Q4 2022 Mallinckrodt PLC Earnings Call

Speaker 1: you

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Speaker 3: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today.

Speaker 4: Dan Special, Chief Investor Relations Officer. Please go ahead. Thank you, Tanya. And I'd like to welcome everybody to today's call. With me this morning are our CEO , Siggy Oldson.

Speaker 4: Please note these four looking statements are made as of today and we assume no obligation to update them, even in the event that new information or factual results for future expectations change materially. Please note these four looking statements are made as of today and we assume no obligation to update them, even in the event that new information or factual results for future expectations.

Speaker 4: We encourage you to refer to the cautionary statements contained in our FCC filings for a more in-depth explanation of the inherent limitations of such forward-looking statements. We also provide selected non-GAAP adjusted measures related to our financial performance.

Speaker 4: A reconciliation of these non-GAAP measures is included in our earnings release, which can be found on our website, malincroft.com.

Speaker 4: And you should look at the investor relations page of our website for this information.

Speaker 4: As noted in our earnings release, our fourth quarter ended on December 30, 2022, and the comparative period we will be discussing this morning is the predecessor quarter ended December 31, 2021.

Speaker 4: As a result of the application of Fresh Start Accounting, the company's GAAP financial Statements for the Periods prior to June 16, 2022, the date of our emergency, are not comparable to those periods subsequent to June 16, 2022. Further, the results in the Cora Compare a normal 13-week period to a 14-week period in 2021.'

Speaker 4: While the exact quantification of the impact of the extra selling week in 2021 is extremely difficult to determine, we believe it reduced reported quarterly net sales growth rates of the company as a whole by approximately 6-9 percentage points.

Speaker 4: less otherwise noted. For the quarter, Malencrout reported a gap net loss of 250 million and a net loss of 911 million.

Speaker 4: for the 2022 fiscal year. After adjusting for specified items, our non-GAAP adjusted EBITDA was $176 million for the quarter and $675 million for the fiscal year 2022.

Speaker 4: with that offer in the call over to Siggy. Thanks, Dan. Good morning, everyone. I'm pleased to be with you today to discuss our successful quota for Malacross. I'm here some color on what is ahead for our company. I'll start by briefly touching on few key highlights about our full year performance.

Speaker 4: as well as guidance for 2023 later in the call, but I wanted to kick things off with these positive results as they tie directly back to our strategic initiatives.

Speaker 4: As you may recall, we have been focused on executing our three near-term strategic priorities.

Speaker 4: strengthening the balance sheet, stabilizing our portfolio and making the right investment in our pipeline.

Speaker 4: We are beginning to see evidence of solid execution of these initiatives in the full-year results.

Speaker 4: We achieved net sales at the high end of our guidance range, reflecting our team's efforts to stabilize the portfolio, and EBDA exceeding our guidance range as we continue to focus on discipline cost controls and making thoughtful investment in our pipeline.

Speaker 4: We also saw a slight increase in cash on hand during the fourth quarter. I believe our liquidity will allow us to continue making important investments in the business. For our portfolio, we made a solid progress in the launch of televerse. And we continue to see a strong engagement from clinical community.

Speaker 4: on the role of televerse in treating and reversing hepatocrenal syndrome, including discussion of telepressing in a 2023 review article from the New England Journal of Medicine.

Speaker 4: Early clinical consensus appears to align with public clinical guidelines, which recommended the use of polyverse as a first line therapy for appropriate patients. We also recently welcomed Dr. Peter Wixertson, our chief scientific officer, to oversee efforts

Speaker 4: advancing proper development dumpling two molecule.

Speaker 4: We are fortunate to have him on board. We made good progress throughout the year in achieving other key objectives.

Speaker 4: including putting in place a full management team, adding industry leaders to the board of independent directors, and working to reinvigorate our company's culture. 2023 is a pivotal year for the company.

Speaker 4: and we stand ready to navigate the opportunities on the challenges we have ahead of us. I am pleased with our efforts to date.

Speaker 4: and I have a great confidence in Marlin Cross long-term ability to drive value for stakeholders. Now let's do a deeper dive on the performance across the business segments during the fourth quarter, beginning this specialty branch.

Speaker 4: First up is actor gel, which we believe is showing an early sign of stabilization.

Speaker 4: We were pleased to see the overall market for active growth slightly in 2022.

Speaker 4: We are also encouraged by the stabilization in patient demand and continue to work with payers to ensure appropriate access for patients that need this therapy. With our continued commitment to the product, actor remains a top choice for prescribers and we are continuing to work closely with them to make this therapy available.

Speaker 4: to ask many appropriate patients as possible. That said, there is a competition in the market which is expected to continue to have an impact on performance in 2023, where we anticipate the product of revenue will decline for roughly 10% from 2022.

Speaker 4: As mentioned last quarter, development of our actor next generation delivery device has been completed. But we do not anticipate a launch in 2023. We continue to work towards the resolution of a regulatory master involving one of our partners not specific to our device.

Speaker 4: We remain optimistic about the important role the device will play in our portfolio if approved, an easier and more patient-friendly version of actors till for single unit doses.

Speaker 4: We'll continue to update you on any developments on the resolution of the third party matter after the year progresses.

Speaker 4: I'm excited to share our progress with Telivus this quarter. In September of last year, Telivus became the first and only FDA approved therapy to improve kidney function in adults with HRS, with rapid reduction in kidney function, at devastating condition.

Speaker 4: with a high mortality rate. Since approval, we have been working hard to engage with hospitals to gain formulary inclusion of 30 of us.

Speaker 4: and we made a good progress in a short amount of time since the approval. As we indicated last quarter, while this process takes time, we have gained formally a approval in vast majority of those hospitals that have reviewed the product.

Speaker 4: What's more, there are over 100 additional review scheduled in the coming months. The significant enthusiasm we have hearing from the key opinion leaders community combined with a product inclusion in treatment guidelines will be key to gaining formular reactions.

Speaker 4: We expect to have more to share in the coming quarters and remain very optimistic about the future of this product.

Speaker 4: Looking at I know max this product continues to be a market leader but by our best in class I know max total scare service offering.

Speaker 4: While we continue to face competition that is expected to persist in 2020, we expect to continue to be the market leader in Nigel Gawkside for this critically ill newborn.

Speaker 4: Our top focus here is our plant lawns of Inaamx evo, the next generation delivery system of Inaamx. If approved, we remain on track to lawns this year and we are excited to bring this quarter to market. With enhanced automation and streamlined

Speaker 4: come to market and are looking forward to adding it to our offering line up later this year.

Speaker 4: Moving to the THERACOS, this is the world's only fully integrated and validated ECP system to enhance the patient's ability to find disease.

Speaker 4: This is the world's only fully integrated and validated ECP system to enhance the patient's ability to find disease.

Speaker 4: It represents a platform technology that we believe has the opportunities for geográficant expansion and potential label expansion over time. We have historically seen this product as a consistent mid to high single digit grower and it is a platform technology that we believe has the opportunities for geográficant expansion

Speaker 4: And we were pleased to see a sequential growth for terracos in 2022 as we communicated the impact of stem cell transplantation due to the pandemic.

Speaker 4: We believe we are entering 2023 on a positive note with a clear pathway to returning this product to its historical growth trajectory. For Stratocuff, the state has been well below expectation today. Despite this, the state has been well below expectation today.

Speaker 4: We still believe this innovative treatment option for adults with deep heart-caliol thickness burns has an important place for patients and doctors and provides a significant improvement to other practice.

Speaker 4: We are continuing our conversation with GERN surgeons and physicians to drive adoptions as well as working on improved pathways for reimbursement.

Speaker 4: Turning to Amitisa, our focus remains squarely on the Japanese market, the Malacrox expect exclusivity into 2026. I'm strong utilization trends continue.

Speaker 4: We will continue to see annual price reduction in the job and market under loss of exclusivity, but we expect this product to generate a good cash flow in the years ahead.

Speaker 4: As a reminder, at the beginning of the year, the US market became fully dinnerarized with multiple launches. As we stated in the prior quarter, this will result in a roughly $75 million reduction in Amatis Avoyalty's put 2023. Now let's turn to our special heat diner effect.

Speaker 4: Special HIT Ienarex continued its strong performance and has proven to be an important part of theilled

Speaker 4: We expected this to continue into 2023. As we discussed in our previous earnings call, we anticipated that our scheduled Acidamin of N or APAP production shutdown in fourth quarter would impact the performance of the product family in the quarter.

Speaker 4: But we have seen improvement in outputs from recent upgrades at its return to full operation. For the remainder of the portfolio, we have been pleased by the performance of the Finnish Stosis Products with help to offset the APEAP shutdown and the extra selling week in the prior year.

Speaker 4: Bigger picture, our specialty TNRx business continued to benefit from a wealthy-served reputation for producing high-quality generic medicines and active pharmaceutical ingredients. We are the only manufacturer of APAP in the US and we made important investment in our US manufacturing capabilities.

Speaker 4: These upgrades will benefit us over a long term, our ability to offer customers a stable supply becomes more important than ever. Our efforts in specialty DNA rigs have set us up for what we believe to be a strong 2023.

Speaker 4: We believe this business will stabilize in 2023 and has the potential to grow due to the consistency of supply and quality.

Speaker 4: We closed out 2022 with a strong performance in the fourth quarter and we are confident that we are well positioned as we kick off 2023, which will be an important year for Manacross. We have some real opportunities ahead, namely continued investment.

Speaker 4: in the launches of Terrival's AstraZecraft to support their future on looking to gain approval and launch the next generation Ina Maks evolved products. At the same time, we are prepared to face challenges this year, at SON.

Speaker 4: including the loss of royalty due to generic competition in the US for Amitisa and after competition. While there are some clear challenges to the business.

Speaker 4: I believe we are taking the right steps to mitigate these operational impacts. And we are seeing a current sign across both business segments. We expect clericals to return to growth this year. And believe our strong performance in specialty dynamics will continue.

Speaker 4: The medical communities and enthusiasm around Telibas exceeds our initial expectation, I'm very excited to drive this launch forward as 20-23 progresses.

Speaker 4: With that, I'll turn the call over to Brian . Thank you, Sege. I'll begin by walking through our results for the fourth quarter in fiscal year and more detail before turning dark expectations and guidance for 2023.

Speaker 5: Malancras total net sales in the fourth quarter of 2022 were $489 million. It's compared to $597 million in the fourth quarter of 2021, a decrease of 18% on a constant currency basis.

Speaker 5: Our specialty brand segment retoured net sales of $321 million is compared to $397 million, a decrease of 19%.

Speaker 5: primarily due to the impact of competition, reduce utilization of certain products due to the continued impacts of the pandemic.

Speaker 5: continued scrutiny on overall specially pharmaceutical spending and the impact of the extra selling week in the prior year. During the quarter, Actaard jail contributed $141 million in net sales.

Speaker 5: And our critical care products, item X generated $80 million in net sales due to the continued impact of competition in the market. We look forward to bringing the next generation device to market, which we believe will further differentiate our products from offering from competition.

Speaker 5: Starracos at $62 million in net sales, and as Ziggy mentioned, we expect this product to return to normal growth in 2023.

Speaker 5: Amaties in net sales were 34 million as we experienced continued pressure in the US from an authorized generic introduced last year. As a reminder, we still expect to lose roughly $75 million in US net sales in 2023 due to the loss of the US.

Speaker 5: with Endow as the market fully converts to a generic marketplace with multiple entries.

Speaker 5: Turning to our special generic segment, we reported quarterly net sale of 169 million.

Speaker 5: as compared to $200 million last year. A 16% decrease primarily due to a decline in the A-PAP business, which was impacted by the scheduled maintenance shutdown of our facility during the fourth quarter, and by the extra selling week in the prior year.

Speaker 5: The company's net loss for the fourth quarter was $250 million, compared to the net loss of $204 million.

Speaker 5: Deleuded loss per share for the fourth quarter with $18.94 with adjusted EPS of $4.07. Malancras adjusted E to DAW was $176 million in the quarter as compared to $232 million.

Speaker 5: This reflects the decrease of 24 percent, primarily due to lower net sales and growth in investment associated with launches of Tarlevaz and Stratagrax, partially offset by reductions in S-GNA and R&D expense as a result of the company's initiatives to improve its overall cost structure.

Speaker 5: and the favorable impact from foreign currency. With respect to operating metrics in the quarter, a just-to-grows profit is a percentage of net sales with 64 percent driven by MECs.

Speaker 5: Adjusted SGNA as a percentage of net sales with 25.2%, reflecting our investment in launches of Turlavaz and Stratigraph, offset by continued savings from cost containment measures.

Speaker 5: organizational changes and favorable effects rates. An R&D as a percentage in that sales was 6.1%. The company ended the quarter with roughly $610 million of liquidity as we maintained cash and cash equivalent of $410 million and then undrawn account receivable credit facility up to $200 million.

Speaker 5: Total for principal debt outstanding at the end of the fourth quarter was $3.534 billion with net debt of $3.125 billion. Mound crop repurchase $48 million, principal amount of its second lien notes due in 2025 to 2029. Below par capturing $21 million.

Speaker 5: of discount during the year. Now let me transition to recap the Melcroft's full year 2022 performance.

Speaker 5: The nonprofit reported full-year net sales of 1.914 billion and adjusted e to dot of 675 million. This reflects the meaningful strides we've already made to strengthen our company. The echo of SIGGI's comments, we are incredibly proud of how we finished the year. With that in mind, I'd like to give some context on the 2023 guidance shared in our earnings release this morning. As we've mentioned before, we anticipate the next 12 to 18 months to be the trough.

Speaker 5: for 2023 includes total net sales of between $1.7 billion and $1.82 billion.

Speaker 5: and adjusted EBITDAF of between $510 million and $569. Overall, I'm pleased with the execution of the business in the quarter as we progress into 2023. We mean, hugely focused on our upcoming debt materies.

Speaker 4: and continuing our effort to improve the balance sheet. I'll now hand the call back to SIGI for some close remarks. SIGI, thank you Brian . I'm extremely proud of the team's year at Malikrot. They made a tremendous push in 2022 following our emergence to build a stronger company.

Speaker 4: I'm position-miling for us for the future, all while continuing to deliver high quality therapies to critically ill patients. I know we have more work ahead of us, but I am grateful for their efforts.

Speaker 4: We are all equal to continue the work and to continue the work underway and take aggressive action to stabilize the business.

Speaker 4: a remain confident in all that we can achieve together. And the important benefit we can continue to bring to our patients.

So with that, we now open up the call for Q&A. Certainly. As a reminder to ask a question, please press star 1-1 on your telephone. Please wait for your name to be announced. To withdraw your question, please press star 1-1 again.

As a reminder to ask a question, please press star 1-1 on your phone and wait for your name to be announced. Please stand by while we compile the Q&A roster.

One moment. And our first question will come from Rishi Perrek of JP Morgan, your line is open.

Thanks for taking my questions. Sorry, John , late so I apologize if you already addressed some of these questions. One, on Thericose, you expect to return a growth this year. Can you walk us through the drivers behind this growth? Is it mostly unlabeled? But are you also, what are you baking in for the off-label growth? And then can you just give us some context around pricing for this product? Yes, so we think thanks for the question. Let me start on on.

on our call, the stem cell transplantation went down during COVID. We saw that with every wave of COVID, there was a less stem cell transplantation. And that impacted pericost approximately six to nine months later. And we saw that in the numbers. So with now, we saw that in fourth quarter, we started to rebound on the volume.

That's why we are confident in the growth that we expect to see in 2023. So maybe on the pricing brine. Not getting this specific pricing, but overall, yeah, this historically has been a fairly stable.

we have confident in the growth that we expect to see in 2023. So maybe on the pricing brine. Yeah, not getting this specific pricing, but overall, yeah, this historically is going to fairly stable brand.

Okay, and then the care stacks money. Again, I apologize if you already mentioned this. I think you're expecting to receive about 140 million. One, is there a timing as to when you expect to actually receive it? And then what do you plan on doing with this cash? Yeah, that's, I think yet just asked about our CARES Act refund. Yeah, that has gone through all the audits and everything that's required. Unfortunately we lost

Yeah, we expect that to come in at any point. Yeah, Risha, what I would add to that too is, this is a current receivable on our balance sheet. It has been for the last two quarters at this point. So obviously, hopefully we receive this and in relatively short order. Obviously, we're working with the government through that process, getting the audit completed as it was a significant step. And we believe it's just an adder as high before it's received. If I could squeeze two more in, one, can you just remind me or reiterate what your launch costs were for a stratigraph and TURL of S?

Yeah, we haven't given specifics, but you know, if you look at our financials, you can see that last year probably close to 50 million. 50 million. Yeah, and I think as we move into 2023, obviously Rishi, I mean, we're full launch on TurboVaz at this point and we want to make sure that we invest appropriately in that to be able to get that off of the ground and launch appropriately. So, fair to assume is our level of investment will increase now that we're...

how should we think about the jump off from your trophy but not going forward is it and then you know long term you know when you think about ebada do you expect to see you know you're maxing it out at evaluation of a seven handle in ebada eight handle what do you think ebada is going to go when you start to think about the

the ramp up in all these in your two main drugs or new drugs, sorry. Yeah, so let me start by talking a little bit where the EBITDA comes from from this point from the kind that's this here. I think the reason why we're optimistic is, first of all, we have two new launches. Probably a bigger opportunity is telling us we will have more information throughout the year when we hear back from the P&T committees on the formulary situation that have that.

So we are excited about it. I think we're getting all the right sign back, but what we have promised investors that hopefully by mid-year or so, we can start to talk about the potential for televerse. And what the learned lawns curve will be for that product, because the formulary is so important in the lawns curve on how quickly we have seven years of exclusivity for this product. We're excited. We're working as fast as we can to deliver that to the market, but that will be a key and critical.

that. We are still expecting that to be delivered in to loans in 2024. Obviously, there are regulatory challenges with our partners that they are working on overcoming and we are supporting. But overall, that's the next step. Third thing which we are excited about is the evolve. We are expecting to launch the evolve later this year.

Evolve will be the next generation of I know max devices. That I think will again help us to stabilize the I know max franchise. You know, we have the total care which differentiate with the competitors.

that we have been open about us as any competition impacts the pricing of the quarter. So bringing evolved to the market will even further help us to stabilize. And then last but not least, we are still the curious Olympic out on Stratagra. We are excited about it. We see some take in the quarter.

But this is an amazing opportunity. I think this is a new science and technology to bring to the burn units, onto the burn surgeons. The key opinion leaders are excited, but it takes a little bit more time than we expected to get us into the practice in the burn units. So with all these things in place, plus you've seen over the last few quarters the stabilization of the generics, we are excited that, you know, 2023, the impact of the decline of actor and the impact

you know, we'll be able to give you a better kind of jumping off point at the end of the year.

Great. Next, receiving your other question. Thank you very much.

Thanks for receiving any other questions. One moment for our next question.

And our next question comes from Brendan Hall of Brain Affet Management. LLC, your line is open. Morning. I just wanted to confirm on the prior version that's 50 million lodge for each drug or for both to verify that.

No, that'd be key motive. Yeah. The second question is on the opioid trust and prepayment. I believe there's an 18 month extension opportunity to prepay that. I want to know how you guys are thinking about that. I think the current would.

opportunity to buy back debt and how you think about that for the capital. Yeah sure, so it's a little difficult to hear you but I think maybe just to summarize, the question was with respect to the opioid trust and the possibility of prepayment and really just broadly thinking about capital allocation. Yeah, I mean great question. When we negotiated that we put in an 18 month period that we could prepay that as a significant discount. Clearly the...

capital markets shifted since then. So we still have that opportunity but we're looking at the capital structure holistically monitoring the capital markets. So from a capital allocation if that's the best return on our use of liquidity, we'll do that. But certainly, delivering in other areas of our cap structure have become very attractive as well.

So, but we have 18 months from emergence to capture that discount. And how are those payments? And the structures up here, so for example, 200 million, do you have 20,000? Yeah, I think, I think, yes, how the payments are structured without a discount that we'd have. We had a, at emergence, we had a $400 million payment. And then on each, the next two anniversaries, we had 200 million and 200 million, and then 115 it scaled down from there.

but we have 18 months from emergence to capture that discount. And how are those payments and the structures up here? So for example, 200 million, do you have 20,000? Yeah, I think, I think, yes, how the payments are structured without a discount that we'd had. We had a, at emergence, we had a $400 million payment and then on each, the next two anniversaries, we had 200 million and 200 million and then 150 and it scaled down from there.

Any other questions? Any other questions for them? No, yeah. My question was just, understand that schedule, just if you pay above and beyond that, you capture the discount for any amount of the page. That would be a genocid. Yes, technically that is how that would work. And you have to be paid more that would apply against the back end of the payment. That is for head of discount. That is correct. Got it. Okay, offering any other questions?

And I'm showing no further questions. I would now like to hand the call back to Dan for closing remarks. Thanks, appreciate it. And thank you all for your interest in Malancrod. We anticipate filing our Form 10K in the coming days. As a reminder, we'll be attending the Cowan Health Care Conference next week for those attending the report to Senual. If you have any questions or interested in meeting with us next week, let us know when we're happy to help. The best way to get a hold of us today will be via email. And Derek and I will work to get back with you all as soon as possible.

All the best for you and your families and have a nice day. Ladies and gentlemen, that concludes today's conference. Thank you for participating. You may now disconnect. The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 11.

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