AFT Pharmaceuticals Limited

Good day, my name is Krista and I'll be your conference operator today. At this time, I would like to welcome everyone to the fiscal year 2024 half-year results analyst briefing. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, please press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, again, press star one. Thank you. I will now turn the conference over to Hartley Atkinson, Managing Director. Hartley, you may begin your conference.

Good. Thank you very much. And thank you, everyone, for joining us today. So just to do the usual format where we go through the investor presentation and then we have question time. So, look, just to start, just go through the page numbers. So we've got the cover page. which we're going through the results for our first half of the financial year, which ended the 30th of September. And on page two, we had the usual disclaimer, so please just be aware of those details on page two. Page three, the people presenting today will be a mixture of myself and also Malcolm Tubby, our Chief Financial Officer, will cover the financial pages of the presentation. So going to page number four, what we're looking at here is a summary of the overall results. I think what we're seeing as important was the business continued to grow well. and traditionally we've always grown in Australia and New Zealand, which again grew, but more significantly, we've always indicated we've been working very hard on Asia and also international, and we got 50% growth in Asia and 172% growth in international, where we pretty much exceeded, well, we did exceed last year's sales in the first half, and that It's certainly pleasing to see because, as we previously said, we did have some, in hindsight, quite major headwinds during the pandemic period for the international business, and we're now seeing those recede and able to make the sort of progress going forward that we believe should be possible. We also generated $2 million of licensing income. It's probably just important to point out that a significant chunk of this Although it's called licensing income, it's basically ongoing sales milestones, which is almost very similar to deferred royalties. So in many ways, the majority of this amount was still connected to international sales that were made by licensees as opposed to, say, signing a new agreement. We did have, it depends whether you, you know, we did have the operating profit was $3.3 million. I think it's important though to point out that we have purposely loaded spend towards the first half. So just not to over get over tied up on the fact that the company chose to put more spend into the first half and we are going to adjust that in the second half. because we're aware, obviously, of our guidance of $22 to $24 million. But we've been investing heavily in sales and promotion. We've also invested more in R&D. And we've also invested a fair amount, too, in a new UK affiliate as well, which we see is very important to ongoing growth. So really, once again, we have been pushing growth You know, we're rather than balancing things to get a sort of first half increased profit. So I just suggest you not to look at that as some sort of negative. It's reflective of the fact that we've gone hard at growth initiatives. And you can see then we've got the ongoing in the graphs, the bottom one on the left, you see we've got the ongoing growth. And, you know, another thing too is if you look over the last 10 years, we've almost quadrupled sales. And once again, you know, this is what we're saying to you, that we are pursuing growth and pushing on, and certainly we're not looking to button off on growth going forward. However, you can see on the bottom right, you know, we've got our ongoing trend in terms of operating profits. where that's increasing over time. The guidance we've got on the far right in that sort of penciled-out colour, that doesn't include the potential for HICMA, which has an additional $6 million US, and we would qualify for 65% of that. So we'd end up about $6.5 million US Kiwi. The key caveat with that that we've always tried to be very careful to make is that this depends on the time of the launch. At the moment we are aiming for February and if some unforeseen event did slip then that could slip into next financial year but at this point in time we do see that hopefully or planning to be February. So looking to the next page, page number five, Australia, we carried on our growth. We were pleased to grow that by 18%, which is a good number. We're all aware and seeing things, headlines of economies softening and things like that, but we've still been able to grow our stuff by 18% in the Australian market. We did purposely invest heavily in, in product marketing with some big new launches that we did feel we do need to invest in and we certainly have done that but we will button that off in the second half which is in our marketing plans. So really we're looking at ongoing organic growth and also then some additional new launches and you can see You know, once again, looking at those bottom graphs, there's the sales growth. Traditionally, we do normally have a stronger second half, which we see that has been consistent this year. And in terms of the pie graph, yeah, there's only little changes, but certainly OTC has slightly increased, but much the same sort of distribution of product sales. And then moving on to page number six, New Zealand growth was a bit flatter at 7%, but we still grew from $21.3 to $22.7 million, with good growth in the hospital market with less in OTC, and prescription was relatively flat, being slightly up. And similarly, also, we are investing in the New Zealand market in the first half more, and then we will invest less in the second half. Once again, the sort of product mix is pretty much unchanged year on year. Yeah, and that's sort of the key for that one. So going on to page number seven, this is Asia. We basically, what we've been working on is expanding our OTC presence, and we're making some good progress there. But look, it's very much an ongoing journey, and we've certainly got a lot more work to do. But basically, we were pleased with sales growth of 50%. That's a good, solid sales growth, and we'll be looking to keep that sort of thing going. OTC channel was off a low base, but it's up 88%. and we are getting improving e-commerce sales, and that is part of the strategy, but only part of it. Prescription hospital channels, we had good growth, and certainly we've had some exergesic IV launches. South Korea has progressed strongly, and we've also had a solid performance. We launched in Indonesia as well towards the end of last year. So as we've always said, we are targeting accelerating growth in Asia as part of our geographic expansion. And also recently, we were pleased to secure the approval, our first approval, really, of the medicine in China, where we had Cristoderm approved, and we're working on the launch of that presently into the China market, which is, as you know, is the world's second largest pharmaceutical market after the United States. So page number eight, flicking on to that next. International revenue, as we have always said, we do foresee increasing growth in the international X, A and Z market, and certainly we grew that by a pleasing 172% in a half-year period. overall sales to pass the whole of last year. So that was a pleasing result. But also, very much what we've been working on is, as we've tried to say, yeah, we really did get quite a lot of impact of the pandemic. It's, for instance, just to give you an example, it's extremely difficult to launch something like an exergesic IV into a German hospital When, you know, the corridors are overflowing with pandemic patients and doctors are run off their feet, they really don't want to talk to a pharmaceutical company about a new product, even if it is a nice addition to their portfolio of options to treat patients where they just run off their feet. So, you know, that sort of thing has faded into the background and now we're able to basically get on with business as usual. So also the next, we're pleased that we got two USFDA approvals this year with the Massachusetts Rapid and the Massachusetts IV, which we're looking to launch in reasonably close proximity. With the key thing, I guess, from a financial short-term perspective, is the IV does trigger that license issue. payment of $6 million from Hikma. But, you know, really the key thing is not so much that, it's the overall long-term progress and the profit share that we have with Hikma in the US market. So we are continuing to organise Max Strategic Rapid in terms of there will be some involvement with Hikma, but we're also going to do some of this with another partner, where we see we can basically have an improved profit share, which is our approach, as opposed to upfront payments and things like that. So then we carry on, though, targeting accelerating international income growth from multiple sources, so organic growth, we still have additional countries, we still have new dose forms, and we still have new products. So we'll come back to that later, when we look at our R&D pipeline. I mean, some people comment and seem to think we're just a maxagesic company, which couldn't be further from the truth. That's our first product we're rolling out, but then we do have a really good R&D pipeline where we roll other products out. So certainly, just to stress, it isn't just a maxagesic global opportunity. There's much wider opportunity than that. So that's page number eight. And flicking on to the next page, number nine, look, that's just the global map, which kind of gives you an idea, a pictorial of what our progress is. Basically, in countries where we've launched, we had the yellow. So you can see the standard countries that we previously had were down in sort of Asia and Australasia. Clearly, the US next year will be turning yellow, which is a really key point, given that's the largest pharmaceutical market in the world. Russia, we are still parked there in the meantime due to, I guess, obvious reasons. But, you know, we're hoping to revive that at some stage. And we are also starting to roll out our launches in Africa, which actually is still interesting. They're one of the companies where we're working with their sales paracetamol IV. And certainly the thing that they say, they see Maxegesic as a much better opportunity. So literally they can convert their paracetamol customers over to Maxegesic IV customers. in hospitals and swap them out. So by the time you add places up that are selling three, four, five batches a year, and then you start to add multiple countries up over time, that will also be very helpful. We do still have some areas that are slower and we're working on. Brazil, you can see in the right, that's about usually 45% or so of the South American market is an important market. It is quite a difficult one. It tends to be very dominated by some local players, but we are making progress there. We have a negotiation underway and contractual terms we are working on with a local company. China is the other big white chunk. So basically... That should turn yellow after we launch our Cristoderm, which we will be launching next year. But also we're having discussions with Mexagesic IV, with some local partners there. We have had a lot of experience working in China from right back. It's about 2003. So there's a market we know reasonably well, and clearly we'd also like to sell product to them as well, which will happen next financial year. And Japan is the other obvious white bit. That's also quite a difficult particular market. We need local studies, and we're working on that at the moment and actually starting our first study in Japanese patients will start in the next month as well, which is one of the first steps to being able to conclude something in the Japanese market. So that's that page. And clicking on to the next page, page number 10. Yeah, look, this is one of the things we talked about before. We have aggressively gone after new products, primarily for our existing Australia and New Zealand market. But what I should point out too, though, is that there's a lot of opportunity to also extend these to our existing hubs, which have been Singapore and Hong Kong. So we are now taking those products in our pipeline from our Australasian market to Singapore and Hong Kong, where we've operated for a reasonable amount of time and we're strengthening those up. The other one that's important too is our UK markets. where we're able to take a lot of our pipeline to the UK. And what sort of the logic behind that, you know, like some people have said this, you know, that's kind of crazy because the UK is a long way away, et cetera, et cetera. But generally, you know, it is a good opportunity because what's happened is the UK, as you know, has dropped out of the EU, doesn't fit in with the EU. sits out by its lonesome. So actually now it fits in quite well with the Anglo-Saxon markets of Australia and New Zealand. There is an element still though that fits in with Singapore and even though Hong Kong's gone from Britain back to China, it still does fit in reasonably well with Hong Kong. So really the grouping them together does make sense and that's one of the reasons we've also started up our UK business and looking to leverage our existing pipeline into these additional markets, which we see going forward will really drive our international sales because UK will sit in international and Singapore and Hong Kong obviously sit in our Asia area. And, you know, we've been slightly increased by five products. Our number of new products kind of over the next two or three years And also we're able, please, we've got some very innovative products as well. Just one example, French company Crossject has a nice product called Xenio. This is an auto-injector you can use instead of an IV. So literally, it works through denim. So if someone's having a fit, they can have quite nasty, serious health consequences. and literally you can treat them by using this, and it will inject through genes, through the skin, and get the same blood concentrations of midazolam, which is an anti-epileptic drug, as you would get from using an intravenous formulation. So that's certainly a very nice and useful type of example of some of our innovative products coming down the line. But obviously we've got lots of others as well. That's just page number 10. And page number 11, this is just a repeat, really, of what I started to talk about on the last slide. So, you know, we are just building up our international presence. So Amazon, we started that also in the US, and that links in with Australia. You know, these are things that won't straightaway make a difference, but over time they will. they are useful and will contribute to sales. So we are making progress on that. And there is spend and investment around that. So we're not making money on that straight away. So once again, this is investing to aim for growth going forward. China as well. We've got, as we mentioned, our cross-border e-commerce. Part of that is Timor, where we have other parts that you probably won't be able to see, that we work with various partners in China on cross-border, and also we've registered Christoderm locally in the Chinese market, and then that opens up the opportunity for e-commerce sales directly in China, and I mean, there's a lot of talk about the cross-border channel, but the local China-based e-commerce is about 20 times bigger than the cross-border. So certainly that is part of the logic behind having that local approval. And as we said, we have our new hubs in the UK. So basically right now as we speak, we are launching this week Combogesic, which is the UK name for Maxagesic as a general sales medicine into boots. which is one of the, as you'll know, one of the biggest pharmacy chains in the UK market. And then we ourselves are also launching our intravenous formulation. We've already started to promote it and we will be introducing that in January into the UK market. And we have a couple of other hospital products on top of that. We're launching and we have At the moment, we have a CEO, well-experienced CEO, based in London, and we have three staff as well. So we will beef that up going forward. And as I've mentioned, we've also got our sales hubs in Singapore and in Hong Kong to take advantage of our pipeline. So that's that slide. And moving on to slide number 12. Yeah, look, we always do work on our strategy and our plan going forward. We've shown these pie graphs at our AGM. And basically, we are looking at expanding, as we said, significantly our international and Asia business. And you can see that starting to happen now, I think, with that. You know, if you look at X, A and Z, we've got 94% growth in sales. And that's certainly a key focus. So there are sort of our ongoing new product launches in Australia, New Zealand. Then we do another key project is MaxiJesic IV and the rapid formulation in the United States. And also it's Asia where we are looking at growing our presence and also launching in additional countries. We still have a number of countries where we have MaxiJesic still available. under regulatory approval, which we expect to come through relatively soon, and then we can expand the number of countries. The thing, too, maybe I should make clear is, you know, sales do build over time. Like, just to give you an example, just recently concluded a lecture tour helping one of our licensees And, you know, they launched MaxiGZ IV a couple of years ago. They sold two batches the first year. Then last year they sold four batches. This year they're selling six batches and they still haven't gone to the government market. So part of the purpose of me doing the lecture tour was to make sure we got the government doctors in and talk to them about And that was all part of it. But, you know, it isn't that thing where sales suddenly go wham, vertical, straight up. They build over time. And this is another sort of key point in building the business going forward. So we mentioned these other parts. And key, and we'll come back to that as well on the next slide, is that R&D pipeline is something that's kind of very important. So that leads on to slide 13. And we are using some of that operating cash flow for continued R&D investments. And this is actually really important at the moment because in markets like the US, there's a real tightness with funding. And we're able to pick up R&D assets for almost nothing. Actually, we're not paying anything, but we're funding the R&D over time to build the value. But look, three, four, five years ago, it wouldn't have been possible to do that. And I mean, there's one example in that bottom box. Just to give you an example, there's a company in Singapore called Tessa Therapeutics that had raised 200 million US, hadn't made any money, tried to raise more money, couldn't. The market just said, no, sorry, we're not interested. And they actually had to hold the whole company down. So literally having invested 200 million US, they've closed the whole thing up. So we're seeing some good advantages and good opportunities. We're not looking to raise capital to buy things because we don't think at a particular share price we've got at the moment that would be a good idea. But we see it's a good opportunity, which we're doing, to acquire assets and then we develop them. and the original owners of the IP get some sort of share down the track. So we look at it on the left, we have our Max Egesic portfolio, where we're making good progress. The NasoSurf, we have had some problems with the device, but actually we've 95% fixed those, and we're looking at heading into our first clinical studies very soon. And certainly we always believe we had a compelling business case for the Nasacert device, where instead of having an injection, you can take the drug intranasally, and we still see that as a really good opportunity, and we're continuing with that program. We're able to pick up an antibiotic eye drop for drug-resistant eye infections. Currently it's compounded, so it is used around the world, and we have been working on that on terms of the formulation side. and preparing to go to FDA next year for what's called a pre-IND meeting. So we're making good progress on that project. Pascoma, we have filed our first indication. And then also we have another project we picked up as well, strawberry birthmarks, and that is also we're looking at a pre-IND meeting next year where we've made some very good progress on that. And there's another project as well. Sorry, just above that, I missed that out. We've called it SD, and that is certainly filed, and we're making some approvals. We're expecting next year and launches for that. So, you know, this, as you can see, there are a number of projects that aren't just Maxegesic, you know, that will come in and help with our sales in the kind of even the short term, but also going out in terms of growth in another three or four years. These sort of projects can really have some significant impact on our sales. Gastroenterology, we've got a number of projects there. We've pulled KW, which we're looking to file next calendar year for some of those. And we had a project, BT, which we picked up for almost nothing. We bought the whole thing globally. for what, Malcolm, was about €300,000 or something, wasn't it? Yeah. Yeah, so look, that was an example of kind of something that was almost crazy that you never could have happened years ago, and we're able to acquire that, and we're just aiming to file that at the end of this year. But, you know, in terms of money, we have spent a little bit more in the first half generally as well relative. We can either expense it or capitalise it. We are tending to expense more at the moment as well because a lot of the projects at earlier stage run the accounting guidelines. You do expense them rather than capitalise them. But look, that's the R&D page, and that kind of leads into finance, which I'll hand over to Malcolm. Thank you.

Thanks, Hartley. Yeah, so slide 14, revenue growth 27%, as we've been through in detail. Gross profit up 25%. a little bit behind revenue with the margin going from 43.6 to 43. We do a little bit more work on the gross profit at the bottom of the page where we take out the license income. Although as Hartley did correctly and I pointed out, the 2 million that's in there is to do with on the commercial sales of licensees. So We take it out because it's a little bit lumpy and we find it easy to explain the underlying product sales and royalties. So that's down two percentage points and that's due to the product mix that we've been through. A little bit of pricing lag. So some price increases coming through from our suppliers and it depends what the channel we're selling into, how quickly we can respond and adjust our prices accordingly. There's a little bit of foreign currency in there, but we still hold around about six months stock. So it's not that significant in this half. Then when we look at the operating expenses, so heavy investment into the marketing, which is skewed into the first half, excuse me, increasing spending R&D, and then the product development pipeline, which is in licensing of some products. So it ends up with an operating profit of 3.2 to 3.4 last year. And if we go to profit after tax, that's up 17% to 1.8 million. If we move on to the balance sheet on slide 15, net debt still hovering around that 30 million mark in line with the year end and with the first half of last year. And then on the non-current assets, that's the investments. into primarily into R&D. Working capital has increased around the same sort of, so working capital is current assets minus current liabilities. That's increased at around the same rate as the revenue growth. We are working on, our inventory days are still around about six months, which we've had for a couple of years now. As things stabilize, we're looking to reduce them, but that's on a one-by-one case as you put orders in. We're ordering averages six months ahead. Some suppliers need more than that. So it does take time. And then equity towards the bottom of that table grown by $10 million. So if we move on to the cash flow on slide 16, so growth in the operating cash flow, investing is into the R&D. Net cash used in financing activities, around about the same number, but there has been a switch. Interest up a little bit, as you would expect. Last year, we bought debt down by a couple of mil. The facility we're on now, it's now interest only. There's no debt repayments. But the increase in cost was our maiden dividend that we made at the end of the last financial year. So I'll pass back to Hartley. for slide 17.