Mallinckrodt - Q3 2024

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Mallinckrodt Third Quarter 2024 Earnings Announcements Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you'll need to press star one one on your telephone. You will then hear an automated message advising you 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 Belz, Vice President, Investor Relations. Please go ahead.

Derek Belz (VP of Investor Relations)

Thank you, Operator, and welcome, everyone. With me this morning are Mallinckrodt's CEO, Sigurdur Olafsson, and CFO, Bryan 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 filing 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, mallinckrodt.com.

We use our website as a channel to distribute 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 third quarter ended on September 27th, 2024. Additionally, unless otherwise specified, the net sales percentage changes we discussed will be on a constant currency basis. With that, I will now turn the call over to Sigurd.

Sigurdur Olafsson (President and CEO)

Thanks, Derek, and good morning, everyone. We are pleased to share that we achieved another quarter of net sales growth, building on a strong execution in the first half of the year. We have been intensely focused on stabilizing our base business and positioning Mallinckrodt for long-term growth, and our results for the third quarter reflect our successful execution of this strategy. Specialty generics has remained a consistent growth driver due to our ability to continually deliver reliable and high-quality products. In specialty brands, I'm especially excited to share that we delivered our third consecutive quarter of growth in Acthar Gel and now expect the brand to grow approximately 10% year over year in 2024. In light of our continued momentum, we are reaffirming our full-year net sales guidance range and raising our Adjusted EBITDA guidance range.

Importantly, this is after adjusting for the Therakos transaction, which we expect will impact adjusted EBITDA by approximately $28 million. Bryan will go into more detail later in the call. This would not be possible without the tireless effort of our teams, and I thank all of our employees for the hard work it has taken to get us where we are today. Now, I'd like to provide an update on our business segment, starting with specialty brands. For Acthar Gel, we delivered our third consecutive quarter of year-over-year growth. This was again driven by an increase in prescriber referrals and patient demand. We launched Acthar Gel Single-Dose Self-Ject in early August and have seen a positive momentum to date. As a reminder, this is a new way to administer Acthar that requires fewer steps and reflects our commitment to modernize this important therapy for our patient community.

We have received encouraging feedback from patients, caregivers, and medical professionals underscoring the meaningful demand for this user-friendly administration option for managing chronic and acute inflammatory and autoimmune conditions. I'm also pleased to share that Self-Ject received the Arthritis Foundation's Ease of Use Certification in September, which is awarded based on testing by an independent third party. Additionally, in September, we published findings from nine Self-Ject human factors studies in the peer-reviewed journal Expert Opinion on Drug Delivery. Our Acthar results and the successful launch of Self-Ject demonstrate that we have returned this brand to sustained growth, and we are proud of the turnaround we have achieved in this important part of our business. Given the positive momentum, we now believe Acthar net sales will grow approximately 10% in 2024.

Moving into INOmax, following successful INOmax Evolve DS pilot program in the first half of the year, we expanded our rollout to U.S. hospitals nationwide late in the third quarter. At quarter end, we had 100 devices in nearly a dozen hospitals, and the feedback we are receiving continues to highlight the benefits the systems enhance automation and streamlined design delivers to neonatal intensive care patients. While INOmax DSIR continued to be impacted by competitive pressures in the U.S. from alternative nitric oxide products in the third quarter, we are pleased with the progress of Evolve DS and are continuing to work closely with hospitals and providers to drive adoption. Next, with Terlivaz, we delivered a double-digit year-over-year net sales growth and 37.7% sequential growth in net sales. We continue to expand adoption through provider outreach, emphasizing the importance of early patient identification and treatment initiation.

Our focus remains on establishing Terlivaz as the preferred first-line treatment for HRS patients with a rapid reduction in kidney function. Turning to Therakos, we reported another quarter of net sales growth with particularly strong performance outside of the US. As you know, in August, we announced our definitive agreement to sell the Therakos business to CVC Capital Partners for approximately $925 million before customary adjustments. We continue to believe that this transaction is a positive outcome for all Therakos stakeholders, including patients, providers, and healthcare partners, and that the business has a bright future under CVC's ownership. We will use net proceeds from the sale to pay down debt, and we expect this will reduce the company's net debt by more than 60% following transaction close. We expect the closing to occur in the coming weeks, subject to customary closing conditions.

Now, I'd like to turn to our specialty generics business segment. Growth in specialty generics this quarter was driven by a strong performance in the finished dose products business and increased demand in the controlled substances API business. At the same time, we saw some softening demand in the APAP business, driven by excess supply in the broader market. I want to highlight that this was the seventh consecutive quarter of net sales growth in the specialty generics segment. This segment continues to be differentiated by leading product quality and consistency of supply, and we remain on track for another year of a double-digit net sales growth in 2024. With that, I'll turn the call over to Bryan to discuss our financial performance and updated full-year outlook in more detail.

Bryan Reasons (EVP and CFO)

Thanks, Sigurd. Mallinckrodt's total net sales in the third quarter of 2024 were $506 million, as compared to $497 million in the third quarter of 2023, an increase of 1.7%. For the nine months ended September 27th, 2024, total net sales were $1.49 billion, up 6.5% compared to the same period in 2023. Net loss for the third quarter was $26.2 million, as compared to net loss of $1.72 billion in the prior year period. For the nine months ended September 27th, 2024, net loss was $135 million, as compared to $2.72 billion in the same period in 2023. Adjusted EBITDA in the third quarter of 2024 was $161 million, as compared to $181 million in the prior year period.

This 11.1% decrease was primarily driven by transaction expenses for the sale of Therakos, including $7.3 million of transaction-related compensation expenses, as well as incremental commercial investment for Acthar Gel and Terlivaz, and continued competition in the U.S. nitric oxide market. These were partially offset by continued strength in the specialty generics segment, as well as growth in the specialty brand segment, driven by Acthar Gel and Therakos. For the nine months ended September 27th, 2024, Adjusted EBITDA was $480 million, up 7%. The specialty brand segment reported net sales of $286 million in the third quarter of 2024, flat as compared to the prior year. Growth in Acthar Gel, the expanded launch of Terlivaz, and growth in Therakos offset the continued competition for INOmax from alternative nitric oxide products in the U.S. Acthar Gel net sales were $126 million, up 3.5% compared to the prior year.

As Sigurd mentioned, we again saw increases in prescriber referrals and patient demand. We're also pleased with the momentum in Self-Ject following our August launch. We now expect Acthar net sales to grow approximately 10% in 2024. In our critical care products, INOmax generated net sales of $64 million, a decline of 12.2% compared to the prior year. Terlivaz generated net sales of $7 million, an increase of 65.9%. Therakos generated net sales of $68 million, an increase of 2.4% on a reported basis and 2.2% on a constant currency basis. The specialty generics segment reported net sales of $220 million, as compared to $211 million in the prior year. This 4.1% growth was due to rising demand for our finished dose products as the market continued to experience constraints and shortages.

Our performance is notable this quarter, given the strong comparable quarter we had in 2023 due to the launch of our generic Vyvanse. With respect to operating metrics in the quarter, adjusted gross profit as a percentage of net sales was 65.4%, as compared to 66.3% in the third quarter of 2023. Adjusted SG&A as a percentage of net sales was 27.9%, as compared to 25.3% in the prior year, and adjusted R&D as a percentage of net sales was 5.6%, as compared to 5.1% in the prior year. Turning to our balance sheet, we ended the quarter with cash and cash equivalents of $411 million, up from $291 million at the end of the second quarter. This continues to reflect our high cash conversion and strong Adjusted EBITDA. We ended the quarter with outstanding total principal debt of $1.64 billion and outstanding net debt of $1.23 billion.

As Sigurd noted, the proceeds from Therakos sales are expected to reduce our net debt by more than 60% when the transaction closes. On guidance, we continue to expect total net sales between $1.9 billion and $2 billion, and now expect to generate Adjusted EBITDA of between $590 million and $620 million. Our updated guidance adjusts for the Therakos transaction, which we are assuming will close by the end of November. Accordingly, our guidance removes approximately $25 million in net sales and approximately $12 million in Adjusted EBITDA that were previously expected to be contributed by Therakos in the month of December. In addition, our new Adjusted EBITDA guidance reflects approximately $16 million of transaction-related compensation expense for the sale of Therakos.

In other words, without roughly $28 million impact from Therakos, we'd be raising our 2024 Adjusted EBITDA guidance by 5.5% at the midpoint, which underscores the strong performance of both our specialty brand and specialty generics segments. I'll also note that for the full year 2024, Therakos is expected to generate approximately $270 million in net sales and approximately $135 million in Adjusted EBITDA. I'll now hand the call back to Sigurd for closing remarks. Sigurd.

Sigurdur Olafsson (President and CEO)

Thank you, Bryan. This past quarter has been exceptional, and it's a testament to the hard work and dedication of our entire team. Our sustained momentum and continued innovation are a clear indication that our strategic initiatives are paying off. The commitment of our employees has been instrumental in driving our success, and I'm incredibly proud of what we have accomplished together. I'm confident that we will continue to build on our momentum through the end of the year and beyond. And with that, we open the call up for Q&A.

Operator (participant)

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment for our questions. I'm showing no questions at this time, so I would like to hand the conference back to Derek Belz for closing remarks.

Derek Belz (VP of Investor Relations)

Thanks, Michelle, 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 quickly to get back with you. Thanks again, and have a great day.

Operator (participant)

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