AFT Pharmaceuticals (NZX; AFT, ASX; AFP) today announces continued growth in earnings amid rising sales of its over the counter (OTC) medicines in Australasia and its patented Maxigesic pain relief medicine in global markets.

Group operating revenue for the six months to 30 September 2019 grew by 22% to $46.9million from $38.4 million in the same period a year ago with its largest market, Australia growing revenue by a strong 19%, New Zealand by 9%, Southeast Asia by 112% and the Rest of World by 64%.

Group operating profit for the six months to 30 September 2019 was $13.7 million up from a loss of $0.1 million in the same period a year ago. As signalled earlier this month, the result was bolstered by the non-recurring gain on acquisition of the joint venture Dermatology Specialty Limited Partnership (DSLP) of $9.8 million.

Group net profit before tax (NPBT) rose to $9.9 million from a loss of $4.2 million in the same period a year ago. Stripping out the DSLP gain NPBT was $0.1 million against a loss in the same period a year ago of $4.2 million.

Chair David Flacks said: 'AFT has delivered another strong result. The rise in operating earnings confirms our strategy to expand our presence in our home markets of Australia, New Zealand and Southeast Asia and grow our international revenues through the out licensing of our intellectual property.

'This growth, coupled with moves to improve our financial strength through the refinancing of our debt, position AFT to strongly grow shareholder value.'

Founder and Managing Director Dr Hartley Atkinson said: 'We are pleased with the progress we have made. As foreshadowed last year, all divisions of the company - Australia, New Zealand, Asia and International - are now contributing to group operating earnings.

'Our home markets of Australia and New Zealand continue to grow strongly. Following the sale of the lower margin hospital products to Baxter Healthcare, the restructuring of our product portfolio in these markets is now largely complete. We are now investing for growth with the addition of new medicines to our in-licensed portfolio that have the potential to lift sales considerably in the coming years.

'Sales from outside Australasia continue to grow as a proportion of our business, now reaching $7.6 million representing 16% of group sales and up from 11% in the same period a year ago.

'We see further significant growth in Maxigesic sales in the second half of 2020 financial year and into next financial year as the number of countries in which the medicine is launched increases. We see an even sharper acceleration in following years as sales in all these countries build and we add additional dose forms.

'Meanwhile, our pipeline of development opportunities continues to show promise. We are looking to the future with confidence as we continue to execute on our plans.'

Gross Profit grew 18% to $21.3 million, driven by revenue growth in all markets. The gross profit margin fell 1.7 percentage points to 45%. This reflected relatively strong revenue growth in the hospital channel, which attracts lower gross profit margins, but also has lower selling and distribution expenses.

Other Income of $0.3 million was down from $2.0 million in the prior year. It includes fees we received on the divestment of some unused product registrations in Asia and the Callaghan Innovation growth grant that we receive on eligible research and development expenditure. The larger amount last year relates to the one-off fees we received from the divestment of non-core hospital products.

Selling and Distribution expenses fell 9% to $12.9 million from $14.2 million in the same period last year. We benefited from efficiencies in Australia, New Zealand and Southeast Asia and revenue growth in the Rest of World where licensees carry these costs.

Selling and distribution expenses now represent 27% of revenue, down from 37% in the same period a year ago. We expect these expenses as a proportion of total revenue to continue to fall as revenue from the Rest of World grows.

General and Administration expenses increased to $4.5 million from $3.5 million in the same period a year ago due to one off legal fees in Australia relating to competitor legal action that challenged certain Maxigesic claims. The marketing claims currently in use have maintained our market share lead in the category and AFT remains confident of its legal position.

Research and development expenses fell to a net $0.2 million with the successful completion of the major clinical trial programme identified at the IPO in December 2015. R&D expenses were also reduced by one-off $1.7m contributions from joint venture partners resulting from the successful development results.

AFT is continuing to carefully run its Research and Development budgets to stay within profit targets. These efforts have been bolstered by agreements for Maxigesic IV and Pascomer that recover Research and Development costs from partners, effectively minimising risk, and the impact of the associated spend on AFT.

Despite the reduced expenditure we have not cut back on development work, instead those costs are now being shared with our partners.

The gain on acquisition of intellectual property of $9.8 million arises from the recognition at acquisition of the Pascomer IP assets at their assessed fair value of $12.5 million. The future development costs for Pascomer, which had previously been accounted for under equity accounted expenses of the joint venture entity, will now be borne by the North American Licensee.

Australian Revenue grew by 19% to $25.7 million from $21.6million in the same period a year ago and represented 55% of Group Operating Revenue. Operating profits rose to $1.9 million from a $0.1 million loss in the same period a year ago.

The OTC channel grew at 18% to generate 60% of total Australian revenue.

Maxigesic sales grew and it maintains its leadership of the ibuprofen-paracetamol combination section of the pain management market.

Our eyecare range delivered strong growth from its existing products and benefited from new products including Novatears launched last year and Optisoothe launched at Easter.

We now occupy the number two position in the lubricating eyecare category in Australia.

The Hospital channel grew 25% to generate total sales of $7.6 million. It benefited from the launch of new products particularly in the injectables market. The Prescription channel grew at 9% also with the launch of new products.

New Zealand Revenue grew by 9% to $13.7 million from $12.6 million in the same period a year ago and represented 29% of Group Operating Revenue. Operating profit grew to $1.7 million from a profit of $0.8 million in the same period a year ago.

The OTC channel grew at 17% to $7.4 million from $6.3 million at the same time a year ago. The standout categories in the New Zealand market were natural medicines and digestive health, both of which benefited from the launch of new products.

The Hospital channel declined by 10% to $1.9 million due to tender price reductions and the temporary loss of product due to supplier changes. However, this channel is expected to return to growth next year with new products.

The Prescription channel grew at 7% to $4.4 million in line with the introduction of new products.

Southeast Asia Revenue grew by 112% to $2.4 million from $1.1 million in the same period last year and now generates 5% of Group Operating Revenue. Operating profits rose to $0.1 million from a loss of $0.2 million in the same period last year.

The main Hospital channel grew at 240% with the launch of two new products in Singapore and Malaysia. Revenues in the OTC channel did not grow in the period due to the initial Maxigesic launch sales into Hong Kong and Malaysian distributors in the prior financial year for their respective launches. We expect these distributors to place new orders in the second half.

Rest of World revenue grew by 64% to $5.2 million from $3.2 million in the same period a year ago and represents 11% of Group Operating Revenue. Operating profits rose to $10.1 million and includes the one-off $9.8 million gain in the DSLP business.

Maxigesic product sales and royalty income from existing markets, together with new markets in the Nordics, Spain and Portugal generated approximately half the revenue in the segment. The other half came from Maxigesic and Pascomer licence income and includes a combination of upfront and other payments for the achievement of regulatory approvals and other commercial milestones.

AFT this year booked its first sales milestone payment from one of our licensees in Europe for achieving market sales targets. Milestone payments will increase and are set to make a significant contribution to revenue in future years.

Maxigesic sales in the Rest of World are relatively flat compared with the first half of the prior year but we expect growth to pick up as many sales orders are loaded into the second half of the 2020 financial year. Steady progress is being made with securing out-licensing and distribution agreements.

MAXIGESIC COMMERCIALISATION

Maxigesic tablets are now being sold in 24 countries-1, up from 20 at the end of the 2019 financial year.

We anticipate launches of Maxigesic tablets in twelve markets will occur in the second half of this financial year. We have received launch orders and had expected several to have already occurred, but they have been delayed for primarily regulatory reasons.

We have signed four additional Maxigesic tablet licensing or distribution agreements over the last six months in Chile, Columbia, Germany and Peru. Ongoing discussions continue in significant markets such as Brazil and Canada.

Meanwhile, momentum is building with further Maxigesic IV Distribution Agreements signed in Pakistan and Vietnam, lifting the number of territories in which it has been licensed to 70.

Discussions to out-license both the tablet and intravenous dose forms of Maxigesic for the USA, China, and Japan, the top three pharmaceutical markets in the world, are continuing.

Contact:

Richard Inder

Tel: 021 645 643

Email: richard@theproject.co.nz

About AFT Pharmaceuticals

AFT is a growing multinational pharmaceutical company that develops, markets and distributes a broad portfolio of pharmaceutical products across a wide range of therapeutic categories which are distributed across all major pharmaceutical distribution channels: over-the-counter (OTC), prescription and hospital. Our product portfolio comprises both proprietary and in-licensed products, and includes patented, branded and generic drugs. Our business model is to develop and in-license products for sale by our own dedicated sales teams in our home markets of Australia and New Zealand and in certain Southeast Asian markets, and to out-license our products to local licensees and distributors to the rest of the world.

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