Mayne Pharma Group Ltd (MYX) Q4 2021 Earnings Call Transcript

Mayne Pharma Group Ltd (ASX:MYX) Q4 2021 earnings call dated Aug. 26, 2021.

Corporate Participants:

Scott Richards — Chief Executive Officer and Managing Director

Peter Paltoglou — Chief Financial Officer

Analysts:

Saul Hadassin — Barrenjoey Capital — Analyst

Gretel Janu — Credit Suisse — Analyst

John Deakin-Bell — Citi — Analyst

Presentation:

Operator

Good day and welcome to Mayne Pharma Group Limited Full Year Results Call. At this time, I would like to turn the conference over to Mr. Scott Richards. Please go ahead.

Scott Richards — Chief Executive Officer and Managing Director

Thank you, Operator. Good morning everybody. Thank you for joining us today to discuss Mayne Pharma’s full year results for 2021. Joining me on the call is Peter Paltoglou, our Chief Financial Officer. As with past practice, I will provide an overview of the results and our key strategic priorities and Peter will provide further details on the financial results and then we will open up the call to questions.

On Slide 4, we outline some of the key operational and financial features of our results. In terms of the numbers, our results were impacted significantly by foreign exchange. On a constant currency basis, revenue was $401 million, down 3% versus last year, reported EBITDA was $66 million, down 5% and underlying EBITDA was $75 million, down 10% excluding setup costs. A key feature of the result was the significant spend reductions with operating expenses decreasing $26 million or $18 million on a constant currency basis. And at the bottom line, we reported a net loss after tax due to a non-cash intangible asset repayment of the generic portfolio that was reported in the first half. Whilst these results are not at all where we want our business to be we have made strong progress on our strategy to reposition our company for growth. We achieved the first pass FDA approval for NEXTSTELLIS and established a new women’s health platform in the US. We significantly expanded our dermatology and women’s health portfolio, adding 11 new products, we continued to grow our contract services business in both in the US and in Australia. Both CDMO businesses grew double digits in their both currencies and the number of development projects grew 17% versus last year. In terms of COVID especially products business was the most impacted across the year with reduced web access to physician offices compounded by either office closure or offices operating at significantly reduced capacity which collectively drove down prescribing. As we’ve emerged through the prospect in the year in the US, we’ve seen improved physical access to prescribers over the past quarter, running at around 80% of pre-COVID levels. I would note though that there are different levels of access in different parts of the country and we have seen a stalling of positive trends here with the emergence of Delta variant. Internally, we continue to be focused on protecting the health and safety of our employees and is showing an uninterrupted supply of medicines to our customers. To that end, we maintained strong throughput at our manufacturing sites with volumes up 30% and we have seen minimal disruption through our third-party supply chains. While the ongoing challenges in the US generic sector are well documented and our retail generic business continues to negatively impact that results, I’m encouraged by the performance of our other business segments. Contract services delivered double-digit growth in US dollar terms at the revenue, gross profit and operating profit line. Specialty products, which includes our dermatology, women’s health and infectious disease portfolio delivered strong operating profit growth and our international business or MPI delivered double-digit growth at the gross profit line.

Slide 6 of the results presentation shows our gross profit broken down into dermatology, womens health, contract services, International and the US retail generic business. Excluding the US retail generic business, the remainder of the business now accounts for 83% of gross profit, up from 56% two years ago, highlighting the rebalance of our companies into what we believe a more durable and predictable businesses where we have a strategic basis to compete effectively. Moving now to the operational highlights. Mayne Pharma received the first ever NCE or new chemical entity approvals for NEXTSTELLIS in April this year. This is the first approved product containing Estetrol or E4 in the United States and the first new estrogen introduced for contraceptive use in the US for over 50 years. As a reminder, E4 is a low-impact estrogen with a unique mechanism of action that offers potential advantages over other estrogens. More than 10 million American women use short-acting contraceptives with more than 99% containing ethanol estradiol which is a synthetic modified estrogen. E4 is a naturally occurring estrogen now produced from a client source.

Slide 8 outlines the key features of NEXTSTELLIS but essentially this contraceptive offers a predictable menstrual cycle with an excellent bleeding profile and a low rate of typical adverse events such as acne and weight gain. NEXTSTELLIS was launched in late June following the recruitment and training of a new 70 person womens health sales team. The new team has now been in the field for 7 weeks and has made over 20,000 calls to high decile prescribers and held almost 2,000 educational promotional lunches. In this short time, we have reached in person more than 60% of our target audience, which is ahead of plan. Our marketing strategy of this early stage is focused on building awareness of NEXTSTELLIS amongst key healthcare providers with right branded contraceptives, which are typically OB/GYNs and allied nurse practitioners. We recently received the results of our first market survey of prescribers since launch and are encouraged that 47% are aware of E4 and 68% are aware of NEXTSTELLIS. This compares with 2% and 15% awareness respectively at baseline, following the approval in April. This awareness is translating into outcomes with 24% of those that are aware of NEXTSTELLIS reporting that they are writing prescriptions, with 36% recording the intention to prescribe over the next six months.

Slide 10 of the presentation outlines the principal NEXTSTELLIS performance metrics we track internally. Gaining commercial insurance coverage is key in ensuring women can access NEXTSTELLIS at an affordable price. The vast majority of the old contraceptive market flowed through the commercial channel and we are making very good progress with top players and are currently sitting at 50% commercial coverage of which 38% is unrestricted. Our goal by the end of this year is to have 60% unrestricted access, which has been a solid base from which to shift our marketing focus to the consumer. As NEXTSTELLIS is an NCE there is a heavy sharpened focus initially. Over 30,000 samples have been distributed to physician offices, and our modeling indicates approximately 5,000 women are currently trialing the product. We have good visibility on prescription data and can track growth scripts written, scripts that are in the process of being dispensed and scripts that are dispensed through the retail channel or through our specialty pharmacy partner where more than half of our dispense prescription volume sits today. There are over 1,000 prescriptions that are being written since launch, the majority of which are in the process of dispensing due to the women still using up their samples. As a reminder, NEXTSTELLIS participate in the combined hormonal contraceptive market which is valued at the $3.5 billion. Our business plan for NEXTSTELLIS is targeting treatment sales of more than $200 million, which represents 2% of the market by unit volume. Women’s health is a core therapeutic area for Mayne and we plan to create a leadership position in this market over time through the addition of novel therapy in areas of unmet need. We also want to leverage our generic portfolio of contraceptives which covers more than 75% of the US oral contraceptive market and includes pipeline products such as generic version of NUVARING which is pending at the FDA. Our second key therapeutic area is our dermatology business, which represent 29% of our gross profit. Over the last two years, this portfolio has faced challenging market conditions that hurt us and declining commercial insurance coverage. We responded to these market dynamics by continuing to adapt our go-to market strategy together with restructuring our sales team which has included operating expenses declining by $9 million versus the prior year, which has significantly improved operating profitability. Today, the dermatology sales team promote more than a dozen branded and generic products with support from an extensive network of independent specialty pharmacies across the US. We believe our dermatology platform offers advantages in terms of greater convenience and price transparency for patients, reduced administration for the physician and improved economics for the dispensing pharmacy. The last few months have been very active in dermatology on the business development front with four new supply agreements signed with leading pharmaceutical companies including Sandoz, TYME, Cosette and Upsher-Smith to add 11 dermatology products to our portfolio. The interest we are seeing from other pharma companies in partnering with Mayne has grown substantially over the last 12 months and validate our innovative business model. The two largest pipeline products have combined IQVIA sales of $300 million of limited competition and are expected to be meaningful contributors to our business this fiscal year. We expect all of these products to launch across fiscal ’22 with strong contribution to sales and earnings from the past. I now want to make a few comments about our US contract services and international business. US contract services have demonstrated a solid track record of double-digit growth over the last eight years and remains one of only a few US based CDMOs capable of early stage development through the commercialization from a single contiguous side. It has over 100 clients and support 13 of the Top 20 global pharma companies. In the last year, the business delivered strong results with sales up 10%, gross profit up 18% in US dollar terms, driven by new commercial manufacturing revenues. The second half performance was even stronger with sales up 20% on the first half. We continue to see favorable dynamics in the CDMO market with the growth of compounds in clinical development and growing outsourcing trends. Our capabilities to focus on high potent oral solid dose processes which is very aligned to the growth we are seeing in new molecule programs in the oncology space. Going forward, metrics has a buoyant pipeline of development projects across the pharmaceutical value chain, including 22 projects in Phase 1, 20 projects in Phase 2 and a dozen projects in Phase 3. In fiscal ’22 five metrics clients are expected to file NDAs with the FDA. MPI or our international business also has a demonstrated track record of growth since fiscal ’15. These national business operates out of the Salisbury, South Australia facility, which is the largest Australian owned full service solid dose site manufacturing both TGI and FDA registered products. In fiscal ’22 the business benefited from strong sales growth in CDMO which grew 11% and Australian product sales were up 6%. At the gross profit line, NPI achieved double-digit growth, benefiting from record volumes at our Salisbury plant which were up 60% on the prior corresponding period. The outlook for the international segment is very positive with a solid pipeline of new product launches expected to support growth of the Australian products business. SOLARAZE gel and ACTIKERALL topical solution were recently added to the strong portfolio, both products indicated for the treatment of actinic keratosis and they will be promoted by our existing sales team focusing on dermatologists and general practitioners with specializing skin cancer. And next year we have the potential launch of NEXTSTELLIS in FABIOR in Australia which are both pending at the TGA.

With that, I’ll now hand over to Pete and he’ll go into further details about the results.

Peter Paltoglou — Chief Financial Officer

Thanks Scott and good morning everyone. I will take a few minutes to provide a brief overview of our financial results for the year. On Slide 21, you will see that foreign exchange has clearly had a material negative impact this year on our results with the average A dollar, US dollar strengthening over 10% from AUD0.67 in the prior corresponding period to AUD0.75 in financial year ’21. At the top line reported revenues were AUD401 million, down AUD56 million versus the prior period with a weaker US dollar accounting for AUD40 million of the sales decline. On a constant currency basis, revenue was down 3%. The balance of the sales decline was due to further erosion of the retail generic segment of GPD. Reported gross profit was AUD182 million, down 5% on a constant currency basis and the gross margin of 45.4% was essentially flat. Reported EBITDA was AUD66 million which steps up to AUD76 million on a constant currency basis, representing a 5% decline versus the prior period. We have provided two versions of underlying EBITDA in the documents today. One excluding NEXTSTELLIS set up costs as we did in the first half and one including these costs to be consistent with how analysts have traded NEXTSTELLIS in their research reports. The total FX impacted the EBITDA line was around AUD10 million as noted earlier, which includes the translation FX impact of AUD7 million, a transaction currency impact of AUD1 million and the balance from the revaluation of trading assets.

Slide 22 of the presentation outlines the underlying adjustments to EBITDA. The two key ones are the non-cash credit of AUD20.6 million arising from a decrease in the fair value of earn-out liabilities and AUD15 million of restructuring costs comprising organizational changes we implemented across our global business throughout the year and the discontinuation of certain non-viable generic products and development programs. These changes are expected to drive annual cost savings of up to $10 million in financial year ’22. At the bottom line, we reported a net loss of AUD208 million. A key component of this result is the non-cash impairment of our generic intangible assets which was taken in the first half. In terms of our operating businesses, Scott has already talked about MCS and the international segments. I will now make a few high-level comments on the specialty and generics businesses. In the specialty segment US dollar sales and gross profit were essentially flat versus PCP. Operating profit, however, was up 66% due to the significant reduction in marketing expenses following the restructure of the dermatology platform and refresh of our go-to-market strategy in this segment. Dermatology sales were down by $3 million with COVID affecting access to physicians, as well as a tough managed care environment with increased rebating required for commercial coverage. SPD benefited from the launch of NEXTSTELLIS and SOLTAMOX which contributed $3.5 million in sales. NEXTSTELLIS sales in June were driven by inventory stocking into key wholesalers. Going forward, we expect limited sales of NEXTSTELLIS in the first quarter of the fiscal year with the second quarter expected to see sales revenue more closely track prescription demand. GPD revenue was down 10% versus PCP, impacted by ongoing pricing pressure across the portfolio as wholesaler bidding activity stepped up. Two new competitors launched on liothyronine in the second half, impacting sales of this product, which were down over 50% versus the first half. While this represented a significant headwind in our financial year ’21 result, further rationalization is occurring across the generics industry in the US, driving incremental new opportunities in select product markets which we continue to carefully monitor. Across the period, more than 10 products were transferred into our own facilities or into new manufacturing sites, which will provide a stronger basis for competing in the coming year. Future performance of the generic segment will continue to be heavily influenced by the timing of FDA approvals and the competitive intensity of key product markets. We continue to optimize the performance of our generic portfolio including discontinuing unprofitable products, reducing stock obsolescence and streamlining our cost base through realignment of supply chain activities with raw material suppliers and CMOs. Moving to expenses. Our opex cost base reduced in total by AUD26 million or AUD18 million on a constant currency basis. This excludes NEXTSTELLIS set up costs. Within opex, marketing and distribution costs were down by AUD16 million or AUD11 million FX adjusted, reflecting the restructure undertaken last year in the dermatology business, both to reduce costs and improve alignment with our business model. Admin and other expenses were down AUD13 million but this includes a number of non-cash and non-operating items. Note 4 of the accounts provides a detailed disclosure on our admin expenses. Excluding these non-cash and non-operating items, admin and other expenses were down AUD10 million or AUD7 million FX adjusted. In terms of the other key expense buckets, gross R&D spend, including both capitalized and expensed amounts was AUD26 million, down AUD9 million on PCP whilst net R&D expense was AUD22 million, down AUD3 million on PCP. The R&D capitalization rate fell from 31% to 18%, reflecting the reduced generic R&D spend as we continue to pivot our development activities towards specialty products. Total finance expenses increased by AUD1 million. Although this includes interest expense and a number of non-cash items such as the discount unwind on earn out liabilities, this item increased AUD5 million in financial year ’21 due to the full year effect of the next NEXTSTELLIS earn-out liability. Interest expense related to our debt facilities was AUD11 million, down AUD3 million from the prior period benefiting from an improved cost of funds with the average interest cost declining from 4.1% in financial year ’20 to 3.7% in the current financial year. In terms of cash flow, operating cash flow represented an inflow of AUD59 million for the year. Whilst down significantly from financial year ’20, the prior year benefited from a AUD50 million release of working capital. Adjusting for these working capital changes and additional favorable cash tax impacts, operating cash flow was AUD62 million versus AUD65 million in the PCP. This year, there has been a small investment in working capital due to a number of factors including the launch of NEXTSTELLIS, sourcing decisions related to API and finished dose manufacturing and supply continuity of key products during COVID. We note that our supply interactions with Teva have largely wound down with extensively all manufacturing activities now moved to their final destination sites. The key cash flow investing items were AUD17 million of capex spent on our two manufacturing facilities, AUD24 million of earn-out payments, AUD3 million on product acquisitions and AUD5 million for capitalized R&D. Included in the investing cash flows was the FDA approval milestone of $11 million paid to license partner Mithra in April earlier this year. After investing cash flows, the company produced free cash flow of AUD10 million, enabling net debt to fall by that corresponding amount. In terms of bank covenants, our bank leverage ratio was 2.6 times versus a covenant of 3.75 times and interest covenant was 7.9 times versus the covenant of 3 times. The shareholders’ funds covenant continues to remain in compliance with shareholders’ funds of over AUD717 million. Looking forward, we remain focused on generating free cash flow, deleveraging the balance sheet and prudently controlling our spending. Capital efficiency and allocation will be a key area of emphasis in financial year ’22 as we continue to look for further opportunities across our balance sheet to optimize returns to our shareholders. We have a significant asset base across both key geographies, which provides optionality as to further non-dilutive funding to support our growth strategy across the Group. We have many programs underway to further improve our cost base, strengthen our supply chain and reduce product manufacturing costs. We anticipate upsizing our receivables financing facility this year to fund the working capital investments. We expect for a number of new product launches on the dermatology side and also to support the ramp up of NEXTSTELLIS.

And with that I will now hand back to Scott.

Scott Richards — Chief Executive Officer and Managing Director

Thanks, Peter. So look in summary, Mayne Pharma’s key priorities for the coming year are the successful commercialization of NEXTSTELLIS in the United States, the launch of more than a dozen dermatology and women’s health products also in the United States, accelerating the growth of Metrics Contract Services and our international business whilst, of course, continuing to drive an efficient operational cost base across the company. And with that, I’ll now hand back to the Operator and we can take questions.

Questions and Answers:

Operator

Thank you, Scott.

[Operator Instructions]

We’ll take our first question from our participant. At the tone, please state your name and company. Your line is open. Please go ahead.

Saul Hadassin — Barrenjoey Capital — Analyst

Saul Hadassin at Barrenjoey Capital. Can you hear me, Scott?

Scott Richards — Chief Executive Officer and Managing Director

Yes, I can.

Saul Hadassin — Barrenjoey Capital — Analyst

Thanks for taking my questions and good morning, Peter as well. Scott, just the first one and Peter might have covered this or I might have missed this in his remarks about mix still sales through FY ’22 but can you give us any sense of your expectations just noting that that inventory build into the back end of FY ’21. Any rough guess of where those sales might end up through FY ’22?

Scott Richards — Chief Executive Officer and Managing Director

Yeah. Saul we haven’t provided any specific guidance on sales for FY ’22. Obviously it’s a critical year, the launch ramp is critical for our ultimate destination is more than AUD200 million in peak sales. I think we’ll have a better idea and we’ll be able to provide probably more color on that once we get through this the softening phase with patients. But as I said earlier I can comment every key performance metrics we’re tracking either on plan or ahead of plan. And our plan is consistent with our ultimate debt. Peak sales will be, as we’ve always said peak sales will be in 3 to 4 years’ time.

Saul Hadassin — Barrenjoey Capital — Analyst

Yeah, understood. Thanks, Scott. And just another one. The slide where you talk about the dermatology products that have been licensed with partners in the generic space, can you just confirm — you mentioned most of them don’t have significant competition. There were talks to the number of approved dermatology products by partner, are they current — drugs currently in existence in the market, are you adding to those numbers with entry in terms of the level of competition across those products?

Scott Richards — Chief Executive Officer and Managing Director

So we are partnering with companies that have either have an existing presence in the market but we are their exclusive distributor in our independent specialty channel where, as I think you realize dermatology products have a significant distribution presence. So in some cases, in most cases, there is an existing product that partner, but it’s not in the channel of business that we are in, because that’s where we have expertise as opposed to say in the retail channel. So that’s the basis of the partnerships generally speaking. And further, two of the products in particular, [Technical Issues] $300 million US dollars by our products that are meaningful in terms of the potential for us in our channel and both have limited competition and both have if you like some intrinsic barriers to entry as well.

Saul Hadassin — Barrenjoey Capital — Analyst

Great. Thanks, Scott. And just last quick one for Peter maybe. Peter speaking of those covenants that you have and I guess particularly focusing on the shareholder capital base or shareholder funds base, I guess the headroom there is somewhat limited if there was to be, say, for example, further impairments in the generics business, what’s your stance as to whether that’s likely to occur or if you think you’ve now reached a floor in terms of those the write-down in that division?

Peter Paltoglou — Chief Financial Officer

So we had two CDUs that are related to our generic assets in the US. One of those we classify as GPD other and that has a relatively small amount of intangible value that remains ascribed to that CGU whilst GPD women’s health, our other generics CGU has a slightly higher number. Both as you will see note 13 of the accounts have reasonable headroom from a recoverable value since to their carrying value. So we feel reasonably comfortable that we’re in a good position on both of those CGUs going forward.

Saul Hadassin — Barrenjoey Capital — Analyst

Right. Thank you, guys. That’s all I had.

Operator

We will take our next question from our next participant. Your line is open. Please go ahead.

Gretel Janu — Credit Suisse — Analyst

Hi, it’s Gretel Janu from Credit Suisse here. First question just on Specialty Brands. So second half performance on a constant currency basis was actually below first half to see when I look at on a half on half basis. So what happened in second half to drive that lower revenue performance?

Scott Richards — Chief Executive Officer and Managing Director

Thanks Gretel. Well look two things or two or three things. One, there is an ongoing, as I said in my opening comments, there has been ongoing pressure on commercial insurance coverage on some of our dermatology brands. That’s part of the story. The other part is there is a significant difference between first half and second half, and you’ll see that in the prior year. If you look at the prior year across our dermatology brands, there was a significant downturn in the second half versus the first half and in fact, the second half of the year we just had this is quite comparable to the second half of the previous financial year and the reason for that as I think I’ve talked about before is that in January basically everybody’s insurance programs, those people that are on the high deductible insurance program, which is there were increasing number of Americans get their deductible reset. So as a result, we’re covering more patients with our co-pay card and therefore our net selling prices effectively are dropping. That then recovers through the year. So there’s always a pretty significant half on half generated June versus July to December effect as those deductibles have been through and the co-pay card support that we provide start to come off. So I would encourage you to look at the dermatology business half to half versus PCP, if that makes sense. I mean COVID, of course, continues to be an effect because it was an effect of course in the first half — and there was also — there was a significant COVID effect in the first quarter of this calendar year as I said in my remarks, it’s been getting better in terms of access to physician offices in the second quarter but beginning to stall a little bit again right now.

Gretel Janu — Credit Suisse — Analyst

Understood. So I guess, just in terms of the exit run rates then for specialty brands, I guess how much recovery have we seen from that COVID downturn I think should be expecting strong growth into FY ’22?

Scott Richards — Chief Executive Officer and Managing Director

Look you should certainly be seeing, I mean there’s two elements of growth, I mean, certainly the half-on-half phenomenon around high-deductible plan resets and then patients meeting their deductible, and the manufacturer taking less of the burden, that will be an ongoing phenomenon for our brands from the first half of this calendar year to the second half as we’ve seen in every other prior year. Of course, with the restructuring of our sales force, not only have we taken operating costs out, but we had the benefit of course in fiscal ’21 but we’ve also changed quite radically our go-to market model with the remaining team. And look, I can say at this early juncture we’re already beginning to see some of the benefits of that in terms of our underlying prescription data on key products. So I think those two things, just the time of the year, on the high-deductible phase and the benefits coming from sales force effectiveness are going to be tailwinds we should enjoy. And then of course, I mentioned the addition of 11 dermatology products of which four of them were important because we’re building a portfolio approach here. Two of them in particular could be material to the dermatology business across fiscal ’22 and one of them is going to launch very shortly and the other hopefully in the not too distant future and both have limited competition. And of course the way we sell these products, even though they are generics, we don’t really sell them as generics. We’re dealing with physicians, we’re dealing with our specialty pharmacies, we are dealing with patients, we provide support to patients where they pay a reproducible price and as a result we can command a premium over the retail channel. So this is quite a captive market and it’s the reason why and you know our ability because of our sales team and our relationship with these specialty pharmacies — I mean, our relationship with doctors gives us the ability to drive a segment of business that generic companies can’t and that’s why we’ve been successful at partnering with a number of companies that we’ve just announced.

Gretel Janu — Credit Suisse — Analyst

Great. That makes sense. Thanks, Scott. And then can we get an update on TOLSURA please? So I know COVID has disrupted the ramp up, but should we expect now that hospitals are becoming more open in the US, a significant ramp up in FY ’22?

Scott Richards — Chief Executive Officer and Managing Director

Yes look, thanks for that question. I mean it’s, look, we’re seeing — we’re seeing good rebound from TOLSURA in the second half. I mean look the product is still small because COVID is still the biggest — the product that has been impacted the most by COVID in terms of physician access has been TOLSURA by far because we’re dealing with mainly infectious disease physicians and we’re dealing with hospitals. So I think — and that’s — whilst is getting better we are seeing some pullback there now because of the Delta variant, it is certainly better than it was say six months ago. What I can tell you is that whether it’s units or scripts or new prescription, the metrics for TOLSURA half on half is significantly up, more than 50% in all of those categories. So look, the team is enthusiastic, the team expects to grow strongly in fiscal ’22. The only caution I would have right now is obviously the environment concerning the delta variant. So we’ll just have to wait and see.

Gretel Janu — Credit Suisse — Analyst

Thanks and then just one final question on NEXTSTELLIS. So your operating expense guidance of AUD50 million for FY ’22, how much of that is related to launch costs as opposed to what we should consider then is being kind of the underlying cost base going forward?

Scott Richards — Chief Executive Officer and Managing Director

Peter, maybe you want to answer that?

Peter Paltoglou — Chief Financial Officer

Yes, sure. Thanks, Scott. Gretel the AUD50 million is all related to underlying opex in fiscal year ’22. We are through the setup and launch phase now that we have commercially launched in June. So you should think about that as the underlying cost base for the women’s health platform in the US.

Gretel Janu — Credit Suisse — Analyst

Great, thanks very much.

Operator

[Operator Instructions]

We will take our next question from our next participant. At the tone please state your name and company. Your line is open. Please go ahead.

John Deakin-Bell — Citi — Analyst

Hi, it’s John Deakin-Bell here from Citi. My question was just to follow on from that last question there on the opex Peter for FY ’22. Can you just overall NEXTSTELLIS [Phonetic], are we kind of at that run rate in the second half of that’s stable now or are there further costs to come out?

Peter Paltoglou — Chief Financial Officer

I think a couple of factors there John. One, we alluded to some of the restructuring costs at 30th June in my speech, where we expect further run rate efficiencies in fiscal year ’22 and the company is continuing to look at ways of optimizing our underlying cost base across all of our operations globally. So the exit run rate, it’d be a good direction for what the ’22 cost base would look like, but we expect it to be ahead of that based on some of those restructuring activities we’ve done across the year. The second aspect is obviously is NEXTSTELLIS is incremental to that, the women’s health infrastructure. So when we think about the base business, we’re continuing to drive efficiencies as we mentioned around dermatology and supply chain efficiencies etc., even efficiencies across our gross to net activities with our US commercial activities. So the run rate should be stepping down into ’22 and although of course the NEXTSTELLIS piece is incremental.

John Deakin-Bell — Citi — Analyst

Okay and then I think in the second half there was a AUD15 million impairment unrealized activity. Was that just restructuring, like redundancies and stuff like that?

Peter Paltoglou — Chief Financial Officer

No, that impairment charge was related to in-process R&D.

John Deakin-Bell — Citi — Analyst

In-process R&D. So things that you thought would work that aren’t going to work. [Speech Overlap]

Peter Paltoglou — Chief Financial Officer

Correct.

John Deakin-Bell — Citi — Analyst

And could we just get an update on NUVARING Scott? Perhaps the likely time, it’s obviously been a long time coming. And then, and then also, perhaps just on the broader — your view of the broader generic price deflation for the next 12 months?

Scott Richards — Chief Executive Officer and Managing Director

Sure, John. Well, we filed our complete response to the FDA in March this year. So we expect a potential, so from the FDA potentially as early as the end of September, but it could be as late as the end of January and the reason why I say that is that if the FDA wishes to reinspect Mithra, either physically or virtually, then they will comply with that later day as a target action date. So as we sit here now towards the end of August, we’re unsure, we’re attempting to find out more from the FDA, but I must say transparency with the Office of Generic Drugs is not a strong suit. So the response we made to the CRO in March was very thorough with great support from Mithra. So look, we’re getting closer. I’d like to be able to be more specific than that. It still remains a very buoyant market. By the way, the third generic or the fourth generic, this is still going to be relative to our current generic business which is still going to be ultimately an important product for us. And as far as just a general comment on price deflation, look, you know the sector remains volatile, wholesalers and the three big buying groups continue to strive for incremental savings even on products that one could say are already commoditized. And I suppose, as long as manufacturers continue to offer prices, then buying groups will continue to seek bids even on mature product lines. So we’ve seen a bit of that and we’ve been hurt, obviously significantly. So look we expect ongoing erosion. We continue to plan for ongoing erosion. But as Peter talked about, we continue to try and offset that with as many things we can possibly do on the cost side and we are seeing potentially some interesting capital-light opportunities to take advantage of our distribution infrastructure with some additional portfolio. So it’s a tough business. But obviously we want to harvest those cash flows at the very least as long as we can and to put as much stability into that business as we can for obvious reasons.

John Deakin-Bell — Citi — Analyst

Thanks very much.

Scott Richards — Chief Executive Officer and Managing Director

Thanks, John.

Operator

It appears [Technical Issues]

Scott Richards — Chief Executive Officer and Managing Director

I look forward to talking to some of you through the course of the next week. Have a good day. Bye-bye.

Operator

[Operator Closing Remarks]