AFT Pharmaceuticals (ASX:AFP): Interview with founder and CEO Hartley Atkinson

AFT Pharmaceuticals

We spoke with Dr Hartley Atkinson, founder and CEO of AFT Pharmaceuticals, about the vast global opportunity for the Maxigesic painkiller as well as growth opportunities further down the track, such as Pascomer.

 

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Transcription

 

Stuart: Hello, and welcome to Stocks Down Under. My name is Stuart Roberts, and I’m one of the founders of our publication. And joining me today from Auckland in New Zealand is Dr. Hartley Atkinson, who’s the founder and CEO of AFT Pharmaceuticals. Hartley, thanks for coming.

Dr. Atkinson: Good. Thanks for having us on your show.

Stuart: It’s Friday the 17th of September 2021. Now, both of us are locked down in Auckland and Sydney. So you haven’t been to Australia in about two years, I suspect.

Dr. Atkinson: No, actually, I had a couple of trips. I managed to go to Queensland and Sydney, which I very much enjoyed, before the borders closed. So, yeah, we’ve had some freedoms briefly.

Stuart: All right, good. Now, if the face to my left looks familiar, that’s because of this. AFT’s foundation product is Maxigesic, which is a combination of paracetamol and ibuprofen. Hartley, with a good pharmacological head on his shoulders, was the first chemist in the world to actually combine those two molecules into one easy-to-take dose. It’s fair to say, Hartley, that’s been a pretty important product for you. Since the inception of AFT Pharmaceuticals, you’re now approved to sell that product or you have distribution arrangements in well over 120 countries around the world. There’s barely a place in the civilized world where I can’t find Maxigesic if I’d go looking for it, right?

Dr. Atkinson: Yeah, look, basically, it’s in the rollout phase. Like you said, we’ve completed pretty much all the clinical studies or almost all the clinical studies. They’ve all worked. We’ve launched in about 46 countries presently. We have out-licensing agreements, as you noted, in over 120 countries around the world. So really the progress and the mission at the moment is rolling those launches out. And as well as that, we do also have quite a strong local business, mainly in Australia, but also New Zealand, where we sell a whole range of products but includes Maxigesic. For example, in Australia, we’re the leading paracetamol and ibuprofen combination product, and it’s going well.

Stuart: Yeah. It was impressive to me. So I visited my local TerryWhite chemist here in the northern part of Sydney, interested to see, and I always look for your product when I go into the pharmacy to see. And the placing is always, you know, pretty much close to eye level, at the level where you’d expect to find the over-the-counter painkiller. So you’ve obviously done a good job with your detail people in terms of making sure that you get good placement in all the important outlets, at least here in Australia and I’m guessing the same around the world.

Dr. Atkinson: Yeah, look, there’s different models, I guess. In Australia and New Zealand, we have our own salesforce. In Australia, we’ve got a good team of over 40 people. In New Zealand, we’ve got a team of about seven in addition to our head office function. So we do have expertise in sales and marketing, you know, which we see as useful because, then, it’s not just doing drug development, we have a good clear idea how to promote the products, how to work with our distributors and licensees, and other jurisdictions. And that’s an important part of our business.

Stuart: Now, what’s impressive about you, Hartley and the company you’re building here, so you started originally as a distributor of drugs with a few distribution arrangements initially for the New Zealand market and then expanding. And you know, you inherited that when AFT went public on ASX and NZX. Then came Maxigesic, which was your own creation, patent-protected, obviously. And then there’s the next stage of the journey where you’re working on a couple of specialty products which you expect to make really good money out of in the future. And I think, for instance, Pascomer, which is an orphan drug for a number of dermatological type indications, I should say, or NasoSURF, which is a device to treat various respiratory conditions, obviously, important in this pandemic we’re going through. Talk to us about how you’ve gradually moved AFT up the curve just in the last few years in terms of the sophistication of the products you’re working on.

Dr. Atkinson: Yeah. When we first started, I guess, like you noted, we just did distribution. I mean, I guess the problem with that always is things might matter a pharmacy should buy your product because it’s 10 cents cheaper, and that’s not really the way to go.

Stuart: Right.

Dr. Atkinson: So that’s why we started to develop IP and get our first patents and get into…well, back into drug development, because originally, I was a medical director at Roche, so in many ways, it was kind of back to the future really. So you know, doing our own development is pretty important. We do a lot of in-licensing. So there’s kind of two chunks to the business. One is our local Australian and New Zealand businesses where, you know, we’re selling close to $100 million, and there’s a lot of growth potential in that area. We’ve done a lot of in-licensing over the pandemic. And then, also, as well, there’s out-licensing and distribution where we take our products that we’re developing and we out-license them to other partners, because really, if we look at it, you know, we can’t really set up everywhere around the world. So we need to find strong local partners. Like, for example, in Italy, we work with Angelini, which is probably a company people haven’t heard of down here, but in Italy, they’re a powerhouse, you know, their number one ibuprofen selling company in the whole market. So it’s finding these local partners, and we work with them to then sell our R&D products in their own markets.

Stuart: Sure. You know, I visited your offices in Auckland in about 2017, I think it was, and what impressed me was the talent you’ve been able to bring. Now, New Zealand is a small country, and everyone wants to immigrate to New Zealand because it’s heaven on earth, right? So you’ve been very fortunate in terms of the talent that has come to you. In terms of your long-term goal to build a fully integrated pharmaceutical company, you’re a fair way down the path, right?

Dr. Atkinson: Yeah, look, we’ve actually got a really good team, and obviously, one can never do things oneself. You need a good team. And I mean, we’ve got that. We did a lot of work as well in hiring quite young people straight out of university. Got a lady starting next week, a pharmacist who just finished her Ph.D., and I’m pretty confident we’ll be able to train her up so she’ll be a very valuable member of our team. So you know, we’ve got a good smattering. We have people from about 100 staff. We have people from 25 birth countries, you know. So we’ve got a very multinational team, and that’s one of the things that we, you know, take pride in because I think it’s quite important.

Stuart: Sure. Now, I’ve been on the record before as predicting that you will become New Zealand’s first billion-dollar company in the life sciences space. We’re about a quarter of the way there as we speak. What do you see as the key value drivers going forward over the next half-decade to a decade or so in terms of what you want to build in AFT?

Dr. Atkinson: Yeah, look, I mean we’ve obviously got a strategic plan over the next five years, and really it’s kind of rolling that plan out and the execution stage. In many ways, with some of our R&D, like the Maxigesic line, it’s kind of…I say to people, it’s kind of almost like building a 20-story skyscraper where we’ve done the R&D, it works, and, like, now we’ve built it, and we’ve only filled up the first couple of floors, you know. So now, we’re working on filling out and renting out the remaining 18 floors. So our international business at this stage isn’t that big, you know, because we’re mainly Australia and New Zealand. But over time, as we roll out in the United States and other countries, and we roll out our Maxigesic intravenous, which parties have picked to be a big selling product, independent research, came out a while ago that, you know, predicted that. You know, we see that just execution in a lot of the R&D risk at this point in time is off the table because we’ve done it and it’s worked very well, good quality publications, you know. So that’s what’s the biggest risk in many ways is R&D. So certainly, with the Maxigesic line, we’ve done the heavy lifting, and now it’s the execution and rolling it out into multiple territories.

Stuart: Certainly. So let’s talk about the most recent result. A good set of numbers, well in excess of $100 million at the revenue line. What else was pleasing in terms of the most recent result?

Dr. Atkinson: Yeah, look, it was just…basically, with travel being restricted, it hasn’t really made things any easier, but what’s been positive is we’ve been able to conclude a few major out-licensing agreements with, actually, people we’ve never met other than over Zoom, which isn’t ideal. We just concluded a large deal with Hikma Corporation for Maxigesic IV in the United States. We’re due US$18.8 million of upfronts and milestones. Plus, we have a profit share and a supply contract. We did some deal, quite big deals in Europe as well, over multiple jurisdictions, with a French company called Aguettant, you know. So we’ve done a fair number of deals, primarily over Zoom calls, which isn’t ideal.

Stuart: Yeah, I agree. I mean, I would love for us to be doing this interview in person, but, yeah. It’s proof of the robust nature of the business model that people are coming to you, because they know the quality of product. Now, I always tell people, I joke, you know, you get out a night on the terps. This is going to knock your headache off a lot faster the next morning than anything else. But in all seriousness, we talked a couple of times about the intravenous opportunity, and I hadn’t thought much about that being a large market opportunity. In an environment where, you know, people are taking opiates to kill strong pain, you have a huge opportunity to zero into that in the intravenous space, right?

Dr. Atkinson: Yeah, look, I mean, there was a raison d’etre behind Maxigesic. I mean, I’ve always believed that opioids are a problem way back in 2005, you know, and at that stage, people, it wasn’t so apparent.

Stuart: Yeah, you were ahead of the curve in that regard.

Dr. Atkinson: Yeah, you know. Like, honestly, I mean, as, you know, a pharmacologist, you could see that was a danger, and one of the clear problems at the moment is people are trying to reduce and heavily restrict opioid use, especially, even, you know, the hospital side, because the problem is the patients get discharged from the hospital, they get given carry-on opioids. Most people probably don’t have a problem, but there’s only a small proportion have to have a problem, and that causes big health care impacts down the track. And especially places, you know, like the U.S., which has been the epicenter of the opioid epidemic, that kind of plays into our hands, which I think is why, you know, a big company like Hikma, you know, did the deal with us. But I mean, even countries like Australia just got to be careful that we don’t have a sense of complacency. Australia, as far as I last understood, per capita, was the eighth biggest users of opioids around the globe, you know, and that’s not good either.

Stuart: Yeah, it does. A friend of mine ended up hooked on opioids, had to go to rehab to get off. And so if I know someone who had that problem, I dare say, many of our viewers do as well.

Dr. Atkinson: Yeah, sure. So look, I mean, we sort of have a thing with all our products, on our business card, it says, “Working to improve your health,” and that is seriously, you know, what we do. I mean, we look at products as something we don’t believe in. Like, we don’t believe in paracetamol and codeine, we would never sell that product. We don’t believe in pseudoephedrine because people convert it to methamphetamine, and we all know what a scourge that is. So we were one of the leaders in paracetamol and phenylephrine products, you know. So it’s that that drives our kind of thinking as well.

Stuart: Exactly. Now, just to conclude on this interview, let’s talk about how it’s been since you listed…I think it was December 2016 you went public jointly on both ASX and NZX. It’s fair to say, the stock isn’t traded much here in Australia as much as it is in New Zealand. Now, that means just us, Aussies, are missing out. You set yourself a goal to progressively increase revenues and pay down debt through that journey post the IPO. It’s fair to say, you’ve executed reasonably well on that plan, right?

Dr. Atkinson: Yeah, look, when we floated, we forecast losses, I think it’s fair to say, because we were doing our R&D program. I think it’s fair to say, the market, even though we did what we said, actually probably didn’t like it, but the point is we’ve completed a big chunk of that spend. We restructured our debt, and we paid it back with profit and earnings. We’ve done some very small capital raises. We don’t need to do more capital raises. Shareholders are not going to get diluted as far as we can see at this point in time, you know. So we’ve really done a lot of things we said we were going to do, and really, now, we see it’s the time of accelerating growth, you know, as we roll out the R&D products, and we also grow Australian market, which we also see a lot of potential in the Aussie market. But also Asia, you know, we have a team on sites and things like that. We have growing Asian deals and stuff. So, yeah, there’s a lot of different angles where we can drive the sales and drive those top-line sales, and that’ll feed into profit, obviously.

Stuart: Exactly. And I would conclude with this one. You probably hadn’t even heard of Hikma a few years ago. I mean, if I remember correctly, it’s a Jordanian company. Is that right?

Dr. Atkinson: Yeah, look, it’s originally Jordanian. It’s listed on the London Stock Exchange, but you know, it’s not really a tiddler. I think it’s got a market cap of about seven bill or something, yeah, listed on the London Stock Exchange. And they’re very powerful in the United States and pretty big in Europe, and obviously, their home turf is the Middle East. But yeah, they’re a pretty high-quality partner, and yeah, I think it’s a good partner for us to work with, because in the United States, they’ve got the clout, and that’s really what you need in the U.S. is a partner with good market clout.

Stuart: Absolutely. So here’s a little or not so little Hartley Atkinson down in New Zealand talking to a whole lot of other formerly small companies but growing fast with ambition that you’ve hitched your tail to. If we look forward a year from now, are we going to see more partnerships like what you’ve just done with Hikma?

Dr. Atkinson: Yeah, look, I think there’s going to be some more partnerships, especially, the rest of our R&D starting to come online. I mean, we’ve had a number of people wanting to talk to us about the NasoSURF drug delivery device. We’ve actually held them off and said, “Look, it’s a bit early. We really want to generate some more human clinical data, which we believe we can do quite readily, you know.” So I see that there’ll be more deals going forward. Pascomer, we’ve licensed that in North America, and actually, a German company called Desitin actually chased us down and wanted to do Europe, the UK, and Switzerland. So we did a deal with them. So we’ve, you know, covered quite a bit with Pascomer, actually, but the device… And then we’ve got some other products, things in the pipeline as well, which we’ll obviously work on.

Stuart: Yes. So it’s been a good year for you. The only downside is lockdowns in New Zealand. It means you’ve missed part of the ski season, not to mention your other passion, which is surfing. I think in the Bay of Plenty is your preferred location there.

Dr. Atkinson: Yeah, it’s been a bit tragic on the personal front. So I guess I’ve been able to focus on some work. So hopefully, in the goodness of time, our shareholders will be grateful for that focus.

Stuart: Yeah. Hartley Atkinson, well done in what you’ve achieved, and good luck for the next year.

Dr. Atkinson: Thank you very much.