Good day, and welcome to the Maine Pharma Group Limited Results Half Year Call. At this time, I would like to turn the conference over to CEO, Mr. Scott Richards. Please go ahead, sir.
You very much, and good morning, everybody. Thank you for joining us today to discuss Main Pharma's half year twenty twenty one financial results. Joining me on the call is Peter Poldagloo, our Group CFO. As with past practices, I will provide an overview of the results, our key strategic priorities, how our operating segments have performed, and Peter will provide some additional detail on the financials, and then we'll open up the call for questions. Firstly, I'd like to give a quick update on COVID.
Transmission still remains very high here in the U. S. And the communities in which we operate. The health and safety of our employees remains a key focus, and we continue to adapt to the evolving environment. Pleasingly, our manufacturing output has continued to grow inside our facilities, and we have seen minimal disruption to our 3rd party supply chain or prosecution of our R and D programs.
Further, our dermatology sales team performed very well, 5 on average a 50% drop from in person office calls through effective utilization of various virtual engagement platforms, which have allowed us to maintain overall reach and frequency metrics close to the pre COVID levels. Moving to the group results. Reported revenue and gross profit were down from the prior corresponding period, impacted largely by FX and weaker performance from our retail generics business. On a constant currency basis, the decline was 3% of the top line, and underlying EBITDA was $44,000,000 down 7% on the prior corresponding period. At the bottom line, we reported a net loss after tax due to a noncash intangible asset impairment of the generic portfolio.
Whilst this is obviously disappointing, it reflects our latest view on trends in what remains a highly competitive U. S. Retail generic segment. Operating cash flow was solid at $46,000,000 ahead of EBITDA and helped us to reduce net debt by $40,000,000 over the half. Whilst ongoing challenges in our retail generics business continue to impact our group results, we are encouraged by the performance of our other business segments during this difficult operating environment.
Slide 6 of the results presentation shows our gross profit broken down into U. S. Retail Generics, Contract Services, Dermatology, Women's Health and our Rest of World business. Excluding the U. S.
Retail generic segment, the remaining business grew 70% on a constant currency basis at the gross profit line, and these categories now account for 77% of gross profit for the group, up from 46% 2 years ago. Going forward, we expect to see a further reduction in the retail generic business as a percentage of the group, and women's health will become the largest category following the launch of key pipeline products such as Nextelas and generic MoveA Ring. We also realized significant spending reductions this half. Operating expenses and gross R and D spend decreased by $19,000,000 made up of a $12,000,000 decrease in operating expenses and a $7,000,000 decrease in gross R and D spend as we wind back development spending on retail generics and focus on progressing our proprietary or branded pipeline. Moving to the operational highlights.
Our key mid term priority is, of course, the commercialization of Nextelis, our novel oral contraceptive with a new estrogen, Aceptrol or E4. The product is pending at both the FDA and the Australian TGA. In the U. S, the product was accepted for filing in June 2020 and has a target action date with the FDA in April of this year. We've had 2 positive meetings with the FDA in September January as part of the dossier review with no substantive issues identified to date.
Subject to regulatory approval, we are planning to launch Nxellus in the U. S. Market around the end of this half and barely next calendar year in Australia. Slide 8 outlines some of the key features of NEXELIS. If approved, E4 or Asetrol will be the first new estrogen introduced in the U.
S. To contraceptive use in 50 years. E4 is a low impact estrogen with a unique mechanism of action that offers potential advantages over other estrogen. Our marketing strategy is focused on building awareness of Nextellus amongst key stakeholder groups, such as health care providers or prescribers, payers and consumers. In 2020, we conducted 4 advisory board meetings in the United States, and there was strong interest in the science, E4's mode of action and the clinical data from Phase II and Phase III trials that were conducted in over 4,000 women.
In terms of the Nextel commercial team, we've made a number of key management appointments as outlined on Page 10. Many of these new appointments have significant experience in leading women's health companies such as Agbbe, Allegan and Bayer. The new team will be supported by a field force of approximately 75 people who will be focused on reaching high prescribing OBGYNs. If approved at our April target action date, the Naxdela launch costs, covering sales force, medical education and marketing activities, are expected to be approximately US10 $1,000,000 in the second half of this financial year. As a reminder, Nextelis will participate in the combined hormonal contraceptive market, which is valued at US4 $1,000,000,000 The largest branded product by revenue in this market is low Loestrin FE, generating US500 million dollars in annual net sales.
Our business case for Nexella is targeting peak net sales of US200 $1,000,000 which represents just 2% of the market by units. Other key highlights this year include the launch of 4 new products in the U. S, 2 branded products, salt and oxal solution and a new dose strength of dorics and 2 generic products. Since the beginning of this calendar year, we've also launched 3 further oral contraceptive products that were sourced from our new partnership with Novart Laboratories. 2 of the products are generic versions of the top 2 prescribed contraceptive products in the U.
S. Today, ortho cyclone and orthotricyclone. In dermatology, we continue to actively assess further opportunity to license certain generic products to expand our portfolio in the specialty pharmacy channel. We do believe our go to market dermatology platform can offer a more effective distribution model that provides advantages in terms of greater convenience and price transparency for patients, reduced administration for the prescriber and improved economics of the dispensing pharmacy. We're currently in active discussions with partners for another 8 generic products to add to our growing portfolio.
In terms of our pipeline products, we continue to advance our key programs with the FDA. We expect to respond to our generic Meverine CRL by the end of this quarter and have another 5 products pending approval plus 3 other products that have been approved, which we are targeting to launch this calendar year. These 9 products, pipeline products have combined IQVIA sales of US1.5 billion dollars of which Nudirim represents US800 million euros Moving to the operating segment. Starting with Metrics Contract Services. This business performed well in the half with USD sales up 6% and gross profit up 12%, benefiting from new commercial manufacturing revenues and improved business mix.
Commercial manufacturing grew strongly and now represents 14% of MCS sales, versus 3% in the prior corresponding period. Metrix has 5 commercial clients, including 2 top 10 global pharma companies and is now approved as a manufacturer in 40 countries. Growth in the commercial business reflects the capital investments we've made at the Greenville, North Carolina facility. Most recently, we invested a further $10,000,000 to expand capacity and support the pipeline committed business. We continue to see favorable market dynamics in this segment, and it's benefiting from an increase in outsourcings generally in development and manufacturing and the growing number of oncology compounds in clinical development, which the Greenfield facility is well suited for.
The market continues to grow in the mid single digits, well above the broader pharmaceutical industry, and many businesses have been sold in this space for trailing 12 month EBITDA multiples in the mid- to high teens. Also, publicly traded contract services companies like Cattleman, Lonza, Siegfried and ResiPharm also trade on significantly higher multiples in the broader pharma sector. Moving to our Specialty Products segment. USD sales were down 6% on the first half versus TCP, but pleasingly, were up 32% on the second half of fiscal 'twenty, benefiting from some improvement in COVID related access and underlying demand and also improved gross to net performance. The last few years, I've seen a significant increase in managed care costs as PBMs have consolidated and leveraged their market position to demand higher rebates and return commercial coverage.
This dynamic effectively reduces the net selling price of branded products and shifts the burden to manufacturers' light maintenance to ensure patients can get their medicines at an affordable price. We've responded to these dynamics by making proactive co pay card changes, restructuring the dermatology sales force and changing how we market our products. Direct operating expenses, which capture sales team, marketing and distribution costs, have decreased by $5,000,000 or 28% this half, while prescription performance across the total dermatology portfolio of brands and generics has remained steady. Increasingly, the direct operating profit from Specialty Products, which was disclosed on Page 20 of the presentation, has increased 40% versus the prior corresponding period as a result of these initiatives. Today, the dermatology sales team work with an extensive network of specialty pharmacies and provide access to more than a dozen branded and generic dermatology products, and more than 85% of this segment are offered through this specialty pharmacy channel.
Taltura, our improved formulation of etroconazole, has faced a very challenging 2020, impacted more significantly by COVID-nineteen than our other businesses given many of our key customers and prescribers are hospital based. Despite that, we're beginning to see signs of growth again in the final quarter of 2020 with sales, units and defense prescriptions above all prior quarters since launch. We're also making further investments with HAF in the field team footprint and various marketing initiatives to drive further awareness and growth in anticipation of emerging from COVID restrictions this year. And we do remain very confident in the potential of this product to capture a meaningful share of the utriconathon market. We also see broader application of this product in other fungal infections such as valley fever and as a potential anticancer treatment with our most advanced program being in basal cell carcinoma and NIVUS syndrome.
Moving to generic products. USD revenue was down 8% on the prior corresponding period, impacted by ongoing pricing pressure across the portfolio and limited benefit from new product launches. Product performance was mixed with growth in budesonide and cabodopa levodopa, offset by weaker performance of butalbital, mitfenadate and aminodirane. The future performance of the generics segment will continue to be heavily influenced by the timing of FDA approvals and any competitor launches and withdrawals of key products. We continue to rationalize the generic portfolio and discontinue unprofitable products.
We're reducing stockpiles to license and we're optimizing the cost base through the realignment of our supply chain with raw material suppliers and contract manufacturers such as Novus Laboratories, where we've secured supply on more favorable terms for 8 contraceptive products. Over fiscal 'twenty one, twelve product transfers are expected to be completed into our own facilities or into new contract manufacturers, which is expected to improve our product top space. The aggregate impact of these initiatives and new product launches will continue to offset expected ongoing price erosion in the base retail generic business. To underscore this last point, our largest retail generic product, Live Pyronene, saw a new competitive launch recently. Moving to our last segment, Maine Pharma International.
Our Rest of World business recorded sales growth of 10%, driven by strong income from providing development and manufacturing services to 3rd parties. This 3rd party income increased 35% on the prior corresponding period and benefited from 7 new development projects and growth in contract manufacturing revenues. The stronger gross margin reflects overhead recovery benefits at our Salisbury site with those volumes up almost 50%. With that, I'll now hand over to Peter, who will go into further details about the results.
Thanks, Scott. Good morning, everyone. I will now provide a high level overview of the result and take you through the key profit and loss balance sheet and cash flow movements this half. FX has had a material negative impact this half with the average Aussie dollar exchange rate relative to the USD strengthening 0 point 0 $4 from $0.685 in the prior corresponding period to $0.73 in the current period. FX has several impacts on the P and L, which I'll discuss in further detail as we work through these results.
At the top line, reported revenues were $209,000,000 down $18,000,000 versus the prior period. The softer revenues were a result of both the weaker U. S. Dollar, which accounted for $11,000,000 of the sales decline, along with continued challenges in the retail generics segment of GPD. On a constant currency basis, revenue was down 3%.
Reported gross profit was $96,000,000 down $10,000,000 and the gross margin of 46.5 percent was essentially flat versus the prior corresponding period. Underlying EBITDA on a constant currency basis was $44,000,000 down 7% on PCP, with FX impacting this by $4,000,000 This FX loss comprised 3 components: the revaluation of trading assets of $1,400,000 a translation FX impact of $2,000,000 and a transaction currency effect for the balance. Reported EBITDA was $40,000,000 up $6,000,000 or 16% versus PCP. Slide 5 of the presentation outlines the underlying adjustments to EBITDA. There are 2 adjustments that I wanted to call out: a noncash credit of $5,600,000 arising from a decrease in fair value of earn out liabilities, and we also added back $1,400,000 of setup costs for the establishment of the women's health platform for Nextelis.
This is consistent with the approach we adopted when we acquired Dorex and set up our branded dermatology platform and related organizational infrastructure. We will have a further adjustment taken up at the full year for these prelaunch activities, which will enable better look through to underlying business performance for fiscal year 'twenty one. Once approved, Nextelis operating costs will be included in the underlying result. Bottom line, we reported a net loss of $181,000,000 which was largely due to $215,000,000 noncash impairment of our generic intangible assets. This impairment was driven by the revised outlooks for the generics business due to increased competitive pressures in certain on market and pipeline products along with additional pricing headwinds more generally across the retail generics portfolio.
Moving to expenses. Pleasingly, our cost base continues to be effectively managed with OpEx reducing $12,000,000 or 18% versus PCP. Within OpEx, marketing and distribution costs were down $11,000,000 reflecting the restructure undertaken last year in the dermatology business, both to reduce costs and improve alignment with our go to market business model in this segment. Admin and other expenses were down $5,000,000 to $56,000,000 although this includes a number of noncash and nonoperating items. Note 3 of the accounts provides a detailed disclosure on our admin expenses.
Excluding these noncash items, admin and other expenses were down $1,000,000 versus PCP. Gross R and D spend, including both capitalized and expensed amounts, was $13,000,000 down $7,000,000 on PCP, whilst net R and D expense was $10,000,000 down $2,000,000 on PCP. The R and D capitalization rate fell from 37% to 20%, reflecting the reduced generic R and D spend as we continue to pivot our development activities towards specialty products. Total finance expenses increased by $5,000,000 although this was due to the noncash discount unwind effect from the earn out revaluation associated with the Nextelis earn out liabilities. This will continue to be a component of our results given the structure of the Nextelis product license with Mithra.
Interest expense in the P and L, which captures the cash costs of the debt facility, was $6,000,000 down $1,200,000 from PCP, benefiting from an improved cost of funds with lower LIBOR BBS wide rates reducing the average interest cost from 3.7% PCP to 3.3%. In terms of cash flow, operating cash flow was another healthier result with an inflow of $46,000,000 which was above underlying EBITDA, demonstrating strong cash conversion across the business. We've now had 7 consecutive halves in which operating cash flow has been above $45,000,000 The key investing items this half were $6,000,000 of CapEx spent on our 2 manufacturing facilities, $8,000,000 of earn out payments and $5,000,000 on product acquisitions and capitalized R and D. After investing cash flows, the company produced free cash of $28,000,000 almost double the prior corresponding period. This was a strong outcome and has helped us further improve our balance sheet position across the first half.
A key half of this a key highlight of this result is the improvement in net debt, which has fallen by $40,000,000 due to the production of this free cash and the strengthening Australian dollar. Our bank leverage ratio was 2x for the half versus a covenant of 3.75x, falling from 2.5x as at the end of June 2020. In December 2020, we completed a restructure of our debt facilities, creating more balance sheet flexibility. We extended the $100,000,000 syndicated Bulleit facility by 4 years to November 2024 and also improved covenant terms, including the reduction of the shareholders' fund covenant to Aussie $600,000,000 It is worth highlighting that over the last 2 years, we have generated almost $200,000,000 of operating cash flow, of which $90,000,000 was free cash flow and reduced our net debt position by 30% or $90,000,000 During this period, we have internally funded various important growth initiatives, including site expansion, key R and D programs and selected business development activities. We've invested more than $60,000,000 in R and D, dollars 60,000,000 in product acquisitions and licensing activity and $20,000,000 in our manufacturing facilities to set up the business for a more sustainable future in our selected markets.
Looking forward, we will continue to remain focused on generating strong cash flows, further reducing our debt position and prudently controlling our spending. We have many programs underway to further strengthen our supply chain, reduce product manufacturing costs and optimize costs that sit between gross sales and net sales. We have 12 tech transfer programs expected to be completed this year, a number of programs underway to secure more efficiently priced API, and we also have process improvement programs at our plants to increase overhead recovery benefits and initiatives to further reduce stock obsolescence returns and the cost of co pay cards. And with that, I will now hand back to Scott.
Thanks, Pete. So look, in summary, Main Pharma's key priorities have not changed. We remain focused on the successful commercialization of the novel oral contraceptive, Nyxtellus, which is getting closer to our launch and is expected to be the key near term transformational event for our company. We'll also continue to expand our dermatology and women's health portfolio through business development and R and D activity. We'll continue to accelerate our global contract services platforms.
We'll continue to maximize the 2vitrocrumabolt franchise with Kaltura and also continue to optimize our coal space with a particular focus on our generic portfolio product costs. So with that, I'll now hand back to the operator, and we're open for questions.
And we can go ahead with our first question. That is from Saul Hodesin with UBS. Please go ahead, sir.
Scott, just a question for me regarding Nextelis and the impending decision by the FDA. Can you talk to you mentioned sort of the aspirational revenue target, but I'm just wondering if you can give us a sense as to realistically just timing for those revenues to ramp, particularly, I guess, in the COVID environment in the U. S. Extending through this part of this calendar, your ability to get into to get a market into specialist rooms? And I guess, yes, just a time frame as to how long it might take to get to that $200,000,000 in sales?
Yes. Thanks, Phil. Well, look, I mean, just in terms of access to physician offices, we see the OBGYN phase to be similar to dermatology. And in dermatology, we have good access, 50%, 60%, 70%, depending on which part of the country you're in. And that is getting better every day now.
And further to that, when we can't be there in person, we're finding virtual engagement to be quite effective. So the vast majority of our dermatology conditions, we have access to, and that's SPD area. So we expect a similar situation in the OBGYN space. And given that the majority of the sales team that we'll be hiring will come from that space, they'll have the advantage of those existing relationships as well. In terms of the $200,000,000 headline number, that will be generated over a number of years.
We haven't been absolutely specific about that. The trajectory will depend upon, obviously, the effectiveness of our sales team. It will also depend upon the effectiveness of our interactions with managed care. We do expect this segment based on other analogs to be very well covered, certainly better covered than in dermatology that I referenced earlier today. So we don't expect headwinds there.
So look, it will be a build, but plastic brands like this, I would expect this to be getting somewhere towards peak sales in year 3 or thereabouts.
Great. And just one other for me. Just on maneuvering and noting, again, your comments as it relates to the feedback that you're anticipating. We've seen another generic entrant. Just your thoughts on that market as it stands today and your ability to compete even when you do get a product into market in the U.
S. I guess, what have you seen in terms of the genericization of NuvaRing to date from the brand? And just your expectations on your ability to compete once you do once you are able to play in that space? Thanks.
Yes. Look, obviously, there's an additional approval. We I mean, from an internal business case standpoint, we did expect to be behind Teva. So look, we think we'll still be able to compete and we'll be able to compete in 2 ways. 1, this is a very big market.
So our ability to strike decent share, I think, is still very valid. That's our expectation. Clearly, an additional competitor versus not having an additional competitor does make this market smaller. But it's coming off, obviously, a very, very high base at over US800 $1,000,000 The second thing to note here is unlike any of our generic competitors, we will have a front end women's health sales team, obviously focused on Nextelis. But we do have a very large portfolio, which will then be complemented by Nuvaring of branded generic contraceptives.
So you should expect to see from Main Pharma a game plan here where we'll compete in the retail space with the other generic companies in a classic way, but we will also compete in alternative channels using our direct relationships with physicians in this space, which these other generic companies don't have a bit like what we've done over the last 4 or 5 years in dermatology.
And we will go to our next question from Gretel Janu with Credit Suisse.
Firstly, just in terms of underlying EBITDA, I think at the AGM trading update, you did make the comment that underlying EBITDA was marginally ahead of the PCP, but it did end up down 7% on a constant currency perspective. So I guess what happened in November December for it to be quite a different result between what we're saying in the AGM?
Yes. Look, I'll let Pete add something here. But if I can just say to start, it'd be fair to say that we didn't see some of the wholesaler buying patterns that you traditionally see as you enter the Christmas New Year holiday period. Usually, there's an extra week or 2 of buying, which is not insignificant in our generic business. That didn't happen this year.