Q2 2020 Mallinckrodt PLC Earnings Call
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Third quarter 2020, Mallinckrodt earnings conference call.
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I would now like the hand accomplice over to your speaker today.
Daniel Special Vice President Finance and Investor Relations Officer. Please go ahead.
Thank you Sarah good morning, everyone of walking along <unk> second quarter earnings call. Joining me. This morning are mark to do our CEO Dr. Stephen model, our Chief Scientific Officer, Brian reasons, our CFO.
Before we again, let me remind you a few important details on the call you hear us make some forward looking statements. It's possible that actual results could be materially different from our stated expectations.
Please note we assume no obligation to update these forward looking statements.
In the best result for future expectations changed materially.
We encourage you to refer to the cautionary statements contained or actually see filings for a more in depth explanation of the inherent limitations as such forward looking statements.
We will also provide selected non-GAAP adjusted measures reconciliation of these adjusted measures is included in our earnings release, which can be found her website mallinckrodt dot com.
We use our website as a channel to distribute important time critical company information and you should look to be Investor Relations page over website for this information.
As a real press release unless otherwise specified.
Quarterly comparisons are the comparable 2019 period net sales growth ranges it'll be discussing or on a constant currency basis.
I would also like to know that we're continuing to conduct earnings calls with participants in different locations. We ask that you. Please bear with us if there any technical issues or handoffs take a little longer than usual.
Turning to todays agenda, Mark will start with a discussion regarding the uncertainty space in the business and then provide an overview of the quarter, including the steps, we're taking to mitigate the impact to coordinate team.
Also Steve provide an update on recent science and technology activities before Brian walks through the financial results for the core.
Why did the ongoing discussions with financial creditors and litigation claimants and their respective advisors will not be holding acuity session. Today. Following their prepared remarks. We appreciate your understanding with that let me turn the call over to Mark Mark.
Thank you Dan good morning, everyone and thanks for joining us I hope, you're all staying safe and healthy.
Before I get into the business for the quarter think it's important to discuss the recent events and the various challenges facing the business.
Over the course or the last two years. The company has faced significant pressure from the opioid litigation claims and more recently the retrospective onetime acthar gel Medicaid rebate liability.
As a result in the adverse ruling in the Medicaid rebate calculation matter in March and the prospect of having a $640 million liability coming due this fall.
In addition to the opioid litigation pressure and other risks as well as our overall debt levels.
We've been considering a range of options with our advisors.
This includes engaging in dialogue with financial creditors and litigation plaintiffs and their advisors.
Well no decision has been made these discussions could potentially result in the filing for chapter 11 reorganization by Mallinckrodt plc, and the majority of its subsidiaries in the near term.
This is a challenging situation and we are considering what's in the best interest of all of our stakeholders.
We continue to work toward a comprehensive resolution to the opioid litigation and pursue our appeal of the Medicaid rebate calculation matter.
However, due to the appeal briefing and arguments schedule is unlikely that our appeal of the lower courts adverse ruling in the CMS matter will be rolled on before payment obligations begin to arise.
As such we feel we had been left with no option, but to explore a comprehensive resolution of these matters.
Turning to second quarter.
Despite the company's uncertainties compounded by coupled with 19, the underlying specialty brands and specialty generics businesses continue to operate relatively smoothly and we continue to advance our strategic priorities furthering our pipeline and maximizing the value of our diversified inline portfolio, which is a testament to.
I'm pleased hard work and commitment to our business patients and customers. During these unprecedent, then and challenging times.
[noise] Swift actions, we took last quarter to adapt our operations have been able to us to maintain business continuity and continue providing our customers in patients with uninterrupted access to our medicines.
This quarter, we continued to evolve our operating model by leveraging the use of technology for face to face interactions with customers to meet the needs of patients.
We've continued to manufacture supply and deliver our products largely without interruption and looking ahead, we do not anticipate any supply disruption from covert 19.
Turning to the pipeline, which had an important milestones in the path toward FTC approval for two key therapies.
In June we announced the completion of a rolling submission of a biologics license application or B.L.A. to the F.D.A. for Stratagraft regenerative skin tissue.
On July 15th we received a positive both from the FDA Advisory Committee for Terlipressin.
[laughter] Terlipressin will provide an important treatment option for patients in the U.S., who have significant complications with liver disease.
We anticipate launching Terlipressin with our current hospital sales team immediately after a possible approval in September.
In addition, we look forward to the potential approval of Stratagraft early next year.
We're continuing to progress on our franchise modernization initiatives with our Acthar gel self injector, an IMAX evolve products, which if approved we expect to launch in late 2021.
In addition, we anticipate the upcoming start of our phase three trial for M. Encase six one <unk> five.
Additionally, we look forward to the outcome of several previously announced studies the potential effective IMAX encoded 19 patients suffering from advanced lung complications later on this call Steve will provide further color on all of our development and clinical activities.
Now turning to portfolio highlights in the second quarter.
Despite the unprecedented challenges created by called the 19, we continued to make significant progress towards maximizing the value of the diversified inline portfolio.
As expected the combination of stay at home orders reduction of elective surgeries and a drop in overall patient procedures impacted our business.
Notably we saw decreases in the performance of Acthar gel their acos and affirmative as these products continued to be the most sensitive to the restrictions.
These declines were offset by an increase utilization of nitric oxide, which resulted in double digit growth for IMAX. We're uncertain. If this trend will persist in the back half of the year.
Well, we're confident that business and promotional activity will likely recover as the impact of cold in 19 subsides, there's still a high degree of uncertainties surrounding the duration of the pandemic and its effects.
We expect we will continue to feel the impact into the back half of the year.
For Acthar gel performance in the corner was slightly ahead of our expectations. This was primarily driven by retention of returning patients were staying on therapy longer than historical trends for the brand.
The focus the Acthar gel business will continue to be improving new patient starts a certain markets open and our field teams returned to face to face customer interactions, which has recently begun.
This is primarily driven by our brand modernization efforts with our clinical development activities.
We expect to recover to be relatively slow as physicians and patients navigate local kobin 19 restrictions.
We also saw the partial impacted the retrospective onetime acthar gel Medicaid rebate liability starting June 15, which has essentially eliminated acthar Medicaid net sales prospectively.
We've quantified this as an approximate 90 to 100 million dollar revenue stream on an annual basis, which will now be going away.
We expect that this change will be an additional contributing factor to a sequential decline in the product for the remainder of the year.
[laughter] preparedness of IMAX continues to be bolstered by the use of nitric oxide as a treatment for critical Kobin 19 patients.
Although I know Max is indicated for the treatment of pulmonary hypertension and newborns many hospitals across the U.S. have chosen T. Buys this important therapy as a therapeutic option for critical patients suffering from acute riesberg respire trade distressed syndrome as caused by the covert 19 virus at the discretion of the treating physician.
During the second quarter, we saw an increase in volume, which speaks to the broad level of utilization as the pandemic kids different parts of the country overtime.
In the second half of the year, we expect both volume and price pressure from competition on the brand as the Kobin 19 health crisis begins to potentially subside.
The total care approach Fry INOMAX has allowed our customers to feel confident in our commitment to them and their patients as they continue to battle the impact of Kogan 19.
We believe that this approach to exceeding customer expectations will continue to differentiate IMAX in the marketplace against potential competitors.
We believe the evolve next generation device for IMAX will be a significant technological advancement in the delivery of nitric oxide to the health care system.
Turning to affirmative injection, we've seen a significant downturn and demand for the product due to the covert 19 related postponement of elective surgeries across the United States.
As we look at the trends in the market, we do not expect the demand for the product will recover prior to the loss of exclusivity in early December of this year.
We expect multiple generic entries into the market at that time.
Our focus for the brand will be to work closely with accounts that are bringing elective surgeries back into their schedule in order to ensure that afirma is available to patients that can benefit from a multi modal analgesia approached the pain management.
As we said last quarter, we're focused on realigning our organization to reflect this including shifting teams and driving reductions in selling general and administrative expenses.
With respect to the Therakos immunology platform overall patient demand was down in the quarter due to the reduction in procedures and patient visits related to the pandemic.
We are however, beginning to see CTCL patients returned to treatment.
We expect the platform to continue to be an important choice for physicians and their patients as health care practices recover from the impact of covered 19.
In the specialty generics segment, while we saw a slight sequential growth in the quarter. We do expect the business to be down in the second half of the year due to covert 19.
We continue to believe that this business is poised for long term growth driven by a U.S. based manufacturing and vertical integration.
Now, let me turn it over to Steve to provide some more details on our pipeline and data generation efforts, Steve. Thanks, Mark as Mark mentioned, despite the continued challenges cobot 19, we achieved critical milestones during the quarter for Terlipressin and Stratagraft regenerative skin tissue two of our late phase development programs.
On July 15th the cardiovascular and renal drugs Advisory Committee as F.D.A. convened a virtual meeting to review data on Terlipressin and the committee voted to recommend approval of the investigational agent Terlipressin.
To treat adults with the pattern renal syndrome type one.
The advisory committees recommendation in favor of approval supports the potential clinical value terlipressin can bring to patients.
Particularly given that there are no approved therapies in the U.S.
We look forward to working closely with the FDA as it continues to review our application and anticipate a PDUFA date of September 12.
Turning to Stratagraft in early June we completed a rolling submission of a biologics license application to the FDA for Stratagraft regenerative skin tissue for patients with deep partial thickness thermal burns.
Completion of our be away submission is an important step toward our goal will provide an innovative therapy to adult burn patients in the U.S.
And we're confident in its value as a potential new treatment option for deep partial thickness thermal burns if approved.
Our cheap it'll be substantial development and regulatory milestones demonstrates the maturing capabilities for science and technology organization as wells are deep commitment to meet in the unmet needs of patients with severe in critical conditions.
To that end.
China leverage our extensive understanding of the physiological effects of inhaled nitric oxide.
Again, five months of exploring the potential effective I'd imagine patients suffering from advanced lung complications associated with Coca 19.
Last quarter, we announced two trials evaluating IMAX nitric gas nitric oxide Gaspar inhalation therapy for coping 19 infection and associated one complications, including evaluation of potential direct anti viral effect.
We remain committed to increasing our understanding of this potential therapeutic option for use by health care providers on the front lines of this unprecedented help emergency.
Finally in coming weeks, we're planning to initiate a retrospective review of medical records to gather more immediate real world evidence on how inhale nitric oxide is being used currently in hospital settings to manage complex and challenging cases.
In terms of our work with hospitals and health systems to support the Norwegian krone buyers patients, our respiratory therapist, who routinely support IMAX use for the management of persistent pulmonary hypertension and newborns continue to make themselves available on request to ensure the safe use of the IMAX platform and any setting.
In addition, our customer care center continues to respond around the clock to provider inquiries during this difficult time.
Turning to our evidence generation efforts for Acthar gel, we made it difficult decision to M. Two of our fees for studies, one you'd be items and the other in relapsing remitting multiple sclerosis flares.
This decision was based on several factors, including one the impact of Kobin 19 on the activity of study sites, which compounded in particular, the difficulties and logistical challenges of enrollment.
And to prioritize investments due to business pressures arising from the ongoing Kobin 19 health crisis and others as noted by Mark.
We have resumed several other ongoing exlar fees for studies, which were temporarily pause due to the pandemic.
And one in patients with care Titus and one in sarcoidosis.
In addition, we recently published additional data from our previously completed rheumatoid arthritis study as well as the results of retrospective data evaluations in patients with sarcoidosis NMS relapse.
And expect to communicate results from our recently completed trailing systemic lupus a written ptosis as well as the complete and this registry results later this year.
These above mentioned clinical activities, along with our work to modernize our manufacturing processes and develop a more patient friendly self injector all underscore our extensive investments in support of modernizing the acthar gel franchise.
[noise], although we experienced some delays related to the pandemic, we continue to progress administrative and startup activities for the initiation of our global phase three trials and in case, it's one of five element I think phenylacetate for the treatment of patients with advanced liver disease suffering from hepatic encephalopathy.
You will recall that the complexity of this condition the challenges of conducting a single large pivotal registration trial, we saw greater alignment with the FDA and work closely with them to finalize study requirements.
We now anticipate the started this important trial, but he ended the first quarter of 2021.
We've also completed a phase two PK PD study to clarify appropriate dosing for the oral formulation of L. Orenstein General acetate and then case, it's one of six and expect to report. This data later this year.
Turning to the other inline brands, we continue to advance our efforts to complete the development of the evolve next generation IMAX delivery device.
As well as our new Acthar gel self injector, we expect to be in a position launch both programs in late 2021.
We also made important progress in expanding the availability of our their acos Sep platform to Japan.
In May we submitted the medical device application to the pharmaceuticals and medical devices agency. The PMTA for Therakos in support of an easy Pete therapy in steroid resistant or intolerant chronic graft versus host disease indications.
We anticipate the reviewed associate to conclude within the second half of 2021.
Lastly, we continue to make progress on early research and development collaborations to advance therapeutics in the area of autoimmune and other immune mediated conditions.
Regarding our collaboration with silence therapeutics.
Will recall, we obtained a license to a C complement preclinical asset based on science is proprietary R&D I technology platform.
In July in addition to making strides in the nomination of the specific cdthree targeted compound to advance into GLP Tox studies to support 90 filing we exercised their option to pursue two additional complement targets.
The addition of these new targets further advances our strategy to become a leader in the treatment of underserved patients with immune mediated diseases.
In addition, we continue to progress worked with trends immune including the generation of new preclinical data. This data will allow us to gain greater clarity regarding specific mechanisms underlying the benefit of the platform across various conditions.
In summary, despite the challenges covert 19, we continued to deliver significant progress towards our goals in the first half of this year.
Major catalyst in the coming quarters for our science and technology organization include the completion of a rolling submission of a biologics license the FDA for Stratagraft regenerate skin tissue. The PDUFA date for Terlipressin in September and initiation of our phase three trial for indicate six when applied by the end of first quarter of 2021.
I'll now turn it over to Brian to discuss the financials Brian.
Thank you, Steve and good morning, everyone in the second quarter of 2020 reported adjusted diluted earnings per share of $1.89 with adjusted net sales of 701 million as compared to adjusted EPS of $2.53 and net sales of $823 million decline.
On the 25% and 15% respectively.
With respect to the segments. The specialty brands segment net sales were $523 million, especially generics segment net sales were $178 million.
XR Zhao contributed net sales of $214 million a decline of 20%.
The to the quarterly decline was primarily driven by continued reimbursement challenges impacting new and returning patients.
Continued reduction in patients as a result of coping 19, pandemic, which is anticipated to impact results in the second half the year.
Continued pair scrutiny on overall specialty pharmaceutical spending.
And to a partial extent the change in Medicaid rebate calculation.
IMAX delivered $155 million net sales an increase of 11% driven by overall increased consumption of nitric oxide fire customers, including variable revenue contracts and strong utilization within coated 19 patients Afirma contributed 52 million.
In dollars and net sales decreased 42% driven by a reduction in elective surgeries due to public health orders and institutions focused on responding to cope with 19 pandemic you likely also saw we impaired the intangible asset for our format. This quarter in light of the cover the impact as we approach losses.
Exclusivities in December.
There, Chris provided $48 million net sales a decrease of 21% driven largely by coping 19 stay at home direct is impacting patients ability to receive treatment.
Lastly, amitiza generated net sales of $49 million, a decrease of 5% due to the continued impact of competition, you U.S. and the biennial price reduction in Japan.
Specialty generics segment net sales in the quarter for $178 million as expected with a slight sequential increase.
Turning to operational measures in the quarter total company adjusted gross profit as a percentage of adjusted net sales were 72.1% compared with 73.4% due primarily to product mix.
Adjusted SGN as a percentage of adjusted net sales for the total company was 28.2% as compared to 25.3% impacted by the decline in net sales overall adjusted SGN expense actually declined due to our continued focus on cost containment and reductions.
Overall company R&D expense as a percentage of adjusted net sales was 11.8% compared to 9.7%.
The adjusted effective tax rate was 4.6% in the second corner.
Turning to liquidity cash provided by operating activities and the second quarter was $171 million with free cash flows of $160 million with year to date free cash flows of $193 million.
We ended the quarter with 4.5 billion in net debt and our current cash balance at the end of the second quarter was $818 million.
Ill now hand, the call back to Mark for a few closing remarks Mark.
Thanks, Brian in closing I'd like to emphasize a few main points.
First our team continues to do an excellent job, serving our customers and ensuring patients have uninterrupted access to our medicines throughout the pandemic.
Second given the amount of uncertainty that continues to surround the covert 19 health crisis, we continue to adjust and refine our business approach. So we remain confident [noise] better operations will recover.
The impact of cover 19 potentially subsides.
We expect we will continue to see challenges in the back half of the year.
Third we are continuing to drive forward and our strategic priorities and make important progress towards advancing our pipeline, including continuing to work closely with the FDA. After a positive vote by the Advisory Committee for Terlipressin. The completion of a rolling submission for a biologics license application to the FDA for Stratagraft regenerative skin tissue.
Okay, and maximizing our diversified inline portfolio.
And finally, we continue to be highly focused on addressing all legal and financial challenges as we work with our advisors to determine the best path forward for the business.
We appreciate your time this morning and continued interest in mallinckrodt the challenges impacting the business, our unfortunate and require us to consider a range of options to address them.
Well work relentlessly to drive appropriate resolution to these matters.
And finally on a personal note when I'm with you and your family's well during the pandemic. Thanks for joining us on the call. This morning.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
We will have a great day.
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