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Mayne Pharma reports increased sales and earnings and provides business review update |
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23 Feb 2006 |
MELBOURNE, Australia | Feb 22, 2006 | Mayne Pharma Limited (ASX:MYP) has today released its first half year results under the leadership of Chief Executive Officer and Managing Director, Dr Thierry Soursac.
“The underlying performance of the business during the period has been very pleasing and has provided further confidence to pursue our oncology focused strategy. Mayne Pharma’s core operations are in the process of being focused on leveraging our strong position in the oncology market, and in doing so we have addressed the carrying value of non core assets and projects,” Dr Soursac said.
Key features of the half year results include:
• Sales up to $391.3 million, a 15% increase on the prior corresponding period
• EBIT (before significant items) up to $58.6 million, a 20% increase on the prior corresponding period
• Statutory cashflow from operations of approximately $85 million
• Strong sales growth across Europe, Australia and Canada
• Significant improvement in manufacturing underpinned operational improvements
• Non core assets and projects account for the majority of $116 million in writedowns (pre tax)
• Statutory EBIT including significant items was a loss of $57.4 million
• Statutory NPAT was a loss of $65.8 million
Business review update
• Operational review to identify and implement efficiencies is progressing
• Strategic reviews to map growth path as an oncology customer focused company underway. Market update to be provided during April.
“The strong growth in sales and underlying earnings demonstrate the progress that has been made in expanding our business and improving operating efficiencies,” Dr Soursac said.
“We have a sound balance sheet and our statutory operating cashflow increased $56 million over the prior corresponding period to reach almost $85 million,” he said.
“These results reinforce that Mayne Pharma is well placed to become a leading global oncology customer focused company, and the review we are undertaking will identify further potential for improvement and growth for us to achieve that objective.
“Although we recorded a statutory net loss after tax of $65.8 million, resulting from writedowns of $116 million, we have dealt with a number of non core assets and projects. While taking a number of writedowns is disappointing, we took these decisions to give us the greatest opportunity to meet our strategic goals.”
Direction and strategic review
Dr Soursac said that the strategic review, commenced soon after the demerger of Mayne Pharma, was well progressed in planning a path for the business to be re-positioned and to concentrate on the oncology customer.
“Our customer is the oncologist and Mayne Pharma plans to be the preferred supplier of all the medicines they use in their day to day treatment of patients including, for example, anti-cancer agents, hormone therapies, side effect reducers and pain management treatments,” Dr Soursac said.
“The oncology pharmaceutical market is one of the fastest growing therapeutic classes in the world and there are many significant molecules coming off patent within the next five years. Mayne Pharma will leverage its strengths to ensure we are leading the competition in this exciting field,” he said.
“There are few oncology customer focused companies that have our breadth of products, development capabilities, manufacturing expertise and sales and distribution platform, which places us in a strong position to grow organically and through alliances, partnerships and acquisitions.
“We have commenced a number of operational and strategic reviews in different areas of the business that will report back to the executive committee in March. Once we have developed implementation and financial plans we will work with the Board to finalise them and expect the plans will be ready for presentation to the market in April.
“The reviews cover areas including operational efficiency, product portfolio status, internal and external pipeline opportunities, developing our US presence and potential acquisition options.
“Some of these reviews aim to improve our efficiency and competitiveness in the short term and others are more strategic that will lay the path for our growth as an oncology company.
“I would anticipate the outcomes of the operational reviews will start to have an impact at the beginning of the next financial year, allowing reinvestment into areas that will drive our growth, for example our process and clinical development capabilities.
“While we have made decisive moves that reflect our vision to become a leading global oncology customer focused company, a full transition will take time. As such, I expect we will retain some existing non-oncology related products through their life cycle because they will provide value to us as we re-position the company.
Corporate structure
“Significant growth opportunities lie predominantly in the northern hemisphere, in the largest pharmaceutical markets and where our largest customers are based. For that reason the executive management team will be based in London. This places them where the critical decisions in the pharmaceutical industry are made, allowing Mayne Pharma to participate quickly and fully in the market.
“As part of the strategic and operational reviews the Board has also asked us to examine the possibility of a listing in the United Kingdom. We need to ensure any such proposal will benefit existing shareholders, including the retention of a listing on the Australian Stock Exchange.
“When we disclose the results of our strategic review in April, we will also update the market on the progress we have made in assessing this option for Mayne Pharma.”
Results overview
Total sales for Mayne Pharma reached $391.3 million, up 15% compared to the prior corresponding period. Sales increased in nearly every country in which the company operates, and were particularly strong through Europe, Canada and Australia.
EBIT was up to $58.6 million, an increase of 20% on the prior corresponding period.
The sales growth across all regions was underpinned by a vastly improved performance from the manufacturing team, particularly at Mulgrave which has achieved greater production efficiencies and improved the reliability of supply.
“Improved operating efficiencies have dramatically reduced batch cycle times and led to better quality at a lower cost as a result of good management and the significant investment made in Mulgrave 12 months ago,” Dr Soursac said.
“This improved output has increased consistency of supply into all markets and has allowed demand to be met in some countries that were previously compromised by supply shortages.”
Sales by region
Sales grew approximately 24% in EMEA (Europe, Middle East and Africa) over the prior corresponding period to $190.5 million. Sales were complemented by a series of bolt on acquisitions that extended the geographic and product presence in Italy (PHT and Biologici), Germany (Onkoworks), Spain (Rovi) and the UK (Intra tech). Organic growth across the region was mostly related to paclitaxel and to a lesser extent irinotecan. Particularly pleasing were the results in Italy, Portugal and the Nordic countries. There was very good sales growth across the Middle Eastern countries, approximately 35% more than the prior corresponding period, again driven by irinotecan and paclitaxel.
Balancing some of the growth there was increased competition in the UK for carboplatin and across the region pamidronate also experienced pricing pressure as expected.
“The launches of our pamidronate and paclitaxel molecules in the past few years have provided Mayne Pharma with a beach-head in major markets across Europe, and the key to organic growth will be leveraging this initial presence by complementing it with more products to increase our overall competitiveness,” Dr Soursac said.
The Asia Pacific region continued to provide steady growth from a mature portfolio with sales up to $99.3 million, an increase of 18% over the prior corresponding period. The result in Australia and New Zealand was accomplished through detailed management of the entire portfolio with many of the smaller revenue products making a contribution that was higher than expected. Among the fastest growing products were paclitaxel, vancomycin and Eligard®. Sales in Asia were up more than 30% on the prior corresponding period, in part due to improved product supply from the better performance at Mulgrave.
The detailed management of the total portfolio in Asia Pacific offset more intense competition in certain larger products, such as clopine.
In North America total sales were $101.5 million, a marginal decrease on the prior corresponding period. Canadian sales were up more than 20%, mainly as a result of successful tenders for the oncology products pamidronate, methotrexate and vinorelbine. Although the US sales result was down, it was better than the Company’s expectations and was achieved with few new product launches and in difficult market conditions. Paclitaxel was an important contributor to the performance, with MVI products and methotrexate also increasing their sales over the prior corresponding period. The shutdown of the company’s manufacturing operations at Aguadilla during 2005 held back the US performance as there was limited supply of products, such as hydromorphone, that were previously manufactured at the site and sold in the US market.
“In the past six months the growth in our core oncology product range has continued well, particularly the penetration into the northern hemisphere markets,” Dr Soursac said.
“In addition to the strong Mulgrave performance, the contribution from our other operating manufacturing sites has been an important driver of this result. The active pharmaceutical ingredient (API) processing facility in Boulder, Colorado, has more than doubled its output of paclitaxel API since acquisition in order to meet the market demand,” he said.
“Our plant at Wasserburg that makes non-cytotoxic injectables, has increased its sales since acquisition and has further capacity to meet our requirements. The oral pharmaceutical site at Salisbury in Australia has also performed well, exceeding our expectations.”
Earnings before interest and tax (EBIT), pre significant items
“The benefit of our global sales and marketing footprint was evident with first half earnings growth surpassing growth in revenue.
“The enhanced performance of paclitaxel was realised through our integrated supply chain, and when combined with the positive contribution from new acquisitions and the improvements at Mulgrave, more than offset the normal price pressures on some of our maturing products.”
The company has a policy not to hedge operating cashflows and therefore its earnings are impacted by movements in foreign exchange rates. In the past 6 months foreign exchange rate movements had a negative impact of $15 million on sales and $4.2 million on EBIT.
Significant items
As part of the demerger and ongoing repositioning of its business as an oncology customer focused company, Mayne Pharma reported a number of significant items, totaling $116 million.
Commenting on these significant items, Dr Soursac said “We believe it’s imperative that we use our resources to pursue our primary objective and build on our existing strengths.
“Some of the significant items have been incurred because they are projects that will not be progressed as they are not expected to fit with the new direction and focus of the Company. In the case of propofol and EPO, the expected returns from these projects have changed recently and required a write down.
“Importantly, the move to AIFRS has required Mayne Pharma to capitalise more development costs than it has in the past and as a result, may lead to increased volatility in earnings in the future.
“While this is part of doing business, our underlying operations remain strong, and we are reviewing our processes so that our product development activities will be managed differently in the future,” he said.
In the announcement on 6 February this year the Company said that the future of the Aguadilla site had three potential outcomes; have the development completed and operate it, divest the facility or close the site. While a final decision has not been reached, it has been determined that a write-down of $58.9 million is appropriate.
Other significant items include $19.4 million related to costs previously capitalised with respect to the development of propofol, $7.5 million for development of the biogeneric drug erythropoietin (EPO) with Pliva and $18.0 million mainly related to other discontinued product and business development projects.
In relation to Propofol, Mayne Pharma was unsuccessful in defending the patent infringement claim by AstraZeneca and has subsequently lodged an appeal. Mayne Pharma continues to believe it has a strong case but the product launch has been delayed. In the meantime market dynamics have changed with more competition leading to significant price erosion. Accordingly, the Company has written down previously capitalised costs for this product.
In February 2005 Mayne Pharma signed an agreement with Pliva to develop and bring to market bio-similar EPO and granulocyte colony stimulating factor (G-CSF). Substantial progress had been made with EPO, however in late 2005 the regulatory approval requirements for bio-similar EPO to be brought to market changed markedly in the European Union. After a further review of this change it was determined the project would have required considerably more resources to be channeled into its development thereby rendering it no longer commercially viable, and taking it beyond the scope of the original agreement. As a consequence, Mayne Pharma and Pliva have agreed to cease joint collaboration on EPO and refocus efforts on bringing G-CSF to market.
A number of product and business development projects had been commenced by previous management and no longer fit with the new strategic direction. All these projects have been ceased.
In addition, Mayne Pharma incurred $11.9 million of costs in relation to its demerger from Mayne Group Limited.
Summary
In accordance with the Demerger Explanatory Memorandum dated November 2005 there will be no interim dividend payable however the Board currently expects to pay a final dividend in line with Company policy.
As previously noted to the market, Mayne Pharma has invested in the internal and external development of products that are expected to be launched in the 2007 and 2008 financial years. This anticipated increase in value of expected new product launches, combined with the implementation of the results of Mayne Pharma’s strategic and operational effectiveness reviews as well as its ongoing investment in the new product pipeline, is expected to translate into continued growth in these years.
In the Demerger Explanatory Memorandum dated November 2005 it was stated that Mayne Pharma’s EBIT for fiscal year 2006 was expected to be broadly in line with its pro-forma AIFRS result for fiscal year 2005 of A$90.2 million, since the company did not expect any new product launches during the year. Underlying performance has been stronger than anticipated at that time. However, as the company operates in constantly developing markets that are competitive and is undergoing a strategic review that is due to be disclosed in April, a further update regarding Mayne Pharma’s outlook will be provided at that time.
Important note
The demerger of Mayne Pharma Limited (Mayne Pharma) from Mayne Group Limited became effective on 18 November 2005, and Mayne Pharma was listed on the Australian Stock Exchange on 21 November 2005.
Mayne Pharma’s statutory results reflect the Company being a subsidiary of Mayne Group Limited up to the effective date of the demerger and a separate company thereafter.
The financial results presented in this report reflect a six month result from 1 July 2005 to 31 December 2005, and for the purposes of comparison Mayne Pharma has prepared pro forma financial results for this and the prior corresponding periods. All references in the attached media release are to pro forma results unless otherwise stated. The Company believes that this enables a meaningful analysis of the underlying financial performance of Mayne Pharma’s business and has been calculated on a basis consistent with the pro forma information presented in the Mayne Group Limited Demerger Scheme Book from November 2005.
The pro forma results for this and prior periods exclude all significant items and include normalisation adjustments to reflect the costs of operating as an independent company, as well as the inclusion of the Salisbury operations for the full six month period.
For the six months ended 31 December 2005 and the prior corresponding period, Mayne Pharma’s financial accounts have been prepared in accordance with the Australian equivalents to International Financial Reporting Standards (AIFRS).
Australian media and investor contact
Lawrence Hamson
Vice President Investor Relations
Ph: +61 (0) 3 9868 0380
Mob: +61 (0) 407 335 907
International media contact
Dr Jihad Manai
Executive Senior Vice President
Corporate Communications and
Public Affairs
Ph: +44 207 420 8400
SOURCE: Mayne Pharma Ltd |
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