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Halcygen Reports Maiden Profit and Dividend
31 August 2010
Halcygen Pharmaceuticals Limited (ASX: HGN) today announced underlying operating earnings of $12.2M, which are as expected for the year ending 30 June 2010. This represents eight months of the acquisition of Mayne Pharma International Pty Ltd (Mayne Pharma) effective 1 November 2009. As a result of this strong profit, the Board of Halcygen has declared a fully franked dividend of 2.0 cents per share with a record date of 29 October 2010 and payable 18 November 2010 and intends to make a special dividend of 1.0 cents per share payable in the first half of calendar 2011 following consideration of the half year financial performance.
Halcygen’s CEO, Dr Roger Aston said “The F10 financial year was nothing less than transformational for Halcygen following the acquisition of Mayne Pharma from Hospira Inc. in early November 2009. Within the space of the remaining eight months to 30 June 2010, Halcygen has moved from being a product development company seeking to launch its first major product in 2012 to an integrated pharmaceutical company with gross revenues of $36.7M and underlying EBITDA of $12.2m for the F10 financial year.”
Sales revenue was lower than forecast at the time of the Mayne Pharma acquisition due to the stronger than expected Australian dollar impacting sales of the key proprietary drug Doryx® sold into the US market. The forecast exchange rate at the time of the acquisition was AUD/USD 0.80 versus actual settled rate of AUD/USD: 0.89. Adjusting prior period US Doryx® sales for current FX rates, sales grew 8% year on year. Doryx® has continued to grow in its US market through its strategic marketing and distribution partner Warner Chilcott whose annual sales of Doryx® now exceed US$200m.
Sales revenue from contract manufacturing liquids and creams, representing approximately 15% of sales, were up 8%. This includes brands such as Betadine, Parachoc, FESS and Painstop.
From March 2010, Halcygen has been recognising “full margin” on the sales of its proprietary products following the provision of formal notice to Hospira Inc to transfer the marketing and distribution of products currently sold into the Australian and Asian markets to Mayne Pharma. Currently the suite of products includes, Doryx®, Eryc®, Magnoplasm® and Astrix®. A full year contribution from marketing and distribution of these products will provide a significant contribution to the bottom line in the coming year.
Following the acquisition, Halcygen has continued to invest strongly in research and development at Mayne Pharma with a greater than 20% increase on the previous corresponding period. New dose and formulations of proprietary products are in late stage of development.
During the year the Company finalised the accounting recognition of the acquisition of Mayne Pharma. The finalisation of the recognition of assets acquired on the acquisition of Mayne Pharma for accounting purposes and the associated tax accounting following the group entering into a consolidated group have resulted in some complex accounting impacting the statement of income. It should be noted that the consolidated net profit after income tax of $3,253,119 for the period included the following items:
• $1,292,523 depreciation of fixed assets;
• $5,317,690 amortisation of intangible assets arising on acquisition;
• $1,001,722 share based payment expense relating to options issued during the period;
• $1,202,468 of notional interest relating to the earn-out liability and inventory valuation adjustments arising on the acquisition of Mayne Pharma;
• $345,350 acquisition costs;
• $423,395 interest expense, principally in relation to the loan facility which has been paid down to US$7.5M; and
• $2M SUBA® - Itraconazole development cost that will be non-recurring in F11. Total SUBA® - Itraconzaole development cost for F10 was approximately $3M which is expected to reduce to approximately $1M in F11.
As a result of the group becoming a consolidated group for taxation purposes there are approximately a total of $9.0M current year and prior year carry forward losses that are available to be utilised against taxable income of Mayne Pharma for the current year which totalled approximately $17.6M. There is approximately a further $5.4M prior year losses that are carried forward and available for utilisation in future periods, subject to the Company satisfying the continuity of ownership test.
Amortisation of intangible assets arising on the acquisition of Mayne Pharma amounted to approximately $5.3M for the period. The Company has a policy of aggressively amortising these assets with the greatest amounts in the early years immediately following the acquisition.
Dr Aston said “At 30 June 2010, we reported that our cash position was $19.7M following pay-down of US$2.5M of debt of the US$10.0m NAB loan facility underpinning the acquisition of Mayne Pharma. The Company has also generated $10.3m of net operating cash inflows for the consolidated group for the full year. It is expected that our debt position will be completely paid down in 2011 highlighting our strong cash generating position as we move forward.
“Amidst the intense activity following the acquisition of Mayne Pharma, we have managed to maintain our focus on our fundamentals, with our lead product SUBA® -Itraconazole remaining on target for filing a dossier for registration in Europe in the last quarter of calendar 2010.
“Our strategic goals for the coming year include continued improvements in the efficiency and productivity of the business, further investment in developing and commercialising improved pharmaceuticals and launching and marketing existing and new products through partnerships with global licensees. Furthermore, we will seek to build on our platform through in-licensing and acquisition of products that are either commercialised or nearing commercialisation.
“We will remain relentless in defending our proprietary position and market share with our marketing partners and maintain a life-cycle management programme to stay ahead of potential competition.
“Based on current performance and indications, Halcygen expects F11 underlying EBITDA to be at least equal to or greater than the pro-rata annualised F10 results at current exchange rates. Our strong financial position together with our extensive product portfolio and pipeline give us great confidence in the future” concluded Dr Aston.
