the announcement. The various volume-weighted average price or VWAP and a 21% premium to the 12-month analyst consensus price target of $6.10. The Mayne Pharma Board unanimously recommends that shareholders vote in favor of the scheme in absence of a superior proposal and subject to the independent experts concluding and continue to conclude that the scheme is in the best interest of Mayne Pharma's shareholders. The Board believes that the proposed transaction is in line with the Board's priority to deliver value to our shareholders and also provide significant benefits for our broader stakeholders. Slide 23 summarizes the Cosette business in further detail. Cosette is a U.S.-based pharmaceutical company with a portfolio of products in Women's Health and Dermatology. Cosette has a history in manufacturing of complex dosage forms, including topical creams, ointments, oral liquids and solutions, and suppositories. Cosette has corporate and manufacturing facilities in New Jersey and North Carolina and supported by 350-plus team members across all functional areas. Cosette is backed by Avista Healthcare Partners, a health care-focused private equity firm and funds managed by Hamilton Lane, a private markets investment firm. Looking at the timetable on Slide 25 (sic) [ Slide 24 ], the indicative timetable for the transaction of Mayne Pharma's shareholders do not need to take any action at this stage. Mayne Pharma's shareholders will be given the opportunity to vote on the scheme at the scheme meeting, which is currently expected to be held late April to early May 2025. If the scheme is approved by the Mayne Pharma's shareholders and other conditions precedent are satisfied or waived, the scheme is expected to be implemented late in May or early June 2025. These dates are only indicative, subject to change on conditional -- and conditional on, among other things, regulatory approval and shareholder approval at the scheme meeting. So let's switch back to the business and look at our outlook. On Slide 26, looking ahead through FY '25, overall the company expects to improve shareholder value with growth in underlying EBITDA in the second half of FY '25 via revenue growth and continued cost leverage with all 3 segments contributing to positive direct contribution. We also look forward to implementing our scheme with Cosette in late May to early June. That concludes the formal part of today's presentation. I'd like to thank everyone taking the time to join us this morning during a busy reporting season. I would now like to turn the call over to the operator for a Q&A session. Please go ahead, operator.

[Operator Instructions] Your first question from the phone today comes from Elyse Shapiro from Canaccord.

Congrats on the acquisition and the results. I guess on the acquisition, the for-sale sign had been up for a while kind of in the public domain. Can you talk to any additional interest or competitive bids that you might have received in the process?

Elyse, thanks for your question. Everything that we can share at this time is in the scheme implementation deed that was publicly shared. And the details, as they emerge, will be presented to you.

That's helpful. And then just on Derm, you used to talk to kind of a funnel of new products being added per year. How is that pipeline looking at the moment? I saw the Retin-A come through, but are there any others that are expected to come through in the near term?

Yes. I mean that's part of our strategy. As we cement deals, we communicate to the market as for our continuous disclosure requirements. But we remain active in making sure that we can supply more and more products to the Dermatology community and create that access through our disintermediation strategy and working with GoodRx prescription service to make sure people have the access ease that they are getting used to with us.

That's helpful. And just one last one, just on the disintermediation strategy. Are you able to kind of quantify the benefit that has been coming through? Obviously, we saw the gross margin improvement in Derm, but was most of that driven by disintermediation or is that more on mix?

It's a combination. Most of it is driven by mix when you have a full period of sales from RHOFADE coming through. We lost, as I said, roughly $13 million in revenue on generic ORACEA. So we actually have a 1% growth there, is showing the value of the whole franchise we have in Dermatology. But I think the fact that -- 2 things, the ability to take on a product like generic ACCUTANE and run it up to $5 million in a short period of time from $0 to $5 million is reflective of our channel strategy. The second is our ability to maintain our business and pricing for authorized generic ORACEA dropping from 70-30 split to now a 50 split and the other 50% is shared by 4 compounds. We've been able to maintain our price. All our loss on the volume, 99% of the volume loss, was in the big 3, and we've been able to maintain our price through our specialty pharmacies, over 400 pharmacies plus Adelaide Apothecary. Those 2 examples to me really represent how the disintermediation strategy have delivered financial results and we'll continue -- we have examples also in Women's Health when we took the business from VitaCare, that was going through VitaCare and moved it over. So we're happy on the progress there and continue -- and as I said, Adelaide Apothecary itself is up over 100% in revenue.

[Operator Instructions] As there are no further questions from the phone, I will now hand back over for webcast questions to be addressed.

Thank you, Darcy. Tom Duthy here from Investor Relations. Our first question is from Dr. Shane Storey at Wilsons Advisory, who asks, we noticed a few more generic ORACEA approvals in the back end of calendar 2024. I was hoping you could share some perspectives on how that product marketplace is operating as far as your share and pricing outcomes as concerned.

Thanks, Shane. Aaron Gray here. So Shawn commented a bit already on ORACEA. Basically, what happened was when the generics launched, we maintained all of the volume that we had in our channel, which was the spec pharmacies and Adelaide Apothecary. We continue to maintain share. We lost the share that we had in the big 3 -- in the big 3 wholesalers. In terms of pricing, we have made no changes to our pricing since the generic products launched. So to Shawn's point, it's a strong proof point of what the value that the channel can bring.

Thank you, Aaron. The next question relates to the company's outlook from a shareholder. It seems the second half will be cash flow positive, possibly as much as $40 million, which will be handed over to Cosette. Has this been factored in?

So the company does not give guidance on cash flow. Shawn has guided that we expect to grow EBITDA in the second half. I think we've also guided through the press release that we expect to have some additional spend in the second half as we accelerate promotion of the Women's Health products. And of course, we have the ever-present deductible reset that happens in the U.S. at the first of each calendar year. But we don't guide on cash flow. I would stick to the EBITDA guidance that's been provided.

Thank you, Aaron. The next questions, I will combine 1 or 2 of them, relate to the SID with Cosette. The first question with a back-end comment here is, why is Mayne prepared to sell the company at the start of the turnaround story? And given the substantial amount of cash in the bank, can you kindly explain why the company is being sold at such a low price?

Thanks, Tom. First, let me comment about the turnaround story. It just didn't start. We've been actively turning this business around for 2.5 years. We restructured the business, sold off MCS, did the transaction with TXMD. That was all in the first few months of me coming on board to the business in the fall of 2022 and then executing on delivering growth and bringing in products into Dermatology. So this turnaround has been executed for 2.5 years and continue to move forward. Relative to the situation here, the Board unanimously recommends that the main shareholders vote in favor for the scheme in the absence of a superior proposal and subject to independent experts concluding and continue to conclude that the scheme is in the best interest of shareholders. When we look at the scheme consideration of AUD 7.40 per share, the equity is roughly AUD 672 million. And that represents a 37% premium to the closing price of February 2025. It's a 42% premium on the 30-day weighted volume average and a 50% premium on the 90-day VWAP and a 57% on the 180-day VWAP. So those are impressive numbers for the shareholders to consider and the scheme process will allow shareholders to vote on that.

Thank you, Shawn. The last question, I believe you have answered, and we will decline to comment further, but the questioner asked whether we could shed light on how many offers were received before deciding on Cosette. Shawn, satisfied in your answer, I don't believe we need to add anything.

Yes, that's obviously confidential, and we'll move on to the next question.

Thank you very much. At this stage, operator, that's showing no more questions on the webcast. I'll turn back to you for any further comment on the Q&A per phone line.

Thank you. As there are no further questions at all, I'll hand back -- hand the conference back to Mr. O'Brien for any closing remarks.

Thank you, operator. And once again, everybody, thank you for joining us this morning in Australia and here this evening in the U.S. If you have any follow-up questions or comments please feel to contact our Global Investor Relations person Dr. Tom Duthy. Thank you for joining us tonight, and have a good evening.

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