Q2 2024 Mallinckrodt PLC Earnings Call

Speaker Change: Good day and thank you for standing by and welcome to Malinckrodt Q2 2024 Earnings Announcement. At this time, all participants are in listen-only mode.

Operator: Announcement. At this time all participants are on listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising 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, Derek Bells, Vice President of Investor Relations. Please go ahead.

Speaker Change: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.

Speaker Change: I would now like to hand the conference over to your speaker today, Derek Bells, Vice President of Investor Relations. Please go ahead.

Derek Bells: Thank you, operator, and welcome everyone. With me this morning are Malinckrodt CEO Siggy Olson and CFO Brian Reed. Before we begin, let me remind you that we will make forward-looking statements on this call, and it's possible that actual results could be materially different from our stated expectations, even in the event of new information or if 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.

Speaker Change: Thank you, operator and welcome everyone. With me this morning are Malinckrodt CEO , Stiggy Olson and CFO , Brian Reasons.

Derek Bells: We will also provide select non-GAAP-adjusted measures related to our financial performance on this call. A reconciliation of these non-GAAP measures is included in our earnings release, which can be found on our website, Malinckrodt.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 second quarter ended on June 28, 2024, and the comparative periods we'll be discussing this morning are the predecessor quarter ended June 30, 2023, and the sixth month ended June 30, 2023. Additionally, unless otherwise specified, the net sales percentage change we discussed will be on a constant currency basis.

Speaker Change: Before we begin, let me remind you that we will make forward-looking statements on this call. And it's possible that actual results could be materially different from our stated expectations.

Speaker Change: Please note these forward looking statements are made as of today and we assume no obligation to update them.

Speaker Change: Even in the event of new information or if 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.

Speaker Change: We will also provide select non-GAAP-adjusted measures related to our financial performance on this call. A reconciliation of these non-GAAP measures is included in our earnings release, which can be found on our website, malinckrodt.com.

Speaker Change: 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.

Speaker Change: As noted in our earnings release, our second quarter ended on June 28, 2024, and the comparative periods we will be discussing this morning are the predecessor quarter ended June 30, 2023, and the sixth month ended June 30, 2023.

Speaker Change: Additionally, unless otherwise specified, the net sales percentage change we discussed will be on a constant currency basis.

Derek Bells: With that, I will now turn the call over to Ziggy. Ziggy? Thanks, David.

Ziggy Olson: Thanks, Derek, and good morning everyone. It's great to be with you today.

Speaker Change: With that, I will now turn the call over to Siggy. Siggy? Thanks, Derek. Good morning, everyone. It's great to be with you today.

Ziggy Olson: We thought it was appropriate to hold a call this quarter given the zero-cost transaction we announced yesterday, our recent launch of SelfJet, and the significant progress we are making as we continue to strengthen our business and deliver on our strategic priorities. I'm happy to report that we delivered meaningful net sales growth and adjusted EBITDA growth in the second quarter. Our performance in the first half of the year reflects strong execution from our team as we continue to stabilize the base business and position Malinckrodt for steady growth. As a result of our ongoing momentum, I am pleased that we are raising our full year 2024 net sales guidance by approximately 5% and that you are still EBITDA guidance by over 10% at the midpoint.

Speaker Change: We thought it was appropriate to hold a call this quarter given the Zerocost transaction we announced yesterday. Our recent launch of self-checked

Speaker Change: and the significant progress we are making as we continue to strengthen our business and deliver on our strategic priorities.

Speaker Change: I'm happy to report that we delivered a meaningful net sales growth and adjusted EBITDA growth in the second quarter.

Speaker Change: Our performance in the first half of the year reflects a strong execution from our team as we continue to stabilize the base business and positioned Malinckrodt for steady growth.

Speaker Change: As a result of our ongoing momentum, I am pleased that we are raising our full year 2024 Net Sales Guidance by approximately 5% and that we are still in EBITDA Guidance by over 10% at the midpoints.

Ziggy Olson: Turning to our business segments, I'll start with specialty generics, which achieved the sixth consecutive quarter of double-digit net sales growth. Our sustained momentum underscores Malinckrodt's track record as a reliable and consistent producer of high-quality products. We are one of the only large-scale domestic vertically integrated manufacturers of high quality generic medicines and active pharmaceutical ingredients or APIs. This differentiates us in terms of both quality and consistency of supply in the marketplace, which is challenged by both, as well as quota uncertainties.

Speaker Change: We are one of the only large-scale, domestic, vertically integrated manufacturers of high-quality generic medicines and active pharmaceutical ingredients or APIs.

Speaker Change: This differentiates us in terms of both quality and consistency of supply in the marketplace that is challenged by both, as well as quota uncertainties.

Ziggy Olson: Even though we more than doubled our net sales from ADHD products on a year-over-year basis, the market continues to experience shortages of these important medicines. So, we are investing this year to add capacity to our API production and expand our manufacturing capabilities for finished-dose products. We expect these investments will help to increase access to these important ADHD therapies in 2025. And, of course, we remain committed to the responsible manufacturing of controlled substances and the continuous improvement of our already robust compliance program. Each of these factors gives us confidence in our ability to sustain growth in this business for the rest of the year and for the foreseeable future.

Speaker Change: We expect these investments will help to increase access to these important ADHD therapies in 2025.

Speaker Change: Each of these factors give us confidence in our ability to sustain growth in this business for the rest of the year and for the foreseeable future.

Ziggy Olson: Let me now talk about the specialty brand segment, where ActaGL has been a success story this year. We delivered growth for the second quarter in a row, driven by solid demand and positive prescriber momentum in the category. Asta remains an important product in Malinckrodt's portfolio, both because of its high clinical value to patients and its favorable position with prescribers. We believe the improvement we have seen this year reflects the continued need and appreciation for us. We are also proud to share that Malinckrodt recently launched Aftergl Cell.

Speaker Change: We are also proud to share that Malinckrodt recently launched Aftergl Cell Dirt.

Ziggy Olson: This is our new single-dose injector device. It provides patients a convenient and easy way to administer Axar when managing challenging chronic and acute inflammatory and autoimmune conditions. This launch demonstrates our continued investment to enhance the Achtar brand for patients and we believe self-care will drive continuity of care, differentiation and further category growth. Moving to TURLUOS, the first and only FDA approved therapy to improve kidney function in adults with hepatorenal syndrome type 1, or HRS, with a rapid reduction of kidney function.

Speaker Change: It provides patients a convenient and easy way to administer AXA when managing challenging chronic and acute inflammatory and autoimmune conditions.

Speaker Change: This launch demonstrates our continued investment to enhance the Akhtar brand for patients and we believe self-care will drive continuity of care, differentiation and further category growth.

Ziggy Olson: We continue to focus on our launch and expanded adoption of TUR-Livers as a preferred first-line treatment for HRS patients in need through patient identification and physician education. While uptake has been somewhat slower than anticipated, we continue to be excited about the importance of this therapy for patients in need. We have increased our team of dedicated sales representatives to 45 who are working closely with hepatologists, nephrologists, and intensivists to raise awareness and adoption of Turlivar.

Speaker Change: We continue to focus on our launch and expanded adoption of terlivers as a preferred first-line treatment of HRS patients in need through patient identification and physician education.

Speaker Change: While uptake has been somewhat slower than anticipated, we continue to be excited about the importance of this therapy for patients in need.

Speaker Change: We have increased our team of dedicated sales representatives to 45, who are working closely with hepatologists, nephrologists, and intensivists to raise awareness and adoption of Turleybus.

Ziggy Olson: We have also secured formulary inclusion at more than 230 hospitals to date, which will facilitate access and reimbursement for this important therapy. With INOMAX, we initiated the pilot rollout of our INOMAX Evolve DS delivery system in hospitals in first quarter. As a reminder, EVOLVE is our next generation delivery system for INOMAX intended to help to meet the evolving needs of neonatal intensive care units. We progressed our rollout during the second quarter and we look forward to the commercial rollout planned for the current quarter. While our INOMAX DSIR Plus has continued to face competition from alternative nitric oxide products.

Speaker Change: With Inomax, we initiated the pilot rollout of our Inomax Evolve DS delivery system in hospitals in first quarter.

Speaker Change: As a reminder, E.V.O.L.V.E. is our next generation delivery system for INOMAX intended to help to meet the evolving needs of neonatal intensive care units.

Speaker Change: We progressed our rollout during the second quarter, and we look forward to the commercial rollout planned for the current quarter.

Speaker Change: While our INOMAX DSIR Plus has continued to face competition from alternative nitric oxide products, INOMAX EVOLVE is being well received with positive feedback from our pilot hospitals.

Ziggy Olson: Inomox Evolve is being well received with positive feedback from our pilot hospital. We believe EVOLVE will strengthen our competitive position and increase customer satisfaction and loyalty. Ferrocost performed well in the second quarter, meeting our expectation of mid-single-digit growth.

Speaker Change: We believe EVOLVE will strengthen our competitive position and increase customer satisfaction and loyalty.

Speaker Change: Theracords performed well in the second quarter, meeting our expectation of mid-single-digit growth.

Ziggy Olson: Our team continued advancing our ongoing initiatives to expand the label and enter new geographies. Most recently, we achieved an important milestone in June when the EU approved a CE certificate for the therapy. While on the subject of Theracos, yesterday, we were pleased to announce that we had entered into a definite agreement to sell the Theracos business to CVC Capital Partners for a purchase price of $925 million, subject to a customary adjustment. CBC also made a binding commitment to acquire the shares of Ferocos SAS, the company operating the Ferocos business in France.

Speaker Change: Our team continued advancing our ongoing initiatives to expand the label and enter new geographies. Most recently, we achieved an important milestone in June when the EU approved a CE certificate for Theracos.

Speaker Change: While on the subject of Theracords

Speaker Change: Yesterday, we were pleased to announce that we have entered into a definite agreement to sell the Theracross business to CVC Capital Partners for a purchase price of $925 million, subject to a customary adjustment.

Speaker Change: CVC also made a binding commitment to acquire the shares of Ferrocos S.A.S., the company operating the Ferrocos business in France.

Ziggy Olson: The binding agreement with CBC in relation to the shares of that business will become effective after the satisfaction of the local information required. We intend to use the proceeds to eliminate more than 50% of Malinckrodt's net debt. This will meaningfully advance our strategic priority to further optimize our capital structure. This transaction is also a positive outcome for the Theracords business and the patients, providers, and healthcare partners it serves. Looking ahead, we expect the transaction to close in the fourth quarter of this year, subject to regulatory approvals and other customary closing conditions.

Speaker Change: The binding agreement with CBC in relation to the shares of that business will become effective after the satisfaction of local information requirements.

Speaker Change: This transaction is also a positive outcome for the Theracords business and the patients, providers and healthcare partners it serves.

Speaker Change: CBC is a leading investment firm with deep expertise in healthcare.

Speaker Change: Under CVC's ownership, the Theracords business is expected to benefit from additional investment in research, development, indication expansion, and geographic expansion.

Speaker Change: Key employees who work on Theracos will join CBC and continue supporting the product and its stakeholders.

Speaker Change: Looking ahead, we expect the transaction to close in the fourth quarter of this year, subject to regulatory approvals and other customary closing conditions.

Speaker Change: We are very proud of what we have achieved with Theracos, and we are confident that it will continue to thrive under the CVC's ownership.

Speaker Change: With that, I'll turn the call over to Brian to discuss our financial performance and EarthDate full year outlook in more detail.

Brian Reasons: Melinckrodt's total net sales in the second quarter of 2024 were $514 million, as compared to $475 million in the second quarter of 2023, an increase of 8.4%.

Brian Reasons: For the first half of the year, total net sales were $982 million, up 9.2% compared to last year.

Brian Reasons: Net loss for the second quarter was $43 million as compared to net loss of $748 million in the prior year period.

Brian Reasons: and improvement of 94.2%.

Brian Reasons: For the first half of the year, net loss was $109 million, as compared to $997 million in the first half of 2023.

Ziggy Olson: This 20.8% increase was driven by continued strength in the specialty generic segment, the launch of Terra La Vez, and the continued strength of Theracore.

Brian Reasons: This 20.8% increase was driven by continued strength in the Specialty Generics segment.

Brian Reasons: as well as continued stabilization in Axar gel and growth in Theracos, partially offset by the impact of Inomax competition.

Brian Reasons: For the first half of the year, adjusted EBITDA was $319 million, up 19.2%.

Brian Reasons: This reflects a decrease of 2% on a reported basis and 1.9% on a constant currency basis.

Brian Reasons: primarily due to continued competition from alternative nitric oxide products on Inomax, partially offset by continued demand stabilization for Actar gel.

Brian Reasons: The launch of Terlabaz and the continued strength of Theracos

Brian Reasons: AXAR GEL net sales were $118 million as compared to $117 million in the prior year.

Brian Reasons: In our critical care products, Item X generated net sales of $66 million, a decline of 13.7% compared to prior year period.

Brian Reasons: TurlaVaz generated net sales of $5 million, an increase of 55.9%.

Brian Reasons: CERECA has generated net sales of $67 million and increases 7%.

Brian Reasons: The Specialty Generics segment recorded net sales of $240 million as compared to $195 million in the prior year.

Brian Reasons: This 23% growth was due to rising demand for our finished-dose products as the market continued to experience constraints and shortages.

Brian Reasons: With respect to operating metrics in the quarter, adjusted gross profit as a percentage of sales was 65.2% as compared to 62.8% in the second quarter of 2023.

Brian Reasons: Adjusted SG&A as a percentage of net sales was 25.9% as compared to 26.5% in the prior year, reflecting the company's balanced approach on investing in our launches and cost containment measures.

Brian Reasons: Turning to our balance sheet, we ended the quarter with cash and cash equivalents of $291 million, up from $253.6 million at the end of the first quarter.

Brian Reasons: We ended the quarter with outstanding total principal debt of $1.64 billion and outstanding net debt of $1.35 billion.

Brian Reasons: As Siggy mentioned, we expect to reduce net debt by more than 50% in connection with the Theracost business divestiture anticipated to occur in the fourth quarter of this year.

Brian Reasons: We are pleased to be raising our full year 2024 guidance. We now expect total net sales of between $1.9 and $2 billion, reflecting an increase of 5.4% at the midpoint.

Brian Reasons: We expect to generate adjusted EBITDA of between $585 million and $615 million, reflecting an 11.1% increase at the mid-cost.

Brian Reasons: I'm now handing the call back to Siggy for some closing remarks.

Siggy: Thank you Brian. Malliqat had a strong first half of the year as we executed on our strategic priorities and achieved important milestones.

Siggy: We're delivering on the plan we laid out last year, and I'm confident that we are poised to continue building on this momentum through the rest of the year and into the future.

Siggy: And with that, we'll open the call up for if we have any questions, Justin. Thank you.

Justin: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced.

Justin: To withdraw your question, please press star 1 again.

Justin: And I am showing no further questions.

Justin: I would now like to turn the call back over to Derek Bell for closing remarks.

Derek Bell: Thank you, Justin, and thank you all again for joining us today. We look forward to engaging with you in the coming days and weeks ahead. If you have any questions, the best way to get ahold of us is via email, and I'll work back to get to get to you as soon as possible. Thanks again and have a great day.

Speaker Change: And thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Speaker Change: Bye-bye.