Thorney Opportunities : Investment Forum - PAL presentation

THORNEY OPPORTUNITIES LTD

ACN 080 167 264

ASX Announcement: 20 November 2019

ASX Code: TOP

THORNEY INVESTMENT FORUM - COMPANY PRESENTATIONS

Please find attached a company presentation from Palla Pharma Limited [ASX:PAL] being presented at today's Thorney Investment Forum in Melbourne.

Forum details:
Date	Wednesday 20 November 2019
Location:	Ernst & Young
Address:	Level 23, 8 Exhibition Street, Melbourne
Time:	9.30am for 9.45am, concluding by 1.00pm

A video recording of the presentations will also be uploaded to the respective websites a few days after the forum concludes.

Please direct enquiries to:

Craig Smith

Company Secretary

Email:[e-mail]

Telephone: + 61 3 9921 7116

Website:http://thorneyopportunities.com.au/

Level 39, 55 Collins Street, Melbourne Vic 3000

Telephone + 61 3 9921 7116 Facsimile + 61 3 9921 7100

THORNEY INVESTMENT FORUM

Sue MacLeman - Non -Executive Director

20 NOVEMBER 2019

ASX : PAL

COMPANY OVERVIEW

Lowest cost narcotic raw material producer globally using novel water

PALLA PHARMA AT A GLANCE

Fully integrated opiate manufacturer from farm gate to tablet production.

-based extraction process

SHAREHOLDERS (pre placement and entitlement offering announced 17 October 2019)

Lowest cost Narcotic Raw Material ("NRM") and Active Pharmaceutical

Ingredient ("API") production capability based on unique water -based extraction technology.

Rapidly growing global supplier of pain relief, cough medicines and plans for anti -addiction products.

Significant contract manufacturer of Finished Dosage Formulation ("FDF") tablets via contract manufacturing supply agreements ("CMO").

Founded in 2004 and headquartered in Victoria, Australia with production facilities in Victoria, Australia and Kragerø, Norway.

CAPITAL STRUCTURE

O t h e r Ext e rn a l In ve st o rs,

51.0%

DIRECTORS & SENIOR MANAGEMENT

W a sh in g t o n H So u l P a t t in so n , 20.0%

Th o rn e y In ve st m e n t s,

17.0%

W e n t w o rth W illia m so n ,

7.5 %

Bo a rd & Ma n a g e m e n t ,

4.5%

Share Price 15 November	2019	$0.85
Fully Paid Ordinary Shares		108.0m
Share Appreciation Rights		2.1m
Market Capitalisation			$91.8m
Net Cash (post placement and entitlement	$0.8m
offering proforma 30	June	2019)

Simon Moore	Independent	Non -Executive Chairman
Jarrod Ritchie		Chief Executive Officer
Stuart Black	Independent	Non -Executive Director
Todd Barlow		Non -Executive Director
Sue MacLeman	Independent	Non -Executive Director
Jaime Pinto		Company Secretary
Brendan Middleton		Chief Financial Officer

2

COMPELLING INVESTMENT CASE

One of few producers globally of a highly regulated active compound of high demand essential medicine

Industry thematic supports continued strong organic growth with opportunities for strategic acquisitions as opportunities arise.

Revenue ($M)

27.3

One of three (3) fully integrated suppliers of opiate	-based
medications globally.
Morphine remains the gold standard for	"Pain Relief and Palliative

Care " p e r th e W orld He a lth Org a n iza tion Mod e l List of Esse n tia l Me d icin e s 21st e d ition re le a se d in 20 19; u n a va ila b ilit y p e rsist s o f e sse n t ia l o p ia t e -b a se d m e d ica t io n s in d e ve lo p in g co u n t rie s .

Fe n t a n yl (syn t h e t ic o p io id ) a b u se in t h e Un it e d St a t e s is d rivin g 10 0 % p .a g ro w t h o f o ve rd o se t re a t m e n t n a lo xo n e w h ich is

m a n u fa ct u re d fro m o p ia t e s .

P AL re ve n u e h a s in cre a se d a t a CAGR o f 123% fo r la st 5 ye a rs a n d

t u rn e d O p e ra t in g EBITDA* p o sit ive in 1H 20 19 a ft e r re a ch in g b re a k e ve n re ve n u e .

Un iq u e w a t e r-b a se d e xt ra ct io n t e ch n o lo g y p ro vid e s sig n ifica n t m a n u fa ct u rin g co st a d va n t a g e in n a rco t ic ra w m a t e ria l

p ro d u ct io n , p ro vid in g a co m p e t it ive a d va n t a g e a n d le a d in g t o

a t t ra ct ive g ro ss m a rg in o p p o rt u n it y t h ro u g h o u t t h e su p p ly ch a in .

* Op e ra tin g EBITDA is a n on -GAAP fin a n cia l m e a su re - re fe r 20 19 Ha lf Ye a r Re su lts p re se n ta tion for fu rth e r in form a tion .

						22.7	23.5
					15.7
			6.1	6.0
1.5
		1H16	2H16	1H17	2H17	1H18	2H18	1H19
Operating EBIT	DA* ($M)
								0 .3
							-0 .6
						-1.8
					-3.6
				-4 .2
-5.0	-5.6
		1H16	2H16	1H17	2H17	1H18	2H18		1H19

Sou rce : h istorica l a u d ite d fin a n cia l re p orts

3

STRONG RATE OF GROWTH AFTER RELOCATION FROM TASMANIA (FY15 TO 1H 2019)

Revenue CAGR of 123%, Gross Profit CAGR of 147%, GM% increase of 12 bps and $12.5m improvement in Operating

EBITDA*

CAGR REVENUE (%)

+123%

O n FY15 t o $ 27.3m 1HFY19; So lid

o rg a n ic re ve n u e g ro w t h in AP I a n d o p ia t e b a se d FDF p ro d u c t s .

CAGR GROSS PROFIT (%)

+14 7%

O n FY15 t o $ 9 .4 m ; g ro w t h in AP I a n d o p ia t e b a se d FDF p ro d u c t s .

Revenue ($M)

60 .0

4 6.2

GM (%)

+12 b p s

O n FY15 t o 35.2%; t h ro u g h p u t

e ffic ie n c ie s fro m in c re a se d p la n t u t ilisa t io n d rivin g m a rg in s .

OP ERATING EBITDA* CHANGE ($ m )

+$ 12.5m

O n FY15 t o $ 0 .5m (lo ss) fo r LTM t o J u n e '19 a n d 0 .3m (p ro fit ) in 1HFY19;

21.7

2.17.6

FY15

FY16

FY17

FY18

FY19 Estimate

* Op e ra tin g EBITDA is a n on -GAAP fin a n cia l m e a su re - re fe r 20 19 Ha lf Ye a r Re su lts p re se n ta tion for fu rth e r in form a tion .

Sou rce : h istorica l a u d ite d fin a n cia l re p orts for p a st p e rform a n ce / in te rn a l m a n a g e m e n t fore ca sts for FY19 e stim a te

4

NRM MANUFACTURING COST ADVANTAGE

Lower operating cost, lower capital cost, no toxic solvents

Palla Pharma Water Based Technology

$20 million AUD capital investment (100 tonne facility)

No toxic solvents

No wastewater treatment

Operating cost lower than competitors

Competitors Solvent Based Technology

$100 -150 million capital investment (100 tonne facility)

Toxic solvents

Wastewater treatment required

Significantly higher engineering/QA burden/indirect costs

5

FULLY INTEGRATED GLOBAL OPIATE SUPPLY CHAIN

Diversified straw supply, NRM IP provides competitive advantage throughout the supply chain

Northern

Hemisphere

Straw Supply

Raw material (Poppy Straw)

Southern

Hemisphere

Straw Supply

Sale of poppy				NRM sales to external
seed for culinary
			customers
purposes

Narcotic Raw		Active
	Pharmaceutical
Material ("NRM")
	Ingredient ("API")
Morphine		Codeine Phosphate
Codeine
Thebaine		Pholcodine
Oripavine

API sales to external customers

Finished Dosage Formulation ("FDF")

Contract manufacturing ("CMO") of tablets

Opiate based tableted pain medications

Cod e in e P h osp h a t e

Co -cod a m ol

Non -opiate based tableted pain medications

P a ra ce t a m ol

Ib u p rofe n

Accretive gross margin for the group as NRM moves to higher value opiate products through the supply chain

6

MARKET OPPORTUNITY

Significant addressable opiate equivalent market opportunity

Opiate Equivalent Volumes Sold

Integrate

Accelerate

revenue

Expansion

Acquired

Norway &

growth

of mainland

downstream

position for

growing &

Norway

growth

European

operations

straw

Relocation

supply

Tonnes

of NRM

sources

production

to Victoria

2015

2016

2017

2018

2019

Source: Company records for historical data / management estimate for 2019

• Reliable and low cost straw supply hampered NRM volume growth prior to 2015; relocation of NRM production facility to Victoria, expansion of mainland growing, and alternative European supply sources significantly improved straw supply reliability.
• Acquisition of downstream Norway operations in 2017 substantially expanded addressable end use markets and customers to further leverage cost advantage in NRM

production.

Sizeable Addressable Global Opiate Market (Tonnes)

1,100

200

41

2018 Volume Sold		2021 Production Target		Addressable Market

Source: INCB "Estimated World Requirements of Narcotic Drugs", July 2019.

• One of six licensed NRM producers globally, and one of three fully integrated suppliers of opiates from NRM, API though to FDF products.
• Key competitive advantage due to NRM source being
  70 -80% of the input cost of API/FDF products, therefore lowest cost producer opportunity in NRM, API and FDF products with multiple channels to market relative to other industry participants.

7

EXPERIENCED GROUP EXECUTIVE TEAM

Mr. Jarrod Ritchie

CEO/MD/Founder

Mr. Brendan Middleton	Pending hire	Mr. Richard Scullion	Ms. Lucy Waddell
Chief Financial Officer	Senior Group Executive	Commercial & Sales Director	Group Head of Quality

Dr. Artur Abreu	Mr. Michael Long	Dr. Richard Bos	Ms. Nicole Mikschofsky	Mr. Craig Sweenie
Site Director - Australia	Director of Agriculture	Director of Research &	Finance and Operations	Site Director - Norway
		Development	Manager - Norway

8

CURRENT OPIOID CRISIS IN THE UNITED STATES

Opioid synthetics, such as fentanyl, are the main factor in current United States opioid crisis

Opioid Associated Deaths (US)

Th e Un ite d Sta te s Na tion a l In stitu te s of He a lth (NIH) 20 17 d a ta

sh ow s th a t th e sh a rp e st in cre a se in op ioid re la te d d e a th s re su lte d from fe n ta n yl u se (syn th e tic op ioid ) w ith m ore th a n 28 ,4 0 0

ove rd ose s in 20 17.

Sin ce 20 16 Dru g En fo rce m e n t Ad m in ist ra t io n (DEA) h a s re d u ce d t h e q u o t a o f a lm o st e ve ry Sch e d u le 2 o p ia t e a n d o p io id

m e d ica t io n b y 25% o r m o re .

DEA is p ro p o sin g t o fu rt h e r re d u ce t h e a m o u n t o f five o p io id su b st a n ce s b y 53% in 20 20 , 31% o f t h e 53% is fe n t a n yl.

Na lo xo n e , a n o p ia t e d e rive d a n t id o t e , is t h e p re fe rre d first lin e t re a t m e n t t o h e lp co m b a t fe n t a n yl o p io id m isu se .

P a lla P h a rm a h a s n e ve r su p p lie d in t o t h e Un it e d St a t e s a n d

p e rce ive s t h e cu rre n t o p io id crisis a s a n o p p o rt u n it y t o d e ve lo p n a lo xo n e a n d a im s t o p ro d u ce first sa m p le s b y 20 21 a n d e n t e r t h e n o n -a d d ict ive m a rke t b y 20 22.

	10
	9
tion	8
p op u la	7
,00 0	6
p e r 10 0
5
De a th s	4
	3
	2
	1
	0

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Commonly Prescribed Opiates		Synthetic Opioids (including Fentanyl)

Source: Centres for Disease Control and Prevention, National Vital Statistics System Mortality File

9

NALOXONE

"Overdose deaths have stopped rising for the first time in three decades due to naloxone administration"

- Centre's for Disease Control and Prevention, 6 August 2019

US naloxone Prescriptions Dispensed

Naloxone is an antidote for fentanyl and opiate overdose.

Sales of naloxone have increased from $21.3 million in 2011 to $60.8 million in 2014 to $274.1 million in 2016 (USD).

The number of US naloxone prescriptions dispensed grew from 1,600

in 2013 to 336,000 in 2017 and nearly doubled to 556,847 between 2017 and 2018.

There are two FDA approved naloxone products for community use:

• Evzio (pre -filled single use auto injector)
• Narcan® (Nasal Spray)

Our competitive advantage stems from the low cost of NRM that is transferable to low cost production of naloxone.

Palla Pharma is fully vertically integrated and willing to compete in the naloxone production market.

	400
	350
	300
d s)	250
ou sa n	200
(Th
TRx	150
	100
	50
	0
	2013	2014	2015	2016	2017

Sou rce : Na tion a l P re scrip tion Au d it 20 13-20 17, IQVIA

10

STRATEGIC INITIATIVES

How Palla Pharma is delivering on its strategic objectives

Develop strong foundation for growth

• Lowest cost producer NRM globally; continue to develop and refine production processes
• Globally diversified poppy straw supply chain with dual hemisphere supply strategy
• Fully integrated supplier provides multiple channels to market
• Highly experienced management team

Penetrate existing markets

• One of six licensed NRM producers globally; one of three fully integrated suppliers
• Exploit lowest cost to produce competitive advantage and reliability of supply through diversified poppy straw sourcing strategy
• Secure long -term supply agreements

Development of new products

• Develop suite of opiate based API's
• Target anti -addiction API's

• Obtain marketing authorisations to expand opiate based Finished Dosage capability

• Continue to explore market consolidation and downstream value -add acquisition opportunities

Continue to explore and develop new markets

• Significant unmet demand in developing countries with 92% of global supply consumed by 17% of the global population
• Strong population growth demographics in developing countries with lack of access to pain medication
• Activating existing and referral relationships with agents in Africa and Asia

As at 30 June 2019

11

STRATEGIC PATHWAY TO LONG TERM GROWTH

ESTABLISH SUSTAINABLE MANUFACTURING FOOTPRINT

Relocated factory to Victoria

Invested in capacity for long term growth

Listed on ASX

SECURE STRAW SUPPLY AND MARKET ACCESS

Drove legalisation of NSW/VIC/NT/SA poppy cultivation

Secured secondary straw supply from Europe

Acquired Norway operations

Developed toll opportunity with prior industry competitors

2015 to 2017

INTEGRATE NORWAY & POSITIONING FOR GROWTH

Expanded sales channels and offerings to exploit lowest cost NRM producer status

Significant API customer base growth

Realised potential in CMO division resulting in a beneficial turnaround

NRM volume growth drives down costs

Delivered 41 tonnes of opiate equivalent sales volumes

2018

ACCELERATE

REVENUE GROWTH

Market share growth in Codeine Phosphate (CPO) and Pholcodine API's, and opiate based FDF

Continue to diversify customer base and revenue streams: secure long -term supply agreements across API and FDF customer base

Explore FDF dossier purchase (~A$1 million) to capture additional downstream margin

Expand manufacturing capacity to meet sales growth

Realise further cost benefits of increased scale

Further manufacturing process cost reduction initiatives

Secure additional Northern Hemisphere straw supply

2019

DELIVER MEANINGFUL SHAREHOLDER RETURNS

Market share growth: become the leading global supplier of Codeine Phosphate (CPO) and Pholcodine API's

Diversify customer and product revenue: continue to grow sales of existing API products. In addition to CPO, add API products to the portfolio (Morphine Sulphate, Di -Hydrocodeine Tartrate, Diamorphine and naloxone)

First samples of high -value anti -addiction products

Further penetrate developing markets

Consider additional brownfield manufacturing footprint acquisitions

Realise additional cost benefits of increased scale

2020 / 2021

2021 by Production NRM Annual of 200t Targeting

12