Mallinckrodt plc Q1 2023 Earnings Call

[music].

Yes.

[music].

Okay.

Good day, and thank you for standing by welcome to the Mallinckrodt first quarter 2023 earnings announcements.

At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session you'll need to press star one on your telephone.

You will then hear an automated message advisor your hand is raised to withdraw your question. Please press star one again.

Please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker today, Dan Special Chiefs Investor Chief Investor Relations Officer. Please go ahead.

Thank you Catherine I'd like to welcome each of you to the call today.

Good morning.

So you're almost done and CFO Bryan reasons.

Siggi will start with an overview of the business performance and Brian will take you through the financials before we begin let me remind you that this morning, you'll hear us make some forward looking statements.

It's possible that actual results could be materially different from our stated expectations.

Please note. These forward looking statements are made as of today and we assume no obligation to update them, even if the events new information or the actual results or future expectations change materially.

We encourage you 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.

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 first quarter ended on March 31, 2023, and the comparative period, we'll be discussing this morning is the predecessor quarter ended April one 2022.

As a result of the application of fresh start accounting the company's GAAP financial statements for the periods prior to June 16th 2022.

It may not be comparable to those periods subsequent to June 16 2022.

Unless otherwise specified net sales percentage changes, we will discuss will be on a constant currency basis with respect to our results and I'll cover reported GAAP net loss of $249 million from the first quarter.

But after adjusting for specified items, our non-GAAP adjusted EBITDA was $124 million for the quarter.

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

Thanks, Dan Good morning, everyone.

We appreciate you joining us to discuss <unk> first quarter results.

We have a solid start to 2023, and we were pleased with our overall performance in the first quarter. Despite some top line softness on abstract yet.

Brian will provide details on our financial results later in the call.

I'll kick things off with updates on the business and progress of our strategic initiatives.

As we have discussed we are focused on three priorities to stabilize the business in the near term and position Mallinckrodt for long term sustainable growth.

Strengthening the balance sheet stabilizing our portfolio.

I'm, making the right investment.

Lynn.

We again increased our cash on hand, demonstrating that disciplined cost management and strengthening the balance sheet are top of mind in every decision we make.

It is great to see further improvement on this correct.

We have sales growth in the specialty generics segment this quarter underscoring the quality of our products and services.

Well after the unique advantage of our domestic supply capabilities.

In specialty brands clearly bus was again a highlight as we continue to gain formulary inclusion in hospitals and so high levels of interest from the medical community.

Ill share more details.

On that.

<unk>.

Separately, we are working very closely with the FDA on a five 10-K premarket notification application for iron amongst.

The next generation delivery system of IMAX.

We remain on track for the planned launch late this year.

Interest levels for the launch of this new option continued to be encouraging and we are focused on preparing to successfully bring IMAX it well to the market.

Dialing in to our performance across our business segments during the quarter beginning with specialty brands.

I'll start with Okta.

We were disappointed with its products' net sales performance in the quarter, which was driven primarily by continued scrutiny on overall specialty pharmaceutical spending and the entrance of new competition in 2022.

Softness in the quarter also came from a slower than expected returning patient volumes driven primarily by affordability.

Notwithstanding after remains a critical product and mallinckrodt portfolio and future.

Both for its high clinical value to patients.

Favorable precision with prescribers.

We expect these pressures will continue to have an impact on us because performance throughout 2023.

That said, we will continue to work closely with prescribers and payers to expand appropriate patient access.

Well as address affordability with Payors.

We remain confident in access long term prospect.

We'll also continue to drive the submission of the Ogden next generation delivery device pending resolution of third parties regulatory matters. We have previously mentioned.

Now, let's turn to an ongoing loans in our branded portfolio at current levels.

Since <unk> became the first and only FDA approved therapy to improve kidney function and that those with cheaper to renal syndrome type one last year. We have continued to see a positive momentum and significant enthusiasm from the medical community for this product.

While net sales as expected were modest in the quarter I'm glad to report that clearly was is ahead of our launch expectation to date.

We continued to gain rapid formulary inclusion at many of our targeted hospital, which accounts for 50% of U S. HRS patients demonstrating the success, we have had in our engagement with hospitals on the broader medical community.

Building on this momentum we continue to execute additional formulary reviews with hospitals that treat HRS.

Which are scheduled in the coming months.

We are already witnessing product utilization.

The <unk> benefit of this product hospital critically ill patients. We are also in the early days of assessing use it cycles for the product, which will allow us to provide an update midyear on a law.

Long term expectation for cellulose.

Moving on to IMAX, we saw sales track slightly higher versus fourth quarter that said, we expect IMAX to face persist persistent competition competitive pressure this year, but will impact revenue performance.

But in all this quarter demonstrates that the IMAX continues to be the market leader in nitric oxide for critically ill newborns.

As previously noted we look forward to bringing IMAX evolve our next generation delivery system to the market.

Now looking at <unk> one.

<unk> performance was essentially flat in the quarter from last year, we still anticipate the product will see sequential net sales growth throughout the year as it returns to our historical mid single digit growth rates.

We remain encouraged by the sustained recovery in stem cell transplant.

<unk> since the pandemic and expect the transplant rebound coupled with our geographic expansion to provide the pathway to growth over the course of 2023.

Those loans are scrubbed. The craft has been challenging we are undertaking a number of steps to strengthening the utilization.

We are pleased to report that the FDA has determined that.

Severe.

Some senior transplant Lake casino transplantation related requirements for <unk> and no longer warranted and have accordingly remove them.

This is a great step as we work on removing access barriers to adaptation for strata graft, which we continue to believe is an innovative treatment option that provides a significantly significant improvement to autograft.

We appreciate the Fda's cooperation and partnership and looking ahead, we will continue to work with burn surgeons and physicians to drive uptake.

<unk> improved pathways for reimbursement over a long term.

On Amitiza as expected we saw the impact of the U S market, becoming fully general size with multiple market entrants.

Internationally, the product continues to perform well in the Japanese market.

Now, let's turn to our specialty generics segment.

Specialty generics.

Was a strong performer in first quarter.

<unk> double digit growth versus the prior year and continued to be an integral part of our model and clubs business and an important.

<unk> diversification driver.

This strong outperformance is underpinned by a long track record and reputation for producing high quality U S manifested medicines.

Against the backdrop of disruptions in the market supply chain shortage in certain therapeutic areas, notably for ADHD product.

Is different.

<unk> put us in a unique position to step in and be a strong partner to our customers and ensure that patients continue to receive a high quality product.

During this market disruption.

We now expect specialty generics net sales to grow in 2023.

It will also improve the segment's contribution to the Companys bottom line.

On previous calls we noted that 2023 would be a pivotal year for the company.

Ongoing launches of totally vessels throughout the craft remains key priorities.

We are also excited about the potential approval and launch of our next generation IMAX evolve product later this year and we remain focused on bringing stability to actor overtime and returning <unk> to growth.

Overall.

It was a solid start to the year.

We are pleased to be able to reaffirm our full year net sales and adjusted EBITDA guidance. Despite the softer than expected performance for Rockstar, We now expect the sales to decline between 15% to 20% in 2023.

Having a well diversified business allows us to manage through these challenges and remain on track to deliver on our expectations and our strategic goals.

Our ability to navigate headwinds is truly a reflection of several land plus effort and dedication of our teams to face challenges head on.

While we still have to book, while we still have work to do our progress to date reinforces my confidence in <unk> ability to drive long term value while continue to deliver for our patients.

With that I'll hand, the call over to Brian .

Thank you Siggi I will now go into more details on our results for the first quarter.

<unk> total net sales in the first quarter of 2023 for $425 million as compared to $491 million in the first quarter of 2022, a decrease of 13% on a constant currency basis.

Our specialty brands segment reported net sales of $252 million as compared to $339 million a decrease of 26% primarily due to the impact of competition and continued scrutiny on overall specialty pharmaceutical spending.

During the quarter Acthar contributed $82 million in net sales and our critical care products IMAX generated $83 million of net sales <unk> had $59 million in net sales and <unk> reported 2 million of net sales in the quarter Lastly, amitiza net sales.

We're $25 million.

And our specialty generics segment, we reported quarterly net sales of $173 million as compared to $152 million last year, a 14% increase primarily due to growth in finished products finished dosage products and bet opioids in ADHD as the.

Broader market experienced disruptions and product quality and supply.

The company's net loss in the first quarter was $249 million.

Alluded loss per share the first quarter was $18 93.

With adjusted diluted EPS of $1 68.

<unk> adjusted EBITDA was $124 million in the quarter as compared to $177 million last year.

The decrease is primarily due to lower net sales and investments associated with the launches of <unk> strategy graph, partially offset by reductions in selling general and administration expenses.

And research and development expenses as a result of our initiatives to improve our overall cost structure.

Moving forward, we expect our SG&A expense to grow as we continue to support new product launches and reintroduce long term incentive compensation plans.

With respect to operating metrics in the quarter.

Adjusted gross profit as a percentage of net sales was 59, 9% driven by product mix.

Adjusted SG&A as a percentage of net sales was 27, 5%, reflecting the company's balanced approach on investing in our launches and cost containment measures and R&D as a percentage of net sales was six 7%.

We ended the quarter with roughly 800 $680 million of liquidity.

Reported cash and cash equivalents of $480 million, which included the receipt of the cares Act refunds.

And maintained an undrawn accounts receivable credit facility of up to $200 million.

Total principal debt outstanding at the end of the first quarter was three 5% to $3 billion with net debt of $3.043 billion.

We entered into an interest rate cap agreement during the quarter, which serves to reduce volatility on a portion of our floating interest rate exposure.

In all we are pleased with the start of the year for the business overall and our ability to reaffirm our 2023 net sales and adjusted EBITDA guidance.

We remain highly focused on improving our balance sheet in the months ahead.

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

Thanks, Brian Mallinckrodt begun the year, well and I'm confident that we will continue to make good progress throughout 2023.

I can personally attest to the strides we have made across the company to put the business into a stronger position for the future.

While we need to stay intensely focused on our goals and priorities.

Me, Great Pride to see what our teams have already achieved.

I look forward to all that rebuilding countries the remainder of the year for all patients and each other.

And with that we'll now open to that for Q1 day.

As a reminder to ask a question press star one on your telephone and wait for your name to be announced to withdraw your question Press Star one one.

Standby, while we compile the Q&A roster.

Our first question comes from Rishi Parquet from J P. Morgan Your line is open.

Thanks for taking my question is if we could just focus on <unk>, one I wanted to clarify the 15% to 20% decline that you're alluding to is that for the full year or is that for the second quarter.

For the full year.

Okay.

So I assume there is some seasonality to Q1, hence the reason why the decline is not going to be as much for the full year, but you also highlighted that there were challenges due to competition paying reimbursement challenges and obviously the pricing.

An issue.

I believe a lot of this goes hand in hand, but do you think the competition is benefiting from the higher pricing and payer reimbursement challenges or are these all separate issues and if it's all separate issues or is there a way to just bucket, where the probably the where the pressure's coming from is it mostly from a competitive standpoint, mostly.

From payer reimbursement challenges et cetera.

Yes. So great question. So let me start and then Brian I think will add to it so overall obviously.

Quite a complex product. It has multiple indication is promoted in quite a few therapeutic areas.

Inc.

The opportunities what we have seen as we have seen a stabilization in naive patients uneven growth in nave patients, but it is really a big step forward versus previous years, we have seen that now over the last two quarters and are really happy to see that improvement in the business.

We I mentioned in the prepared remarks, it's the returning patients that have been a challenge for us in the first quarter, the returning patients or patients that have been on drug sometime in the last few years and the re.

Getting a prescription again, we feel and we have looked into this that the key reason for that is the restructuring of Salesforce that we did early in 'twenty two.

We've restructured the sales force. So we now have a sales rep that visit all therapeutic areas. So they're geographically put down but they focus the all therapeutic areas within that geographic and.

And we think that upset the returning patients because of relationship with the doctors, we already see that.

Improving significantly in April so we feel really good about where we are coming out now on the returning it's much more stable as we see after the first quarter. So thats. The key reason obviously there is a competition in the market that came to the market last year.

We see that the market has grown a little bit the overall market has grown a little bit due to that but clearly obviously when you get the competition on a product like okta, we will feel it but probably the biggest impact is the affordability.

Issue.

Because you need a pre approval for reimbursement for every prescription.

These are patients that are getting with have gone through multiple therapies before they go on Oxnard, we assume that there are multiple clinical trials. How important. This product is so we are working very very hard with the payers to find the opportunity for the right patients to get reimbursement for this product. So that's <unk>.

Ongoing talent it is a big challenge it has been the challenge over the last few quarters, but we feel now we understand how we need to work where the focus is and also what are the right patients that benefit from Aztec.

And I think just to touch on your.

One point around seasonality it is hard to bucket exactly but if you look back historically.

Yes, the first quarter has been the lower quarter because of seasonality and that's really impacted by benefit plan reset and typically.

Once the once you get through.

The holiday season.

Yes, it takes a little bit before kind of ordering reserve. So I think you could probably look back historically and see the seasonality impact.

And then you mentioned affordability many times.

I get that Youre talking to the payers to determine what are the best options, but.

What are the initiatives that you're implementing to address the affordability aspect.

So we are looking at everything.

As to understand what patients benefit the most basically working with the payers to get the patients that really need occupied at the end of the day to get them to.

Get them reimburse that's the main thing for us obviously the patient scope.

So that we understand very well where actual payrolls. After 17 years on the market. There is a deeper understanding and through our clinical programs. There's also a deep understanding with doctors, but the main thing is with the payers to understand what patients should really get doctor at the end of the day.

And that 15% to 20% guide for this year does that fully adjust for all of these initiatives that you are talking about the full success of these initiatives or is it just partial success of these initiatives and then there is incremental upside.

No.

We are obviously guiding 15% to 20 <unk> based on the initiatives. We are taking on today of course.

And then just lastly on.

On the new delivery method.

At what point do you just decided that youre not going to move forward with this partner given their challenges and you're just going to move to another partner and if you were to do that what is the turnaround time to actually getting that because it seems to be an important part of your strategy. Here is this another year to two years out or do you think you could actually accelerate that.

No.

You can trust us on that there's no stone left unturned in bringing this product as quickly as we can to the market. Obviously I can't talk about the detailed strategy behind that but you can be assured we are doing everything possible to bring this important treatment to the patients as quickly as we can.

Great I'll hop back out thank you.

Great. Thanks appreciate it.

Operator any other questions.

Im showing no other questions in the queue.

Okay, Great. We'll go ahead and wrap them.

Thanks, Thanks, Doug Thanks, Catherine I want to thank you all for your interest in now incredibly look forward to engaging with you all in the coming days ahead. If you have any question that the best way to get a hold of Derek and I today will be AML and we'll obviously work to get back with you guys as quickly as possible. Thanks for your interest and have a nice day.

This.

Today's conference call. Thank you for participating you may now disconnect.

Okay.

[music].