Q3 2022 Mallinckrodt PLC Earnings Call

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

Okay.

Good day and thank you for standing by welcome to the amount of Corp, third quarter earnings announcement.

At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

To ask the question during the session you need to press star one on your telephone.

I would now like to hand, the conference over to your speaker for today, Dan Speciale, you may begin.

Thanks Jordan.

Morning, everyone and thank you for joining US with me. This morning are Siggi, Olafsson, Owen Kratz, President and CEO and Bryan reasons, our CFO .

Before I turn the call over to Siggi, Let me remind you that you'll hear us make some forward looking statements.

Possible that actual results could be materially different from our expectations.

We assume no obligation to update these forward looking statements, even if actual results or future expectations change materially we <unk>.

<unk> to refer to the cautionary statements contained in our SEC filings for a more in depth explanation of the inherent limitations of such forward looking statements. We will also provide selected non-GAAP adjusted measures related to our financial performance. A reconciliation of these non-GAAP measures is included in our earnings release, which can be found on our website Mallinckrodt dot com.

We use our website as a channel to distribute important and time critical company information and you should look to the Investor Relations page of our website for this information.

As noted in our earnings release, our third quarter ended on September 32022, and the comparative period, we will be discussing this morning is the predecessor quarter ended September 24, 2021, as a result of the application of fresh start accounting the Companys GAAP financial statements for the periods prior to June 16 2022.

Not be comparable to those periods subsequent to June 16 2022.

Further unless otherwise specified the net sales percentage changes we discussed this morning will be on a constant currency basis.

With respect to our results, we generated $166 million of adjusted EBITDA in the quarter and we are pleased to reaffirm our 2022 guidance for both net sales and adjusted EBITDA, where we anticipate adjusted EBITDA will be between $630 million and $660 million for the year.

With that I'll turn the call over to Siggi. Thanks, Dan.

Good morning, everyone.

I am pleased to speak with you today about the steady progress <unk> made in the third quarter.

Our teams have remained keenly focused on executing the strategic priorities, we discussed last quarter.

Strengthening the balance sheet stabilizing our portfolio.

Making the right investments in our pipeline.

These efforts are reflected in the solid results we are sharing today.

Importantly, we are progressing as we expected as accordingly, reaffirming our full year 2022 guidance.

When we have our last call.

I have just joined Mallinckrodt.

I'd like to start with a high level observation.

My first full quarter as a CEO reinforced my confidence in mallinckrodt.

And the ability of our talented employees to build a great business focused on improving the lives of patients.

While I know we have more work to do this quarter was pivotal in developing a clear understanding of the challenges and opportunities ahead.

Thank you 23 will be an important year for mallinckrodt.

I believe we have the right plan in place to move forward successfully.

With that ill.

I'll highlight some of the steps we took to strengthening the organization during third quarter and then we'll dive into the financial results.

From a leadership perspective, we have a deep commercial expertise with the appointment of Lisa friends as Chief commercial officer.

Lisa spent more than 30 years at Merck and <unk> and commercial roles.

That gives us experience will be instrumental as we continue advancing our branded pipeline bringing.

Bringing existing products to new geographies.

New products, including <unk> and <unk>.

In addition, Anthony Neilson joined Mallinckrodt as Chief transformation Officer.

This newly created role focuses on acquiring and retaining key talent enhancing our communications human resources and employee related functions.

Building on modeling cost ESG program.

It is great to be United with Mds as we previously worked together a hikma pharmaceuticals on C has already started to do some great work here.

We also appointed a number of key internal leaders to our executive Committee.

Including Mark Kinzel, Chief legal officer, and corporate Secretary decent Goodson head of corporate development.

Harold Chief compliance officer.

Steve <unk> head of specialty generics.

These promotions underscore the deep bench of talent, we have at Mallinckrodt and then sure leadership continued <unk> across parts of the business.

At the board level.

Welcome currently and Susan Silverman as new independent directors.

Current brings decades of experience in human resources, and organizational transformation and assistance appointment follows a 34 year career.

Yes.

I'm pleased that in addition to bringing relevant experience.

These new leaders and divest a significantly enhanced our diversity.

Reflecting our efforts to promote diversity and inclusion at all levels of our organization.

Turning to the progress we achieved in the business during third quarter, we will begin with specialty brands.

We are encouraged to see early signs of demand stabilization for us at Yale.

Performance in the quarter was consistent with our expectations.

Looking ahead, our up <unk> four as a stabilizing patient demand.

Increasing access and affordability.

Differentiating after versus new market entrants.

We intend to do this through lifecycle innovation investments optimizing our resources.

Addressing access and affordability through our dedicated patients and provide the support team armed services.

Turning to our <unk> next generation delivery device, if approved would be an easier and more patient friendly version of asset Gale four single unit dose indications.

As we said last quarter device development has been completed and we are ready to proceed with submission. However, a regulatory matter involving one of our partners remains ongoing.

As a result, we do not anticipate a launch in 2023.

We will continue to provide updates as our partner works towards a resolution.

<unk> received FDA approval in September ahead of our December two per day. This was a significant milestone for mallinckrodt.

<unk> is the first and only FDA approved treatment for hospitals with hepatic renal <unk> syndrome, or HRS with rapid reduction in kidney function.

We formally launched totally was ahead of schedule on product is now shipping out.

We are incredibly excited to bring <unk> to U S patients and physicians, who have historically at very limited treatment intervention for HRS.

Diagnosing and treating HRS can be challenging.

<unk> is of the essence, when monitoring patients who have it.

We are very pleased to provide physicians in the U S. This is important option.

This approval reflect our organization wide focus on delivering for underserved patients and their caregivers.

The intensity with which we are working to achieve our goals.

<unk> received an orphan drug designation from the FDA Monocarp holds a seven year exclusivity period for this therapy.

There is a profit officially launched our focus now shifts to working with our pharmacy and therapeutics committees in the hospitals as they may.

<unk> formulary decision for the product, while we continue to raise awareness with doctors.

Turning to IMAX, its strong brand recognition and our superior customer service and technology have enabled this product to remain a leader in the enhance nitric oxide market. Despite continued competitive pressures.

While this led to a lower net sale in the U S. This quarter. We are pleased to see a strong net sales in the Japanese market.

We also made strides towards our planned 2023 launch of IMAX evolve the next generation delivery system of <unk>.

In September we submitted a five 10-K premarket notification application to the FDA for evolve.

<unk> with its review process. The FDA asked us to provide summary tables of certain submitted data and we look forward to submitting that information later this month.

Next to Sarah cost performance in the quarter was in line with recent trends.

Feedback from clinicians Sip, yet an expectation that stem cell transplant procedures volume will recover from the declines that occurred during the early 2022, COVID-19 case search and hospitals.

We believe this will be solved in a recovery in our non promoted graft versus host species used for payroll costs as we enter 2023 on a sequential year over year volume growth for the brand.

For <unk>, we made inroads on informing third insurgents and decisions of this new and.

The innovative treatment options for adults with deep partial thickness burns.

As we discussed last quarter, we expected uptick to be slow given that this product is a paradigm shift for burn surgeons accustomed to autograft.

We have now presented to surgeons in approximately 60% of the burn centers in the U S.

We know from those conversation that there is a real excitement in the medical community about this additional treatment options.

We are focused on ramping adoptions.

The progress has been slower than we'd like to.

Nice to see.

We are confident that we will continue to raise awareness and availability across the U S. This increase as options to follow.

Performance of Amitiza was down this quarter due.

Due to competition from authorized generic in the U S and volatility in the Japanese yen.

As we move to 2023, we will lose the royalty associated with the U S market.

Accordingly, our focus for Amitiza is shifting to the Japanese market.

Where we see continued strong utilization on their exclusivity extends to <unk> 76.

Switching gears to our specialty <unk> segment I'm pleased to report that we achieved a strong year over year growth on top and bottom lines.

This was primarily driven by the growth of the APAC business onto ADHD products.

We benefited from a favorable competitive position and we'll continue to protect the bottom line here.

We improved supply and inventory levels evaluate pricing and continue advancing near term pipeline opportunities.

Lastly, I want to emphasize that we continue to optimize the cost structure of the business during the quarter.

As we move forward, reducing costs and spending wisely, we mined important priorities.

We are working to proactively manage our balance sheet, while continuing to invest in the company's core drivers.

Our long term goal remains achieving sustainable growth and profitability.

I also want to be clear about the challenges and opportunities. We have ahead in 2023.

These include January competition for Amitiza continued spend on telling us a stripe across promotion I'm seeking to bring IMAX evolved to market.

That said, we have good visibility into these challenges and we remain confident in the outlook for the business over the long term with our performance meeting our expectations so far.

We are going to be aggressive in executing on our strategic priorities.

With that I'll turn it over to Brian to discuss our third quarter financial results.

Thank you Siggi first I'm pleased to reiterate that Mallinckrodt is now actively traded on a national exchange. We're excited to be a member of the NYSE American under the ticker symbol and then K.

And feel this will provide us additional liquidity and enhanced access for our shareholders.

Turning to our results non craft total net sales in the third quarter of 2022 were $465 million compared to $507 million in the third quarter of 2021, a decrease of seven 5%, which were largely in line with our expectations.

<unk>.

Our specialty brand segment reported net sales of $304 million as compared to $360 million a <unk>.

A 14, 7% decrease primarily due to competition across the portfolio continued scrutiny on overall specialty pharmaceutical spending and the continued stabilization of the market post COVID-19.

During the quarter Acthar gel contributed $126 million net sales, which was consistent with our expectation and underscores our confidence that the asset provides approximately $500 million and net sales in 2022.

In our critical care products IMAX declined 18% due to the continued impact of competition in the market.

We look forward to bringing the next generation device to market, which will further differentiate our product offering from the competition.

<unk> declined by roughly 3% driven by lower stem cell transplant, and new oral therapies for gvhd.

He mentioned, we expect stem cell transplant volume to recover driving sequential growth as we move into 2023.

Amitiza net sales declined 25% in the quarter driven in the U S by pressure from an authorized generic introduced last year.

And in Japan by the volatility of the yes.

We expect to lose roughly $75 million net sales in 2023.

Loss of the U S royalty with Endo.

As the market fully converts to a generic marketplace with multiple entries.

Turning to our specialty generics segment.

We reported net sales of $162 million as compared to $148 million, a nine 9% increase.

As both the API and generic dosage business saw strong growth in the quarter.

The API rebound was driven by growth in the APAC business.

As we continue to run these plants at full capacity to meet demand.

We typically see variability from quarter to quarter due to order pattern and scheduled plant shutdowns, which is expected to impact the fourth quarter.

I'm a dosage side, we saw strong performances in ADHD products.

The company's net loss for the third quarter was $285 million as compared to a net loss of $264 million.

Diluted loss per share for the third quarter was $21 58.

With adjusted diluted earnings per share of $5 25.

Non <unk> adjusted EBITDA was $166 million in the corner as compared to $186 million decrease of 10, 6%.

This was primarily due to lower net sales and increased expenses associated with the launch of stratigraphic internal events, which were partially offset by other reduction in SG&A and R&D expenses as the company continues to undertake actions to improve its overall cost structure to help offset.

Climbed in the branded portfolio.

With respect to operating metrics in the quarter adjusted gross profit as a percentage of net sales of 64, 3% driven by product mix adjusted SG&A as a percentage of net sales was 25, 2%, which is influenced by the investment in launches of <unk>.

<unk>.

Unfavorable FX rates offset by continued savings from cost containment measures and organization changes in R&D as a percent of net sales was six 1%.

The company ended the quarter with roughly $590 million of liquidity as.

As we maintain cash and cash equivalent of $391 million and.

And an undrawn $200 million accounts receivable credit facility.

Total principal debt outstanding at the end of the third quarter was $3 $5 $84 billion with net debt of $3 $193 billion.

During the quarter and through the date of this call, we repurchased $21 million.

<unk> lien notes due in 2025, and 2029 below par capturing $8 $7 million of discounts.

As <unk> indicated and as we stated last quarter. We anticipate the next 12 to 18 months to be the trough for the company from an adjusted EBITDA and cash flow perspective as well.

These are expected to decline in 2023, due primarily to the loss of the Amitiza U S royalty stream.

Investments and launches of <unk> strata graft and the planned launch of the next generation nitric oxide delivery device IMAX evolve.

These items, coupled with a high cost of debt and structured settlement I think our focus on cost containment strong cash management and deleveraging the balance sheet, even more important as we move forward.

We remain very focused on our upcoming debt maturities and are committed to improving our balance sheet over time, we see improving our balance sheet is a key component to unlocking value for the organization and these improvements can come in a variety of different path, including repurchases of debt at a discount as we did during the quarter.

<unk>.

Potential self noncore asset.

Execution and cash generation from a doesn't it.

And potential refinancing transaction.

Overall, I'm pleased with the execution of the business in the quarter and the steps we are taking.

Yes, the company for a strong future.

I'll hand, the call back to <unk> for some closing remarks.

Thank you, Brian I want to reiterate my belief that mallinckrodt today has a strong foundation underpinned by significant liquidity meaningful cash flows from operation.

Solid U S commercial platform and competitive positioning in critical care and immunology.

Third quarter was my first full quarter as the company's CEO and it was gratifying to be able to really dig in and start to see our strategy play out.

We have a high visibility into our has been some challenges ahead, and we remain committed to delivering on our goals in turning the business around.

We are exactly where we said we would be last quarter and expect to deliver on our guidance for the full year.

By executing on near term priorities continuing to re energize our organization I'm delivering four stakeholders Mallinckrodt has a strong future ahead developing therapies designed to improve outcomes for patients.

With that.

We now open for Q&A.

Thank you.

As a reminder, ladies and gentlemen to ask a question you would need to press star one one on your telephone.

Thats Star one wanted to ask a question.

Please standby, while we compile the Q&A roster.

Okay.

At this time it appears we don't have any questions.

We certainly are.

I understand.

Thanks Siggi. Thanks, Thanks to water certainly I appreciate your assistance. This morning, and obviously thanks to all of you that are on the call and interest that you guys have shown in the company. We certainly look forward to engaging with you guys in the coming days and weeks ahead.

Obviously, if you have any questions today throughout the process.

Please reach out to Derek or myself, and we'll get back with you guys as soon as possible all the best to you and your families into how can I say thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

[music].

[music].

[music].