Thank you for standing by, and welcome to the AFT Pharmaceuticals half-year results analyst briefing. All participants are in a listen-only mode. There will be a presentation, followed by a question and answer session. If you wish to ask your question, you will need to press the star key followed by number one on your telephone keypad. Representing the company today, we have our Managing Director, Dr. Hartley Atkinson, and Malcolm Tubby, our CFO from AFT Pharmaceuticals. I would now like to hand the conference over to Hartley Atkinson. Please go ahead.
Thank you, Ashley. Thank you everyone for joining us today. Maybe just to go through the presentation, if that's okay. Obviously we have the first page, which is the title page. Page two, we have the various disclaimers. Please just be aware of those. They're pretty standard. Maybe then to move on to page three, which is the financial highlights for H1 FY 2021. Basically, to look at some top-line numbers, the number of countries which we're selling Maxigesic in continues to grow. We're up 21% to 34 countries. That's an important matrix as over time, clearly, as we sell it in more countries, then that'll improve the volumes, and then that'll drive international sales. We're watching that as a matrix. The operating revenue from product sales grew 9%. To be frank, it is still quite a challenging period, with various impacts around COVID.
We were pleased overall to grow sales at that sort of rate. I guess if it hadn't been for COVID, we believe we would have got a lot greater growth, but considering the situation, we were still pleased with that 9%. Then on to normalized operating profit. The answer here is, it's 2.4 million, and it is down 38%. There were some other factors in last year's figure that's probably important to consider. There was a NZD 9.8 million gain on acquisition of an asset from the partnership around the Pascomer product. Additionally, there was a NZD 1.7 million R&D credit from a development partner as well. If one does look at a pure apples-to-apples comparison, it was more like a 9% growth as opposed to 38% decline. Just to point that out. In terms of normalized net profit after tax, that improved by 968% on the bottom line.
Then looking at cash, clearly, cash is always important. What we have done is we have made the management decision to build our inventory and stocks. We believe that it is the safe thing to do. There are still quite a lot of disruptions around the world with shipping. Air freight, I think as we all know, has been very disrupted. We generally don't use a lot of air freight, and we generally have used mainly sea freight. However, boats actually are getting disrupted at the moment, and we made the decision to look ahead, and we've increased our stock levels just to give us an extra buffer. Obviously, the effect of that is it does use some cash, and that is what has happened.
Having said that, look, we're in a good position where we have access to additional facilities if needed, which we don't believe we need, and we're well within our banking covenants or anything like that. That explains that figure in terms of background. Shareholders' equity has improved by 73%. To move on to page number four, just to look at the breakdown of the FY 2021 interim results. We've seen that sales have improved 11% in the main market, the Australian market. New Zealand, they've been relatively flat at 0%. There's been a slight decline in international. That is also pays to just give that some context. We do have licensing income, which does get put into the international overall sales. There was quite a significant amount received in the first half of last year, therefore, there's a bit of a lumpy effect.
If one ignores that one-off license Well, sorry, it's not one-off, the licensing income, the actual product sales grew by 53%. We're still getting good growth in the international product sales, which overall will still be the key parameter going forward. There was a slight decrease in the sales in Asia. Anyway, overall, basically, we're still considering getting pretty good growth. There's been some lumpiness in income very much from month to month, which has been somewhat impacted by COVID. If we look at MAT figures, which sometimes if you've got lumpy income, a moving annual total gives you a better indication. For instance, overall sales are growing by 18% on an MAT basis. As I've said, there's a lot of lumpiness for various reasons, which are mainly related really to COVID impacts. Moving on to the next slide, slide number five.
Really, this is just adding on to the last slide with a bit more detail. We can see Australian growth at 11%, New Zealand pretty flat or very slightly positive. Rest of world, as we said, looking like negative at - 15.9%, product sales are still growing at 57%. Certainly, they would've grown a lot more. We've got orders for a lot more, we're still trying to clear those. There has been still some ongoing impacts of COVID on production of our export orders, which will resolve over time, we still have a backlog at present. Overall product sales grew by 9% to NZD 48.4 million, including licensing income and everything together, there was a 4% growth. That's that slide there. Moving on to slide number six, I will hand over to Malcolm.
Thanks, Hartley. Looking at the consolidated income statement, the abbreviated one. Hartley's taken us through the revenue. Moving down to gross profit of NZD 20 million. That has been impacted by the lower licensing income. If we move down to the very bottom of the slide, we're showing you there the gross profit on the product sales, so the margin change of 1% down to 41%. That's due to the additional freight cost for air freighting product in to ensure continuity of supply. There was a very small, little bit of foreign currency at the very start of the financial year. If we look at the operating expenses, they continue to decline as we get our operating leverage. They're down to 36.7% of revenue.
Long term, we see that there will be a continuing decline or improvement, if you like, in that percentage as the international sales grow. There will be a little pause in the short term as we launch the new products that we've got lined up for Australia and New Zealand. Looking at the underlying profit of NZD 2.4 million, that's 5% of revenue. Last year's normalized operating profit of NZD 3.9. If you took that NZD 1.7 one-off contribution to R&D out, it's about the same, around 5%. The big improvement we can see is in the savings we're generating now in the finance expenses, which I'll talk to when we get onto the balance sheet. That's helped a lot to get us into more positive profit at after tax. NZD 1.2 million. If we move on to slide seven, the abbreviated balance sheet.
The main call outs here are the current assets, and that's an effect of us building our inventory levels, to protect ourself through these difficult times. The other two factors, one of them is the debt. We've now got the three-year facility in place with the local bank, BNZ. That moves into current and is declining. We've reduced that by NZD 3 million in the six months. If we look at our total equity up to NZD 30 million, which is the result of the return to profitability, and the equity raise we did during the period. Moving on to slide eight, the cash flow. The -NZD 2.7, in operating activities, that's a combination of our operating profit, the reduction in debtors from year end, and then offset by the inventory build. In the investing activities of NZD 3.8 million, that's our R&D program and registrations.
The financing activities, the net 6.7 is the equity raise of NZD 12 mil, less the debt reduction of NZD 3 mil, and then NZD 2.5 mil for finance costs, which is primarily the equity raise and interest. Cash stays about the same, around NZD 6 million. Moving on to slide nine, which is our normalized operating profit progress. That remains the same as it was at year end. Through that period from when we became a public company, where we invested in the R&D back into profit again in 2019, generating NZD 11 mil last year normalized operating profit. We're leaving our guidance unchanged for the full year of NZD 14 million-NZD 18 million. I'll hand back to Hartley, to take us through slide 10.
Yeah. Thank you, Malcolm. Look, what's also important is our development program, and our licensing program. Just to start with the development program, Maxigesic, we're continuing to advance that. We received a Complete Response Letter from U.S. FDA, which basically cleared all our questions and issues other than the remaining requirement for a final GMP audit before it can be approved in the U.S. That was actually very positive, though. Literally getting down to no questions. The original file that went in was literally 23,000 pages of data, FDA reanalyzes all the study data and everything. It's pleasing that we've got that result, and now the key thing is to work with them to complete the GMP audit. We're currently in communication with them over that. We have successfully completed the IV registrations now in 20 countries, which is a big advance.
We're working really hard on rolling out our approvals with Maxigesic IV, and that's certainly a key target that the team is focused on. The oral liquid, we're still awaiting our first registration, so we have a number of filings, but nothing yet to finalize on that one. The hot drink sachets, it's like for cold and flu. That product has been filed in December 2019, and we're progressing the first registrations. It's still only a few months after the filing date, so we would not have expected to get any approvals yet. That's underway. The Maxigesic Rapid, so the important part about that is it's another tablet product. It's very fast-dissolving with special technology we licensed then from a U.S. company.
It's got an additional patent position as well with a filed patent that, if that's granted and everything goes to plan, it would only expire in 2039. That one has been successfully developed, and we're working on our first filing in the second half of next year. Maxigesic Cold & Flu product has been filed. The first filing's been made for that in Australia. Our other programs, Pascomer and NasoSURF, so basically our large global multicenter study is currently underway in Australia, New Zealand, the U.S., and also across Europe. That's been quite challenging in some ways with the COVID epidemic. Our team has been able to audit remotely the various sites, so there's been a lot of late nights or early mornings working with the U.S. Good progress has been made on that, and we're confident of completing that next year.
The NasoSURF, we also continue to make good progress on that. We've completed the engineering batches successfully, at this stage, we're just organizing with a U.S. company, for development and manufacture of the first dose form that we can then move into clinical trials and registration following that. We're making good progress on our R&D pipeline. To look at the next slide, the Maxigesic global update. Basically, we've got three colors. White is where we're still to license, blue is where we have licensed, yellow is where we have launched. We are getting more launches underway at the moment, with recent launches in Germany. Also as well, we are still working on licensing agreements in larger jurisdictions, such as the United States, which is underway. We're also getting ready for a big launch in Canada, which is going to happen soon.
Furthermore as well, we're also working on registration and launch in Korea, which is also another interesting market. Russia's progressing well with a successful remote GMP audit of our manufacturing site by the Russian Health Ministry. That has been successfully completed, and it's under registration in Russia, which is a pretty significant market with 140 million people. Really, we're just continuing to make progress on this to fill in some gaps, like even places like Pakistan where we had not originally envisaged interest. We've got a good distributor there. Really it's just carrying on with this, there should be more blue and more yellow as time progresses. That's that slide. Moving on to slide number 12. This is the Maxigesic countries where we are selling in and/or have orders for. Basically, we had targeted 66 countries this year.
We just want to draw your attention to, we're thinking at the moment, it's going to be more like 50 countries with sales in 43 countries and orders for a further seven. There has been quite a lot of registrations in some territories have been slowed down quite significantly by COVID, where the health ministries have pretty much kind of slowed down and haven't done a lot. That has been something that's been difficult for us to influence, of course. Despite that, we're still making progress, and these countries with sales and orders are still going to keep on ramping up regardless. That's page number 12. Page number 13 is effectively our sort of summary cheat sheet, which shows you the progress. We've slightly increased the Maxigesic tablets, the number of countries with registrations.
The obvious big one is the United States, which isn't on that table yet, but we're confident that it will be. Also sold in, we've increased that by 20%, and then we'll further increase it with more countries in the second half. Maxigesic IV, making good progress on that. We've increased the registrations now from three countries to 20. We launched in the first three, and we have a whole pile of launch orders then for a lot of those other countries, such in Europe, like Germany, which is a good size market with 80 million people. We're working on that at the moment. As part of that, too, we've also set up European office based out of Ireland. This is some of the moves we've made really around COVID. We basically opened up the European office. We didn't send, I guess.
Well, one of our staff went to Switzerland, and she's now working out of Switzerland for the remainder of this year and probably most of next year. We've been able to pivot and do remote audits on our clinical side, and our GMP audits, and things like that. As well, the other thing that we haven't got a slide on it, but just to talk about is that there probably has been an impact on the Daigou market in Australia and New Zealand. As those of you will know, the local students, primarily from China, certainly do buy quite a quantity of Australian and New Zealand goods and then ship them back. What we've done to counter that decrease in Daigou is we've opened up a Tmall site, and that's well underway with pleasing initial sales. Other programs as well.
We've got a big promotional program based around the new Jackie Chan movie and the actress in it called Neila, and she'll be promoting our vitamin C Lipo-Sachets. It's just programs like that. We've been working really hard around the whole COVID area, that even though there's some challenges and curve balls, and there's a lot of them, we have worked really hard to make sure that we mitigate any impacts. Clicking on to the final slide, page number 14, sort of what the outlook is. I guess it's important really to focus on that other than some tactical changes, things are really still focused on what we were focused on a year ago. It's driving those international sales, which will be accelerating the new countries that we're launching in, and also adding in the line extensions.
We were certainly pleased about six months ago to see an independent market research company, DelveInsight, predicted that Maxigesic IV could be a mini blockbuster and the biggest injectable analgesic product launched in the hospital market over the next 10 years. That's also put a lot of focus for us onto Maxigesic IV. We're also looking at extending international licensing agreements, so countries like China, Japan, Latin America, and United States. The licensing deals, to be frank, did get slowed down quite a bit in sort of probably the middle to later part of this last six monthly period. It's as though everyone's suddenly kind of woken up now, and we've got a lot of work on with various licensing deals.
You would've seen that we've announced a few kind of smaller ones in places like Hong Kong, Thailand, Ireland, the U.K., et cetera, Pakistan, and Ecuador, which are still useful. Obviously, we are also focused on the U.S. as well. We continue to work on that. We would hope to be able to announce something in the future. Then also it's focusing on commercializing in these new territories that we've added, such as Canada, for example. We've mentioned Germany, we have launched in, places like Switzerland as well. We're just finishing off registration. It's really focusing on driving all these towards sales. Then improving the sales. The other one is upfront payments. Licensing income, as we've sort of talked about, can be lumpy. We've seen we had a good chunk of licensing income in the comparable time period last year.
It hasn't quite fallen in this period. We would still see further licensing income coming through for this financial year, and we've got various agreements that we're working on at the moment. Clearly, swing factors will be larger territories, such as the U.S., which attract much larger upfront payments and milestone payments than, say, smaller territories, such as in Europe or something like that. Driving Australia, New Zealand sales, look, is pretty important. What we're really pleased to see is, I think we said to you a while ago that we'd really focused on in-licensing products for Australia, New Zealand. We managed to achieve 23 new registrations in the last six months, which is an outstanding result by our regulatory department.
This then sets a platform for growing those Australia and New Zealand sales going forward. It's driving Maxigesic sales in Australia, New Zealand, the new OTC launches. For example, we just launched in Australia a new day-night analgesic. We licensed the patent off a local Aussie pharmacist last year, we were able to get it registered and approved, we've literally just launched it, sales are going really well. That's just an example of the new product launches. We have had some COVID-19 related product launches as well. We have been able to pivot around that with some specific items. That sort of helps to fill in any gaps in the sales channel. We have seen some movements in sales where some products sales have increased a lot, like we've mentioned, the vitamin C Lipo-Sachets. Some other products actually have decreased.
Things like one of our products that kiddies use when they go to the doctor. A lot of parents are actually not sending their kids to the doctor during lockdown periods because they don't want to risk them sitting in a waiting room where they might catch COVID or something like that. We have seen some kind of impacts on some products, but overall, you'll see that we've worked hard to make sure we still keep on growing the sales, which we have. In terms of profit growth, we've always made most of our profit or just about all our profit in the final 6 months, and we don't see this year as being any different. If anything, this year is more accentuated towards the back end than most years.
We're still confident of NZD 14 million-NZD 18 million, which would be a 23%-58% growth over our last financial year. We are still targeting that additional cash flow to reduce our debt. As Malcolm has mentioned, though, we have taken the prudent pathway in the short term by using some cash to purchase additional stock, which we still think is by far the safest thing to do. We've done that, but long term or medium term, we would still soon be able to reduce our stock holdings as things start to smooth out going forward. Things like we're asked about dividend policy, that hasn't changed. Once we get our debt down to a reasonable level, we've always never said it would be this year, but certainly towards the end of next year is certainly something that we would look at very carefully.
If possible, we would look to pay a dividend. Look, thank you for your attention, and hopefully that is a reasonable overview of where we're at, and happy to try and answer any questions for you now. Thank you.
Thank you. If you wish to ask your question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your queue, please press star two. If you are on a speakerphone, please forgot the handset to ask your question. Your first question comes from Chelsea Leadbetter with Forsyth Barr. Please go ahead.
Thanks. Morning, Hartley and Malcolm. I guess a few questions from me, maybe firstly centered around the outlook and sort of your guidance statement, et cetera. I'm trying to understand a few things. Firstly, in terms of license income, and is there anything factored into that guidance for license income in the second half?
Yeah, we've got quite a lot of business as usual license income, which we would see as falling more in the second half, because we've got a number of milestones and things from existing licensees. There will be some business as usual licensing income falling within that second half, yes.
Okay. Just to clarify, would that be something around the sort of NZD 2 million mark, or am I far off the mark with that thought process?
Yeah. NZD 1.5 million- NZD 2 million. Yep.
Okay. Thank you. Maybe just to understand a little on the actual core kind of Australasian markets, if you like. You mentioned the 23 new product approvals, which is clearly a big number. Should I be thinking about sales and revenue from those products coming in that second half, or is that still a bit of time before you actually start selling some of these products?
Yeah. Launches will certainly be underway. There's normally a good lead time. Well, not good. There's a lead time of a good four months or something like that. There are some launches underway at present, and there will be some additional launches in turn the second half, yes.
Okay. I guess I should assume by the sound of it that we may see an acceleration in growth in Australia and New Zealand in the second half. Is that the right way to be thinking about things?
Yeah. It's what we're planning on. It's sort of what we planned on anyway, though. We've always planned, as we've said, on doubling our Australian business back when it was NZD 50 million, now doubling to NZD 100 million. That process is underway at present. Part of that is fueled by new product launches. It just depends on timings as well, with freight shipments and things like that. Certainly, it is more difficult to air freight stock in at the moment, where often historically we would have air freighted in the first amount to get sales going early. Air freight's quite difficult at the moment. Sometimes that's delaying our launches by about a month or something like that.
Okay. I appreciate it's a bit of a moving feast at the moment in terms of the logistical side of things and getting product to market. I guess while we're on that topic, you talked about the backlog of orders in your export markets, et cetera. Is there any way you can quantify the impacts of that in this period, and maybe help us understand how long you think it might take for that to actually ease?
It's a good NZD couple of million. We added it to the figure. I think we said we had 57% product growth. If we hadn't had a backlog, we would've been up to over 100% product growth, which is really what we were targeting. It definitely has had some impact. Basically, we're not just sitting there watching it. There's a number of things are happening. We're expanding one of the key manufacturing sites, but also adding manufacturing sites as well. That takes a little bit of time to come online. That would start to come online towards the end, if not the end of this second half. It'll have a bigger impact on next year than this year.
Okay. No, that's clear. I guess the way I should be thinking about things is, maybe this year's been a little slower than you would've liked, but your building blocks are still creating some good momentum and therefore, your opportunity ahead of you is still reasonable when we start going into next year.
That's the thing. There have been a lot of curveballs and we don't want to whinge and moan about it, which we're not, but there have been a lot of curveballs and we've navigated it, but we've also focused real hard on setting up things to make sure as soon as things normalize too, we're going to really take off again as well.
Okay. I guess, are you concerned about second waves and markets globally, et cetera, that could disrupt you again? Or is that not something you're seeing as an issue or a risk at this stage?
Well, we're still planning around it, I guess, and taking measures. Part of the reason we've increased our stock holdings and stuff has been, I think we still have to be cautious and anticipate there could be some sort of second wave coming out of our summer in Australia and New Zealand. We're adopting a cautious position. We're told in Europe that, well, as you know, there has been a second wave, but we're told by people we work with closely, if anything, it's starting to ease off. We're seeing our trial sites and stuff are still working okay, so people seem to be adapting. Yeah, there is some risk, mainly around shipping, which we're looking to mitigate by spending all those extra millions on extra stock.
Okay. No, that's helpful. Thank you. I'll leave it there for now.
Thank you.
Thanks, Chelsea.
Your next question comes from Christian Bell with Jarden. Please go ahead.
Hi, Hartley and Malcolm. How's it going?
Just fine.
Hi. Actually, just firstly, just following on from one of Chelsea's questions, you were talking about the BAU milestone payments of NZD 1.5 million-NZD 2 million. That would actually be included in that NZD 14 million-NZD 18 million range?
Yeah.
The guidance states that it's before upfront licensing fees, but any BAU milestone payments are actually in that NZD 14 million-NZD 18 million?
Yeah. Correct.
Okay.
It's those bigger chunkier ones are the ones that aren't in there.
Okay. Thanks. Okay, the licensing payments that you got for this period, is that basically just for those 18 IV agreements that were, I don't know, a couple of months ago?
There's a little bit of upfront, and then what we have to do with another piece of license income is the registration, where we get a milestone on registration. Under the accounting standard, we have to recognize that over the period of time from when we've completed our obligations through to when the event actually occurs. There is a little bit of the other side of it. That's what it is that's in there.
Okay. Does that include the U.S. in as well?
No.
Okay.
No, it's only where we've got a license signed up and-
Yeah
put a milestone for upon registration, and if it's in the process of being registered-
Oh
We have to start recognizing the revenue for it then.
Right. Okay, cool. Just on the U.S. thing, do you expect to sign on a licensee in the second half?
Yeah. Look, I think the thing is, we've never really wanted to predict those ahead of time. I can say that we're working on it. We'll obviously announce it to the market when we're able to achieve that milestone. I don't think we can put a line in the sand and predict it until it's signed on the dotted line, really.
Okay, cool. For a deal as big as that for the U.S., because we haven't really seen it for the U.S., what would be the quantum of the upfront fee? Just to give us an idea.
Yeah. I don't really want to necessarily put an exact figure on it. It's certainly, it's multi-million.
Okay, cool. That's cool. Just one of your last comments there, Hartley, just saying that the second half is going to be even more seasonal this year. Just noting that that doesn't include any upfront licensing fees. What's kind of driving you to say that the second half is going to be more seasonal? Is that just sort of as you expect COVID conditions to become a lot easier than they were in the first half?
Yeah, I think things are going to ease up a bit. Also too, we sort of got programs to do our winter pre-sale and things like that, which I still think people will sort of want to buy up decent quantities of stock for the coming Australasian winter.
Sort of things. We've had quite a lot of interruptions during the first half, which have now receded. We see that as positive going forward.
Yeah. Okay.
I think it'll be more skewed towards the second half than normal, slightly.
Okay.
Not massively, but a bit.
Just a bit. Yeah. Okay. Got you. Just on the Tmall, the sales, you said that Tmall sales are looking good. Are you ever able to provide more color on that or?
Yeah, look, it's early days. We had the first month of sales, and they're certainly going okay.
We've got a number of programs in, some quite exciting ones. There's a new Jackie Chan movie, and we've got the actress out of that.
Yeah
who's quite a big name. She is doing a promotion with our products. It's things like that we're working on. I think over time, these things don't also happen straight away. We build sales. Sales at this stage are going pleasingly well.
Okay. Probably just one final one from me for the moment. Just thinking about the second half licenses and you saying that you've got a lot of things in the pipeline there, is that kind of distributed across IV and tablets equally, or is it sort of more IV stuff or?
Yeah, mainly IV, actually.
Yeah.
Yeah. It's mainly IV. There's a little bit of oral as well, but it's primarily IV is the.
Okay
big kind of licensing push at present. Yes.
Okay. Cool. All right. Cheers guys. That's it from me for now.
Thank you.
Great. Thanks, Christian.
Your next question comes from John Hester with Bell Potter. Please go ahead.
Oh, good morning, guys.
Hi, John.
Thanks for taking my questions. guys, the guidance at the moment looks a long way off. NZD 14 million-NZD 18 million of operating profit versus NZD 2.4 million for the half. I suppose we're nearly two months into the second half period, and I suppose I'm just interested to hear a couple of concise statements as to why you think that guidance is still achievable.
Well, historically, we've pretty much made all our money in the second half, I guess. Yeah, based on our figures that we're working on, we still believe NZD 14 million-NZD 18 million is what we should achieve.
Okay. How have things gone for those first couple of months? What's the sort of run rate for sales at the moment? Are you able to comment on that or give us any indication of how things may have changed in the last 60 odd days?
They're starting to. We're seeing the sales growth on a month-by-month comparison with prior year, the numbers are getting bigger. They're starting to pull away. I mean, that's positive, and so we're seeing that there's a recovery. Obviously there's.
Yeah
A few potential bumps like South Australia we saw last night.
Yeah
Sales wise, it's a relatively small part of the income.
Yeah. What about in South Australia, but in other jurisdictions, New South Wales, Queensland, Victoria, I suppose?
Yeah
has come out of-
Yeah. No, Victoria, obviously, we did see some impact, but our sales come away well. Really, we've got a lot of promotions, a lot of programs on in the second half. That's what we believe will deliver the result.
That seasonality that you see with that strong, or you consistently get that strong second half result, and you've got the inventory build there to satisfy that demand, when it does emerge. Can you elaborate on just one or two points as to what are the key drivers of that seasonality?
We certainly always have a very big sale in March based around our winter products. The reps sort of have always sold those. Wholesalers as well have actually tended to buy up around about then because of Easter tends to disrupt and interrupt sales as well, or not sales, interrupt shipping and things. They've always bought up in March to avoid any kind of impacts around Easter with freight and things. Usually March sales have always been very strong. December sales are usually pretty strong as well due to Christmas. We sell a lot of analgesics.
Analgesics
in December for various reasons. Allergy as well, in certainly the New Zealand market. We're the leading allergy company, so we always have strong allergy sales in the New Zealand market.
Yeah. Okay. A question for Malcolm. Malcolm, do you make a margin on the sales of those Maxigesic products to international customers, or is it straight out of the factories, no cost?
Oh yeah, no, we make a margin. There's two types to the margin. When we sell the product, we make a margin, and then when they sell the product, we get a royalty from their sales.
Yeah. Excellent. Okay. Thank you. That's all for now. Thank you.
Great. Thanks, John.
Thank you.
There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.