Thank you, operator, and good morning in Australia, and good evening in the US. Thank you for joining us today to discuss Mayne Pharma's Q1 update call. As the operator indicated, I'm Shawn Patrick O'Brien, CEO and Managing Director for Mayne Pharma Group. I'm also joined here on the call today by Aaron Gray, our Chief Financial Officer. Our disclaimer slide is here, so for your review, but I would like to bring to your attention that these Q1 results are unaudited. We're excited to share this market update. As the results demonstrate, we are progressing with our transformation journey from Mayne Pharma. There is work that remains in front of us to realize the full potential of our three business units, and we're pleased so far with the Q1 results.
As we've noted, we're in the rebuild and transition of our company, and must admit that it hasn't been without some bumps along the way. We've taken in the feedback, and we're committed to make our operating performance as simple and as transparent as we can. We have a full agenda across all aspects of the business, so I'll step right into it. As mentioned on the disclaimer slide, the financial results presented today are unaudited. Aaron and the finance team have invested significant time putting systems and processes in place to ensure confidence in our reporting. We adopted a conservative stance as we transition through the impact of three large transactions that we undertook in FY 2023: MCS sale, acquisition of the TXMD assets through a license, and the selling of our US Retail Generics business.
Also, note that all these results here remove the impact at the group level of discontinued operations and reflect the dermatology restatement of FY 2022/2023. We are pleased that our Q1 results show the momentum with each of our segments delivering positive contribution margin. We will show comparisons to both the Q4 of 2023, which we'll talk to, and have shown period-comparable period for completeness. We'll also talk in Aussie dollars at the group level, but in US dollars at the segment level, which removes the currency impact on prior periods. Net sales of AUD 92.3 million were up 35% in the Q4 over the Q4 of 2023. The gross margin is up 82% Australian to AUD 53 million, and the underlying EBITDA is effectively a break-even for the quarter.
BPD, mostly known as Women's Health, net sales are up 72% on the Q4 , and Women's Health, which represents 96% of BPD, are up 71%. Where we saw growth in NEXTSTELLIS and the licensed portfolio of IMVEXXY, BIJUVA, and ANNOVERA. NEXTSTELLIS, net selling price has recovered back to prior levels during the quarter, following the actions we described at the full year result that we initiated back in May. Script growth are not tracking as strong as we'd like. Although there's slowdown during the high vacation season of the summer, we still see good momentum. The licensed portfolio is improving, and we remain conservative in our GTN accounting as we finalize the integration of the assets. We are pleased with the turnaround of the dermatology business after a lot of work by the team to get the business back on track.
Sales are up 53% on the Q4 , and the margin is recovering, thanks to better performance of the core portfolio and the new product launches. We've had initiated a cost and efficiency program to reduce the cost in absolute terms where possible, offset inflation, and ensure we get the ROI we need from the sales and marketing investments. We have said that we're adopting a conservative approach to capital as we work through the transactions, and there is a lot of progress of cleaning up outstanding items and working capital. We acknowledge the comments regarding the pace of the on-market share buyback, and I want to stress that there are periods where our board considers it prudent to pause the execution where commercial or legal circumstances might prevent the company from dealing in our own securities.
Taking into account our business blend and the views of a wide range of stakeholders, the board believes that buying back our stock is currently the most effective and attractive capital management approach we can take. And as such, we're gonna seek approval at the AGM to increase the buyback up to 15% and seek to execute our buyback program in a more aggressive way. I will pass the mic on to Aaron, who will take us through the group results. Aaron?
Thank you, Shawn. Shawn noted these numbers are in Australian dollars. We have applied certain adjustments to exclude discontinued operations to be able to show proper historical figures. Key call-outs in the Q1 of fiscal 2024 results are the sales growth driven by women's health and dermatology, the gross margin in women's health reflecting a normalization to the 80% range, and the improvement in dermatology gross margin to 45%. This is a little bit different view than what we've showed in the past. We've been working to simplify our financials and to improve transparency. So as we show figures going forward, we will be taking contribution margin from the statutory accounts that includes the direct segment OpEx, and then showing indirect OpEx, including the shared functions and other costs between segments.
From that number, we deduct royalty liabilities, which have arisen based on the sales for the period. In the statutory accounts, this royalty number appears in earn-outs and amortization. And then we adjust for other non-cash operating items to yield a number that we are currently calling cash EBITDA. The intent of that number is that it act as a proxy for operating cash generation. One thing I would note is that there are some timing differences based upon the actual payments of some of those liabilities. But the idea is to show the revenues created and all of the costs, whether above or below EBITDA, associated with creating those revenues. I do expect going forward, with the simplified business structure, the statutory accounts and the view to fully reported earnings should be clearer. Back to Shawn.
Thanks, Aaron. Looking at our Branded Products division, which Women's Health makes up 96% of the net sales. On the Women's Health, the key call-out here are that sales have recovered, as I said earlier, and you can see the development of NEXTSTELLIS and the licensed portfolio on the right-hand side. Performance is building, and we're confident that we now, over the one-offs and other issues that negatively impact the second half of our fiscal year 2023 results. You will see on the cost out, that which we talk to you later, and remember that we said we'd add an annualized investment of AUD 20 million on the licensed portfolio of products. So when you look at the cost, the net increase in Q1 versus Q4 reflects good cost control in Women's Health already.
As Aaron discussed, the contribution margin of $2 million is what you'd see in the segment note, and the accounts here are showing that the royalty liability associated with those revenues. This reflects progress on cash generation as well in Women's Health. Importantly, NEXTSTELLIS cycle growth is no mystery for you, though, who follow the various data providers on a weekly and monthly basis on the prescriptions for NEXTSTELLIS. I will say that script growth in the early part of the quarter, the U.S. summer, was seasonally slower, as it is across the entire industry, but we're still driving NRX and repeat RX, so the compounding effect builds. To reiterate, the refreshed marketing strategy is building and the addition of medical affairs is important to the education of NEXTSTELLIS, which is a big gap in the early days of the original NEXTSTELLIS launch.
Visits, signature, samples, that's what it's about in front of our customers. Clinically, this is an excellent product, and the user experience really enforces that. We're confident in our strategy. We're sharpening our focus on return on investment and sales productivity as part of the balance in any product launch. The balance of cost, return on investment, and sales are the focus, and we're still, I'm still confident in achieving our break-even run rate by December. The caveat being that we'll get there on lower investment levels, lower number of cycles with excellent net, net selling price. The disappointment of the net selling price in the second half has been acted on in the quarter and has rebounded. So let me share a little more on net selling price.
Back in November 2022, we took actions on co-pay levels to make NEXTSTELLIS more competitive in the market for oral contraceptives and reduce the abandonment rate of our prescriptions that we generated. That is, reducing the number of scripts that are written but not filled for economic reasons, usually. We've been successful and now are down to the industry norm for branded oral birth control pills on the abandonment levels. However, we did see signs of co-pay card misuse and managed care rules not being followed in a way that benefits the patient or Mayne Pharma. Back in May, we contracted with RiseRx to help ensure co-pay cards were used as planned to drive profitable growth. This action has been productive, as we have seen net selling price increase in July, further increase in August, and further increase in September for NEXTSTELLIS.
So we are now above the net selling price level we demonstrated in the first half of fiscal 2023 for NEXTSTELLIS. Our objective is to continue to improve on our entire portfolio of net selling prices, not just NEXTSTELLIS and our new licensed Women's Health portfolio, but dermatology as well. We have a multipronged approach, and it's producing sustainable results for Women's Health, and we expect this approach to start to pay off for dermatology in the next quarter. In addition, with all these changes in gross to net, we take a conservative approach to recording of our net sales in FY 2023. As we develop more reliable history with our products, adjustments to our accounting procedure may become more favorable.
Lastly, as per the ACA law, when it comes to birth control, out-of-pocket expenses for patients being zero, on the heels of President Biden's executive order designed to enforce this law, recently, we've seen the state of Vermont take action favorable for the patient and the industry. If enacted on uniformly across the country by government and commercial payers, this represents a significant upside to net selling price for both NEXTSTELLIS and ANNOVERA. This next NEXTSTELLIS chart shows unit sales by quarter, with Q1 up 10% in units versus Q4, and net sales up 69%, showing the productivity of our net selling price improvement. We've also reviewed all OpEx to ensure we're getting a positive return on investment. We continually evaluate the full marketing mix and the return on investment we're achieving for each element.
Unfortunately, while all the DTC activity drove increased website clicks, not all DTC led to increased prescriptions. Therefore, combined with our changes in our GoodRx partnerships, we've made a significant reduction in our DTC spend going forward and limit it now to social media, where we do see a positive ROI. We reviewed our territory productivity and have reduced this headcount accordingly, where we didn't see the performance and the opportunity delivering the returns we required from these sales territories. As of this week, we've now taken out $8 million in women's health costs for fiscal year 2024. The addition of more medical education, more sampling and calls is what we know will deliver growth, so we can deliver on our December breakeven run rate for NEXTSTELLIS and continue to drive growth in the second half of fiscal year 2022.
I wanted to let Aaron take you through for the performance of our licensed assets from TXMD and demonstrate how they're delivering value from the country company. Aaron?
Thanks, Shawn. Next slide, please. Thank you. In this view, we provide an update on the performance of the licensed portfolio, answering questions that we have fielded to date about the transaction. If we look at the contribution margin over the nine calendar months that Mayne has had these assets, and then deduct royalties paid or due, we come to a cash return figure of $24.3 million over that nine-month period. Our net sales have run below the average levels reported by TXMD, the previous owner of those assets, in the last three reported quarters, so Q3, Q4, and now Q1, but we have reversed the declining trend. We are continuing to work on growing those assets, working on sales force effectiveness, and are constantly reviewing the investments that we are making, as you would expect. We previously, excuse me.
We previously communicated a plan to add U.S. $20 million incremental cost to support these assets when we entered into the transaction. I am confident, nine months in, that the annualized cost associated with that, that activity will be less than the $20 million on a go-forward basis. We're continuing to work on manufacturing and supply chain to ensure that we have security and efficiency of supply for these products, both of which are critical elements to ensure that we have continued success of the products. Having wrestled the gross to net topic over the past year, I would also note that we are maintaining some conservatism as we manage through all of the various agreements, calculations, and data sources that have to be analyzed and merged in order to come up with proper gross to net estimations.
In summary, I would say we are confident of the growth in this portfolio, and we will resolve all of the outstanding working capital issues remaining from the transaction within the next year. Back to Shawn, please.
Thanks, Aaron. Let's look at our dermatology business and how it continues to grow since we took significant actions since our last AGM in November. We said in the second half of last year that we've fixed our dermatology business, and we made great progress, but the result fell a little short, with authorized generic ORACEA and DORYX MPC 60 having only 3- and 4-month sales, respectively, in the second half. And the core product portfolio didn't actually perform to full expectations. So I'm pleased with the Q1 results. Sales are strong, both from the core portfolio of dermatology products and the new product launches are delivering. And importantly, all the work that's been done by the finance team to manage product profitability has paid off. Margins are now 45%, and we are working hard to improve upon that level.
OpEx is closely managed and the contribution margin and cash contribution are excellent turnarounds with what has been a tough period. As I've said in the past, there are sales and channel discipline being acted on here. Now you can see the GTN profile has stabilized on this graph, the top green line, now at 69% in the month of September. The development of sales, which are now at a regular and sustainable cadence, seem to be growing. Authorized generic ORACEA is performing well after a slow start that we talked about at the full year result, as all the practical inventory in the channel has been used up.
We have commenced the pilot of our enhanced prescriber-patient fulfillment process, i.e., our disintermediation strategy, a partnership with GoodRx and AssistRx, and given that the most medical dermatology products are regular script refills and cash paid, there's a good opportunity here for our model to be really effective. We recently acquired RHOFADE and launched it on October 2nd, a low OpEx outlay and a good opportunity in an adjacent product to authorize generic ORACEA for rosacea patients. Reported prescription levels are above expectations. As Aaron noted, we're ensuring we get the right economics right across the various channels, leveraging our partnership with RiseRx and our pricing rules, and we're making sure our co-pay program benefits our business. Let's take a look at the international business, which consists of three major areas of business.
Our domestic specialty prescription products, including NEXTSTELLIS, along with our OTC business in Australia, is what is known as Mayne Pharma Australia. Secondly, our international sales of products that we make in Salisbury and sell in Canada, South America, and Europe and Asia. And third, our CDMO, making products for pharma customers globally, including our U.S. business, Dr. Reddy's, and who recently acquired our U.S. generic business from us. We've made solid progress on the work down in Adelaide. As I've mentioned in the past, our Salisbury facility has been neglected over the last five years, and we've taken action to improve the productivity and the quality of the products we produce under Grant Swart's leadership. Sales are down due to the timing of production runs, and gross margin would have been even lower, but for some inventory reevaluation benefits.
Costs continue to be managed, and target CapEx programs and the ongoing productivity initiatives are designed to deliver benchmark outcomes in pharma manufacturing. The new business pipeline to drive large and long-run volumes through our FDA and TGA-registered Salisbury facility is building, and we are focused on converting these into real opportunities. The value of an FDA, TGA-accredited plant and the security of supply and supply chain from an Adelaide facility are attractive features for the business. Our CapEx program to renew and build capacity is underway. I'm gonna turn it now back to Aaron to provide more detail on capital management and how we're reducing costs while we drive growth. Aaron?
Thank you. Okay, the company is focused on driving profit and cash with the assets we have in hand. We are working three different areas to accomplish this. First of all, we are reducing the cost required to operate the business, and I've got a subsequent slide to talk a little more about that. Second of all, we are trying to leverage the infrastructure that we have in place to do more business with minimal or no additional capital investment. And third, we are optimizing the channels and the products that we have. We are focused on all three of these areas with the overriding goal to see how much cash and profit we can drive following the transformation of the company. We do believe we have a considerable opportunity.
Thank you, Trevor.
Specific on cost, the way to read this slide is basically to look at what we've done is split the slide up into two pieces. What is the US dollar-denominated total OpEx, so indirect as well as direct, and what is the Australian dollar-denominated total OpEx, likewise, direct and indirect. We do that again to avoid the currency, the currency topics. On the US dollar slide, we've reflected this a little bit differently and included a run rate because of the additions that the company made related to the TXMD, the TherapeuticsMD license transaction. So the company, excuse me, the base without the TherapeuticsMD transaction for USD OpEx would be $102.2 million. During fiscal year 2023, we spent an additional approximately $5.8 million, which is the total actual figure recorded.
That $5.8 million ramped throughout the second half, and so resulted in a run-rated figure if you had that investment in place for the full 12 months, which includes the $13.921 million. The focus on OpEx is to reduce from that level. Last year, we talked about cost out delivering $5.8 million with more to come. What we said previously was: We cut where we can and invest where we should. We have prioritized across the business costs, cost efficiency, and return on investment of any spend. Like all companies, we are facing a number of inflationary pressures, but our focus generally is to compensate those pressures and reduce the cost required to operate this business. This doesn't necessarily happen quickly, but there are a lot of, a lot of pieces already in work. And as Shawn noted previously, $8 million of reductions have been executed.
$8 million of fiscal year 2024 benefits have been executed. We are acting across procurement and supply chain. We are focused on external provided costs, and as Shawn mentioned, we are focused on sales and marketing efficiency. Any added spend that we have has high hurdles. We are spending money on accretive elements such as co-pay monitoring and analytics, but we are spending very judiciously. You heard Shawn talk to reduce costs, assisting the breakeven target for NEXTSTELLIS. As always, there are various views as to the right balance between cost to drive growth and net profitable results. But what I can say is any investment we make in sales and marketing has to have a definite payback, and one example there is the adaptation that we've made specifically to the DTC spend. Thank you. A little bit more on capital management.
You can see that the quarter-end cash balance was $163 million, total cash in bank. That's down from $220 million at fiscal year-end. The quarter was a busy quarter, spent resolving a number of outstanding items. We paid. We had a number of financing outflows. We paid the receivable facility off in full, our last source of debt. We spent $14 million on catch-up payments related to, primarily to chargebacks. And we incurred a number of charges in discontinued operations and on legal matters, which we will continue to unwind and manage throughout fiscal year 2024. The board has made it very clear that as we continue to transition the business, we will maintain a conservative balance sheet and capital structure.
We've made significant progress improving working capital management, with receivables and inventory down more than 50%, even in the face of the revenue growth figures that we're reflecting. We have paused M&A as we drive value, leveraging the existing portfolio, and we are reviewing the appropriate capital structure and mix of facilities as part of completing the transformation of the company. As Shawn has noted, we would like to increase the pace of the share buyback as well. That is at times out of our hands, based on our ability to be in the market and based on certain other restrictions. That being said, given the business improvements and recognizing the various views of shareholders, we are going to accelerate the buyback.
Our expectation is that the group will be operating cash flow positive in fiscal year 2024, driven by all of these various improvements. Back to Shawn.
Thanks, Aaron. So as you can see, we're pleased with the results that we've delivered in the Q1 . We reconfirm our previous outlook that each segment will deliver positive contribution in fiscal year 2024, and I think we're off to a great start. We're also reconfirming that we expect to be EBITDA positive and generate positive operating cash flow for the year. Our focus on costs, return on investment, and growth is all about improving our position so we can deliver sustainable EBITDA growth for FY 2024 and beyond. We remain committed to our run rate break-even target for NEXTSTELLIS by the end of this half in December, noting that earlier comments regarding scripts, cycles, net selling price versus our direct investment costs.
With M&A firmly on hold, we're driving sales and returns at each business, and we are now doubling down on cost, efficiency, return on investment on all spend, as you would expect us to do. As mentioned, we're committed to executing the share buyback program as soon as we can, and we'll seek shareholder approval to increase the buyback up to 15% at the AGM in November. With that, I'd like to thank you for your attention and turn it back to the operator for any questions that there are on the call. Operator?
Thank you. If you wish to ask a question via the phones, you will need to press the star key, followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please type your question into the Ask a Question box. We will now pause momentarily to allow questions to be registered. Once again, if you wish to ask a question, please press star one on your telephone or type your question into the Ask a Question box. Thank you. There are no questions on the phone line or the webcast at this time. I'll now hand the co- Oh, apologies. We have a question registered on the phone. This comes from Philippa Weekley with Canaccord. Please go ahead.
Shawn, just looking at the TXMD portfolio, that's still the sales there are still sort of well below what was forecast when the portfolio was bought. Do you have any comment on that at the moment?
Sure, Philippa. Thanks for your question. So as you know, when we were looking at the assets, they had done $28 million in Q2, as reported by TXMD, in the calendar year. And in the third year, Q3 , they did $20 million, and that's where we saw the, the, you know, the run rate at that time. But back in April, they finally reported on their Q4 result of $10.4 million. When we put the products in our channel, we were able to improve that, and we've improved the script level for it. There is quite a bit of variability, that you're seeing there because the integration, and the impact of our conservative approach on gross to net on this product.
So as we get more and more familiar with the history in our hands with these products, we expect that we'll be able to make gross to net adjustments going forward. But at this time, it's premature. That will drive significant growth, we expect, in combination with the demand we're creating now and gross to net adjustments going forward. Is that helpful?
You're expecting those, those sales to improve further?
We are. Correct.
Okay. Thank you. And another question, can you comment on what way, where you write save? Yeah, sorry?
I just want to say, you know, when you looked at, and Aaron shared the data, you know, it's a 4.2-year payback in absolute terms on where we're tracking so far on the first nine months, which is around a 4x EBITDA, as we acquired it. So we haven't invest fully the AUD 20 million that we said we would, initially. And, and we're, you know, driving, and then we're looking forward. You know, you'll see in the second half, we have the half-strength BIJUVA launch, coming in late January.
Just one more question. So we're looking at the script data as we do in NEXTSTELLIS, and what are we going to assume that breakeven is, script-wise now? I mean, I think it was going to be around 7,000 scripts, Aaron. I'm just wondering what that will be, now with the costs coming out?
Well, you know, you can look at the script lines yourself and draw the line, but we expect that, after the seasonal effect of the summer, that our script books will start to reaccelerate. And then we're, as we said earlier, we're invested. We have now 3 OBGYNs on our medical science liaison team to improve the education. It's much more economically feasible to do it that way than through key opinion leaders. And we're already gaining access to healthcare facilities that we were locked out of previously, because we didn't have that kind of access and talent on the team.
So we expect, you know, over time, the impact of our business as we educate the market on, on NEXTSTELLIS, and then increase the efforts on our sampling and our calls and signatures, that will restore, restore the growth rates that we saw in the second half of FY 2023.
Uh-huh. But do we have a number where breakeven would be at on NEXTSTELLIS now? Does Aaron have a number?
We have a range in where that can be achieved based on net selling price, and what we've now taken out, as I said earlier, $8 million out of the women's health cost base, US. We are in a position to, you know, deliver on what we said, on the growth rate and deliver on the breakeven. But we're not giving guidance on the exact number of scripts.
Okay. Thank you. Thank you.
Your next question is from Justina McMenamin with Lazard. Please go ahead.
My question is just about the net selling price that was achieved during the quarter. How sustainable is that throughout the half and throughout the year, do you think?
Hi, Justina, can you hear me?
Yes, I can hear you.
Hey, hey there, this is Aaron. We do believe that net selling price is sustainable. The especially with NEXTSTELLIS, the net selling price is a function of certain contracted rates, with the most variability coming via co-pay support. Via the RiseRx partnership that Shawn mentioned, we've got somebody monitoring how the co-pay support is being used. We've got a contracted partnership with a different company who is handling some of the co-pay processing and giving us better availability to toggle the co-pay support. And so, our expectation is that these are sustainable results. We're obviously focused. We're not satisfied with the level it is. We're continuing to push forward, but we believe the Q1 levels are sustainable.
As I said, Justina, two things here. You know, we saw impact of the erosion of net selling price well before we communicated the results coming out in August, but not to the magnitude that we thought that we're gonna get to. And we took action and contracted with RiseRx back in May, and that delivered positive outcomes. And to give you an example, you know, if a physician in the United States writes three times 28, 84 days of prescriptions for NEXTSTELLIS, a lot of times that won't get covered, but if they write 90 days, it's gonna get covered by the same plan. It is those silly rules that exist that RiseRx helps us to ensure that we're not using our co-pay cards where it, you know, it doesn't need to be used.
So you have a range from convenience to sometimes abuse by people using co-pay cards, and that's what we've done here, is erase that misuse and abuse of co-pay card use and improve that productivity. At the same time, as Aaron said, we're looking at all levers, and we're doing this across the entire portfolio, not just NEXTSTELLIS, but right across the rest of the women's health portfolio and dermatology. And so we just implemented it recently in dermatology, and as I said, we expect this to improve net selling prices for dermatology as well. So we're confident that, you know, we've put the processes and systems in place to have a really tight monitoring on this and be able to adjust accordingly.
But as I said, we had price increase in July, further price increase in August, and further net selling price increase in effective net selling price in September.
Okay, great. Thank you.
Thank you. There are no further questions on the phone line or the webcast at this time. I'll now hand the conference back to Mr. O’Brien for closing remarks.
Thank you, operator. Thank you, everybody, for joining us today. We're pleased with our transformation of the business and how it's going. As I said, we have a lot of work left to continue to make sure that we're getting the right return on investment. Our focus is really on driving EBITDA growth that's sustainable, well beyond fiscal year 2024, and we're pleased with the results of the Q1 and how we're tracking in this transformation of Mayne Pharma. Thank you, and enjoy your day.