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Mallinckrodt PLC (NYSE:MNK)

32nd Annual JPMorgan Healthcare Conference

January 15, 2014, 17:30 AM ET

Executives

Mark Trudeau – President and CEO

Analyst

Chris Schott – JPMorgan

Chris Schott – JPMorgan

Good afternoon everybody. I am Chris Schott, pharmaceutical analyst at JPMorgan. I am very pleased today to be introducing Mallinckrodt. From Mallinckrodt, we've the company's Chief Executive Officer, Mark Trudeau.

So with that, I'll turn over to Mark.

Mark Trudeau

Thank you, Chris. Let me thank both Chris and JPMorgan for inviting me today to speak to all of you regarding the very exciting story that is Mallinckrodt Pharmaceuticals. It's been a very exciting year for us and I want to update you on where we are and where we are heading.

So to start, let me just spend a minute for those folks that are in the audience and also on the webcast, addressing our safe harbor, forward-looking statements, we will likely be making some forward-looking statements today. Recognize that our actual results may differ materially from what we present today and we are under no obligation to update these statements and for the full details of our forward-looking statements and safe harbor information, please consult our website at www.mallinckrodt.com.

So let's start out with talking about Mallinckrodt Pharmaceuticals where we are. As I mentioned, it's been a quite exciting year. In the last 12 months, we have successfully spun from Covidien and formed an independent company once again as Mallinckrodt Pharmaceuticals and in the past 12 months, we spend a tremendous amount of time developing our Board and developing our management team, creating a strategy to really focus on unlocking the potential that we believe is within the Mallinckrodt Pharmaceuticals business and our objective is to be one of the top performing companies in the specialty pharmaceutical sector.

We started out as a $2.2 billion revenue, Irish domiciled global pharmaceutical company and in 2013 fiscal year we grew on the topline approximately 8% on an operating basis and given all of the additional things that we needed to do to separate ourselves from Covidien, we were still able to increase our gross profit by 6% fiscal '13 over '12. So from a financial performance perspective, it was a very successful first year for Mallinckrodt Pharmaceuticals.

Now some of you may know a bit about us, but I want to make sure that you are clear that we are a leading player in the controlled substance market and that controlled substance market for us means a variety of things. We are a fully vertically integrated supplier in controlled substances in a wide set of categories. We do both API manufacture. We have a generics business and we have an emerging and developing brands business that is focused primarily around controlled substances with a core built around opioid-based pain medications.

While we participate in a wide variety of therapeutic areas in addition to pain, central nervous system diseases is an important category for us. We also participate in addiction treatment, some of the ADHD markets and also we have a global medical imaging business as well, which provides a global platform for our company to potentially expand internationally.

We have some unique core strengths in our business and it really boils down to an expertise that's been honed over a 100 years. In the acquisition and management of highly regulated raw materials, specifically controlled substances, we've been developing manufacturing and importing controlled substances for as long as anybody in the industry and we know the space incredibly well.

As a result, we've developed some specific regulatory expertise in managing the very complex nature of controlled substances and we've also developed some very specialized chemistry formulation and manufacturing capability all around controlled substances, which we really believe is the core capability of the company and enables us to have a long term competitive advantage in that space.

We also have a development pipeline which we think is unique. We are focused initially in the near and midterm on developing extended release combination opioid acetaminophen products for acute pain and one of our products that we will talk about in just a few minutes is our XARTEMISTM XR, we expect is going to launch into the marketplace sometime here in fiscal '14.

But in addition we have a lot of experience and a lot of expertise in developing abuse-deterrent technologies as they apply to controlled substances and longer term particularly in the opioid-based pain space, we believe this is a place where the marketplace is heading and Mallinckrodt has an opportunity to lead the way.

Let's talk about our business as it is in fiscal 2013 and focus a bit on the strategic imperatives that we believe are going to drive our growth aspirations to become one of the top performing specialty pharmaceutical companies in the industry. If you look at our fiscal 2013 sales in the pie chart, what you see is that we have a mix of business that favours the specialty pharmaceutical side. 57% of our sales in 2013 were in the specialty pharmaceutical side of the business driven primarily by our generics and API business, but also our emerging brands business, leaving 43% split between our global medical imaging businesses of nuclear imaging and contrast media and delivery systems.

Now that's a pretty dramatic shift in mix from where we were in fiscal 2012. When we spun from Covidien, we essentially inherited a business that was about 50% Spec Pharma and about 50% imaging and as we pursue our growth strategy, our emphasis is primarily and almost exclusively on driving growth through the specialty pharmaceutical side of the house.

The growth in fiscal '13 and the mix shift towards specialty pharmaceuticals was driven in part by our branded business and in part by our generics business. We have two lead brands on the specialty pharmaceutical side; one is EXALGO, which is a controlled release, extended release 24-hour pure form opioid for chronic severe pain.

EXALGO sold over $125 million in 2013 and Gablofen is a branded form of baclofen that's used to treat severe spasticity, primarily treated by neurologist. Gablofen was part of an acquisition that we made, a little over a year ago of a company called CNS Therapeutics, which focuses specifically on products developed for the intrathecal route of administration and baclofen is a leading product in the treatment of spasticity in patients that need drug delivered intrathecally.

But our generics business also grew very, very rapidly in fiscal 2013 led by Methylphenidate ER, generic form of Concerta, where we sold approximately $150 million. Keep in mind we were first to file on generic Concerta and generic Concerta is a perfect example of where the core capabilities of Mallinckrodt really come together.

Our expertise in controlled substances and difficult formulations really came together in Methylphenidate ER as Methylphenidate itself is a controlled substance and the formulation is fairly complex and we were able to be the first to file generic and enjoy a 180-day exclusivity period as the first filer in that particular category.

Now as we look to the future, we are really focused on driving growth through exercising a key set of strategic impurities and you see that on the bottom of the slide here. I mentioned the fact that our growth is going to come by focusing in specialty pharmaceuticals and while we have a very attractive organic pipeline and I'll get into that in just a few minutes, we also recognize there is a clear opportunity for us to accelerate our growth in specialty pharmaceuticals by being fairly aggressive on the BDNL front.

In looking for assets and pursuing assets that are complimentary to the core set of skills that we have within Mallinckrodt around controlled substances and providing additional avenues for growth both short and long term.

We continue to advance our pipeline and our branded product XARTEMIS XR, which we think is going to be the first and perhaps the only combination acute pain opioid acetaminophen combination on the market that has the potential for abuse-deterrent characteristics is really our lead asset in that pipeline, but we also have a number of other assets in development in the pain space, in the intrathecal space and also in our generic portfolio.

And lastly we are really focused on enhancing our profitability. We are enhancing our profitability by ensuring that we run our businesses as efficiently as possible. On the global medical imaging side, we are driving efficiency and managing that business for cash to fund the many growth opportunities that we on the Spec Pharma side and certainly when we spun from Covidien, we knew and we identified the fact that we were going to have to have certain build-out costs to support our operation as an independent company.

Those cost totalled about $40 million and even before we spun, we became very aggressive in pursuing restructuring both before spin and after spin. We announced a $100 million to $125 million target for restructuring over the next three years and in the fourth quarter alone we charged $15 million against that reserve.

So effectively we've been able to offset between our restructuring efforts before spin and our restructuring efforts in the first six months post spin, we've been able to offset that $40 million build in expense and we will continue to drive profitability through efficiency measures going forward.

Let's talk a little bit about our specialty pharmaceuticals platform and how we see that. So from Mallinckrodt really specialty pharmaceuticals for us means both generics and brands and each one of those parts of the business has a specific role. For generics, we are really looking at a very profitable foundation in controlled substances and our near term opportunities in our core business really evolve around exercising the market power that we have in many of our controlled substance micro markets.

Longer term, we have a number of ANDAs in our development portfolio and we continue to advance those products which will provide long term opportunities for growth in our generics portfolio. But our brands business is really our sustainable long term growth driver on the revenue side and here you see in our midterm pipeline, our focus on acute pain with XARTEMIS XR and MNK-155, XARTEMIS XR contains the same active ingredients in Percocet, but an extended release 12-hour dosing duration formulation.

MNK-155 contains the same active ingredients as in Vicodin in the same 12-hour extended-release formulation as our XARTEMIS XR. And both of these are built on the platform, Mallinckrodt's abuse-deterrent platform, and we would expect over time that it's likely that these products may qualify for some type of abuse-deterrent labelling.

In addition to that, we're developing products for topical pain and extending our PENNSAID franchise with a new formulation PENNSAID 2%. And within our Intrathecal portfolio we will continue to enhance our offerings around Gablofen, as well as we're developing a stable of Intrathecal pain products. But our long-term focus is not just around pain, but we're also looking at other CNS indications and we're considering some channel adjacencies such as the hospital and the long-term care channels.

And really we build the success of our specialty pharmaceutical business on top of some significant platform drivers. I have mentioned some of these already, but let me emphasize these again. We own some unique skills in formulation, manufacturing and regulatory, particularly as it applies to controlled substances. As we continue to look at the controlled substance market, particularly in pain evolving, it's clear that abuse-deterrent technologies is the place that this marketplace is moving, and we want to ensure that Mallinckrodt is on the leading edge of that.

And I mentioned the fact that we're very focused with regards to BDNL. We look at assets that are complementary and build upon the core skills that we have around controlled substances that will enable us to move into areas that include some natural adjacencies whether they are channel adjacencies, therapeutic adjacencies or specialty adjacencies.

Some of those adjacencies I mentioned are hospitals or long-term care channels, but also neurology in the CNS category, rheumatology, orthopaedics would be natural places where we already have a commercial footprint and BDNL can be complementary in accelerating our organic pipeline.

Overall, our development platform and our developmental efforts have been very successful, and we've been able to introduce eight new products to the marketplace since fiscal 2010. Let me spend a minute just talking about XARTEMIS XR.

XARTEMIS XR is a key asset in our emerging Spec Pharma portfolio. It will really be the first novel new branded asset to come out of Mallinckrodt Pharmaceuticals as an independent company. This is a product that's been studied for use in the very large and growing acute pain marketplace. It's one of the most prevalently, most widely prescribed categories of the entire pharmaceutical market in the U.S., and that's acute pain with over 60 million prescriptions annually being written. And if approved, XARTEMIS XR will be the first and potentially the only extended-release Opioid/Acetaminophen combination product for acute pain in the U.S. market.

So it’s a significant development. A number of companies have been trying to do this to develop an extended-release 12-hour duration formulation of combination pain products and it's proved to be pretty tricky. This is one of the real strengths of Mallinckrodt. And if you think about the complexity of what you're trying to do here, you're trying to get an Opioid to go into the system and provide pain relief very quickly, but not too quickly and not too much, extend that duration of efficacy over 12-hour period of time, simultaneously get the Acetaminophen in quickly and out quickly, and at the same time try to develop abuse-deterrent characteristics. So you can imagine, there's quite a bit of technology built into this formulation.

So, as a result of that, one of the things that we announced a couple of months ago is the fact that we've been able to receive notice of allowance on three patent families which we specifically believe are going to enhance and expand the intellectual property around XARTEMIS XR.

And at a certain point, we thought that the exclusivity period that we would enjoy for XARTEMIS XR was in the three to four-year timeframe. But now with this enhanced intellectual property, we believe that that timeframe for exclusivity is going to be longer. This is enabling us to think much more long-term about developing a franchise around XARTEMIS XR that might include additional indications and additional strengths over time.

Also, there is very limited competition in this space, very limited brand competition. It's mostly a generic marketplace and we're very experienced in bringing branded products into generic market. Our experience with EXALGO was very similar and that EXALGO essentially was competing in the [generic size] Dilaudid market and we were able to achieve in fiscal 2013 as I mentioned over $125 million for EXALGO.

And again XARTEMIS is built on Mallinckrodt's platform of abuse-deterrent technology and we expect over time that it's likely that we will qualify for labelling with regards to abuse-deterrents.

We are anticipating the launch for XARTEMIS XR in the second quarter of fiscal '14. We continue to have very positive dialogue with regards to the labelling around XARTEMIS XR and we've started to make and begun our commercial preparations for that launch, planning for success.

So I've mentioned over time that we are enhancing our sales organization on the order of 150 to 200 additional sales representatives. We've hired the first 100 of those sales representatives and they are in training as we speak.

We expect XARTEMIS XR again to be a really key asset in the stable of new products that we are developing, specifically in the pain area, specifically in the combination of acute pain area and again the extended release in abuse-deterrent characteristics of our formulations are elements that we believe are going to be significant distinguishing elements and significant positive elements for this marketplace.

Let me wrap up and just describe a little bit about where we are heading. So clearly you can see that over the last 12 months or so, we've made significant progress in establishing ourselves as an independent company. Mallinckrodt Pharmaceuticals at this point was not an independent company. It's really in the last six months that we started to be able to describe what type of company we are and where we're heading.

And as we look to the future, we want to continue to drive growth and profitability with our objective of being one of the top performing companies in the industry. And we're going to do that by focusing on the things that we know well. We have some core strengths that we've honed over many, many years and we believe that we're the leader or among the leaders in the management of controlled substances. And we can apply that expertise that's been honed over time to both a brands and a generics portfolio.

And as we accelerate our mix of business in favor of specialty pharmaceuticals, not only does that segment have the potential to grow very rapidly, but in addition, those products, those branded generic products typically come with higher gross margins than our corporate average. So as we grow on the top line, we'll also be enhancing our profitability through mix shift.

I mentioned that we're advancing our internal pipeline of what we believe are very attractive assets for the near and mid-term, primarily focused around pain at this point, but longer term we expect to develop products for CNS diseases, particularly in the Intrathecal space, as well as a number of other options in the pain and controlled substances arena.

I mentioned the fact that we continue to focus on and drive profitability. We've been able to enhance our profitability through an emphasis on the mix of our business, but also by focusing very aggressively on restructuring, doing that quickly and by managing our global medical imaging business very efficiently for cash to fund the other growth opportunities that we have on the specialty pharmaceutical side.

And finally, BDNL, external development is a crucial component of what we're going to be doing in the future. We're pursuing a number of near-term actionable assets that complement our skill base and give us additional vehicles to further accelerate the growth of our specialty pharmaceuticals business.

We're primarily focused on near-term accretive assets. We focus particularly on branded assets, but we also are considering generic acquisitions as well that are complementary to the types of things that we do where there are high barriers to entry or they are difficult to manufacture.

And again, all of this adds up to the fact that we're focused on driving Mallinckrodt Pharmaceuticals for growth and profitability with the objective of being one of the top performing companies in the industry. Thank you very much for your attention.

Question-and-Answer Session

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