Mallinckrodt plc

Good day, and thank you for standing by, and welcome to Mallinckrodt Q2 2024 earnings announcement. At this time, all participants are in 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 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. I would now like to hand the conference over to your speaker today, Derek Bells, Vice President of Investor Relations. Please go ahead.

Thank you, Operator, and welcome, everyone. With me this morning are Mountain Cross CEO, Stiggy Olson, and CFO, Brian Reasons. 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. Please note these forward-looking statements are made as of today, and we assume no obligation to update them. 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. 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, malincron.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 six-month ended June 30, 2023. Additionally, unless otherwise specified, the net sales percentage change we discussed will be on a constant currency basis. With that, I will now turn the call over to Sigi.

Sigi? Thanks, Derek, and good morning, everyone. It's great to be with you today. We thought it was appropriate to hold a call this quarter given the zero-cost transaction we announced yesterday. Our recent launch of self-debt 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 a meaningful net sales growth and adjusted EBITDA growth in the second quarter. Our performance in the first half of the year reflect a strong execution from our team as we continue to stabilize the base business and positioned Malincroft for steady growth. As a result of our ongoing momentum, I'm pleased that we are raising our full year 2024 net sales guidance by approximately 5% and the EBITDA guidance by over 10% at the midpoints. 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 Malikrot'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 that is challenged by both, as well as quota uncertainties. 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 the 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 under continuous improvement of our already robust compliance programs. 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. Let me now talk about the specialty brand segment, where Akhtar Gel has been a success story this year. We delivered the growth for the second quarter in a row, driven by a solid demand and positive prescriber momentum in the category. AFTAR remains an important product in Malincroft'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 AFTAR. We are also proud to share that Malincroft recently launched AFTAR-GL-Celtic, This is our new single-dose injector device. It provides patients a convenient and easy way to administer ACT-R when managing challenging chronic and acute inflammatory and autoimmune conditions. This launch demonstrates our continued investment to enhance the ACT-R brand for patients, and we believe self-test will drive continuity of care, differentiation, and further category growth. Moving to TURLIVAS, 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. We continue to focus on our launch and expanded adoption of TURLIVAS as a preferred first-line treatment of 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 Turlevas. 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 INAMAX, 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 INAMAX DSIR Plus has continued to face competition from alternative nitric oxide products, INOMOX Evolve is being well received with a positive feedback from our pilot hospitals. We believe Evolve will strengthen our competitive position and increase customer satisfaction and loyalty. Theracos performed well in the second quarter, meeting our expectation of mid-single-digit growth. 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. While on the subject of Theracos, yesterday we were pleased to announce that we have 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. CVC also made a binding commitment to acquire the shares of Ferrocos SAS, the company operating the Ferrocos business in France. The binding agreement with CVC in relation to the shares of that business will become effective after the satisfaction of local information requirements. We intend to use the proceeds to eliminate more than 50% of Malincrot'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 Theracos business and the patients, providers, and healthcare partners it serves. CVC is a leading investment firm with deep expertise in healthcare. Under CVC's ownership, the Theracos business is expected to benefit from additional investment in research, development, indication expansion, and geographic expansion. Key employees who work on Theracos will join CVC and continue supporting the product and its stakeholders. Looking ahead, we expect the transaction to close in the fourth quarter of this year, subject to regulatory approvals and other customary closing conditions. 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. With that, I'll turn the call over to Brian to discuss our financial performance and update full year outlook in more detail. Thank you, Siggy.

Mellancroft'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%. For the first half of the year, total net sales were $982 million, up 9.2% compared to last year. Net loss for the second quarter was $43 million as compared to net loss of $748 million in the prior year period, an improvement of 94.2%. For the first half of the year, net loss was $109 million as compared to $997 million in the first half of 2023. Adjusted EBITDA in the second quarter of 2024 was $174 million as compared to $144 million in the prior year period. This 20.8% increase was driven by continued strength in the specialty generic segment, as well as continued stabilization in Axar gel and growth in Theracose, partially offset by the impact of Inomax competition. For the first half of the year, adjusted EBITDA was $319 million, up 19.2%. The specialty brand segment reported net sales of $275 million in the second quarter of 2024, as compared to $280 million. This reflects a decrease of 2% on a reported basis and 1.9% on a constant currency basis, primarily due to continued competition from alternative nitric oxide products on InaMax, partially offset by continued demand stabilization for Actar gel, the launch of Turlavaz, and the continued strength of Theracose. ACTHAR gel net sales were $118 million as compared to $117 million in the prior year. As Siggy mentioned, we're pleased with the positive prescriber momentum in the category and the persistent demand stabilization. We now expect ACTHAR to grow in the low to mid single digits in 2024. In our critical care products, InaMax generated net sales of $66 million, a decline of 13.7% compared to prior year period. Turlavaz generated net sales of $5 million, an increase of 55.9%. Theracos generated net sales of $67 million, an increase of 7%. The specialty generics segment recorded net sales of $240 million, as compared to $195 million in the prior year. This 23% growth was due to rising demand for our finished dose products as the market continued to experience constraints and shortages. 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. 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. And R&D as a percentage of net sales was 5.6% as compared to 6% in the prior year. 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. This reflects the growth in our adjusted EBITDA and strong cash conversion. We ended the quarter with outstanding total principal debt of $1.64 billion and outstanding net debt of $1.35 billion. As Siggy mentioned, we expect to reduce net debt by more than 50% in connection with Etherica's business divestiture anticipated to occur in the fourth quarter of this year. 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. We expect to generate adjusted EBITDA of between $585 million and $615 million. reflecting an 11.1% increase at the mid-cause. I'll now hand the call back to Siggy for some closing remarks.

Thank you, Brian. Mallee Crops had a strong first half of the year as we executed on our strategic priorities and achieved important milestones. We are 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. And with that, we'll open the call up for if we have any questions. Justin.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To draw your question, please press star 11 again. Please stand by. We'll compile the Q&A roster. and we ask that you limit yourself to one question and one follow-up. Again, that's one question and one follow-up. One moment for questions. And I am showing no further questions. I would now like to turn the call back over to Derek Bell for closing remarks.

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 a hold of us is via email, and I'll work back to get to you as soon as possible. Thanks again, and have a great day.

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