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MAYNE PHARMA GROUP LIMITED Interim / Quarterly Report 2011

Feb 24, 2011

65396_rns_2011-02-24_03699817-22b0-4964-8918-d40819d7a943.pdf

Interim / Quarterly Report

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Manag e r, Compa n y Announcements ASX Li m ited Level 4 20 Brid g e Street SYDN E Y N S W 2000

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Friday, 25 Februa r y 2011

Via E-Lodgement

Dear S i r/Madam

Mayne Pharma Group

Interim Results

Please find attach e d the App e ndix 4D H a lf Year Report, toget h er with the media rele a se, Directors’ Report, t he Financi a l Report and Auditor’ s Independ e nt Review Report rel a ting to the res u lts for the h alf year e n ded 31 De c ember 20 1 0. This information s h ould be re a d in conju n ction with Mayne Ph a rma Group Limited’s 2 010 Annual Report.

This announceme n t compris e s the infor m ation required by AS X Listing R u le 4.2A an d the statem e nt require d by Rule 4 . 2C.2.

Yours f a ithfully, Mayne Pharma G r oup Limite d

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Mark Cansdale Chief Financial Of f icer and C o mpany Se c retary

Mayne Pharma Group Limited ACN | 115 832 963 a | Level 9, 470 Collins St, Melbourne, VIC, 3000 t | +61 3 8614 7777 f | +61 3 9614 7022 | www.maynepharma.com

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ANNOUNCEMENT

MAYNE PHARMA REPORTS INTERIM RESULT AND SPECIAL DIVIDEND

  • Revenue $26.9M

  • EBITDA $5.1M

  • Cash $13.4M

  • Debt reduced to US$3.75M

  • Special dividend of 1.0cps

25 February 2011, Melbourne Australia : Mayne P harma Gr o up Limited (ASX: MY X ) today releas e d its result s for the h a lf year en d ed 31 Dec e mber 201 0 with revenue of $26 . 9M and operati n g earning s (EBITDA) of $5.1M.

Mayne Pharma’s C EO, Dr R o ger Aston s aid “While the results are pleasi n g, the co m bination of the u nprecede n ted streng t h of the A u stralian D o llar and a delay in t h e approva l of new formul a tions of D o ryx®, has meant the results ar e less tha n Company expectati o ns. The impact of the stre n gthening AUD resulte d in a net l o ss on forei g n exchan g e of $0.8M. These impact s were partially offset b y the performance of s ome of th e Company s other brands and produc t s, which h a ve shown s olid growt h over the p eriod and tight expen s e manage m ent.”

H11 Results

Reported
6 months
$ millions
26.9
12.2
5.1
(0.9)
4.2
(3.1)
1.1
(0.8)
0.3
0.8
1.1
0.76
3.7
13.4
Las
t 12 months
$ millions
Sales
Grossp
EBITDA
Deprec
EBITA
Amortis
EBIT
Net inte
NPBT
Income
NPAT
EPS(c
rofit
iation
ation
rest
tax benefit
ps)
54.3
24.6
14.0
(1.9)
12.1
(8.6)
3.5
(1.6)
1.9
Net ope
Casha
rating cash
t bank
flows (pre ta
x)
12.6

Operating performance

Sales of Doryx®, our key proprietary product mainly sold into the US market and representing about 50% of revenue, did not meet Company expectations because, amongst other things, the Company agreed to defer firm orders from Warner Chilcott, as outlined below, and the stronger than expected Australian dollar.

During the past year, Mayne Pharma with its US partner Warner Chilcott, has focused on the development and approval of improved next generations of Doryx®, as part of the product life-cycle management strategy of the Company.

In line with this strategy, the Company was expecting to receive FDA approval for new formulations of Doryx® in the first half, and while this has not yet been granted, approval is anticipated in the second half of the financial year. The Company had received firm orders for the new Doryx® formulations, however, the Company took a strategic decision for the longer term and agreed to the deferral of these orders by Warner Chilcott. The combination of this delay and a reduction in orders for existing product in anticipation of the move to the new Doryx® formulations, led to a $1.7M margin shortfall.

Astrix®, the number one prescribed low dose aspirin in Australia contributing 17% of revenue, was up strongly during the period following new sales and marketing activity and the acquisition of the marketing and distribution rights from Hospira in February 2010. A consumer focused website for Astrix® was launched during the half and we have recently partnered with HealthOne to promote the Astrix® brand of products in pharmacies across Australia.

Sales revenue from the contract manufacturing of liquids and creams, representing approximately 20% of sales, were down marginally.

Regional performance

Australian, Canadian and Korean sales which represent approximately 50% of the group’s revenue were all up strongly. Australian sales revenue showed more than 20% growth on the prior corresponding period in 2009 driven by the proprietary products division (Astrix®, Doryx®, Eryc® and Magnoplasm®) that acquired the marketing and distribution rights from Hospira. In Canada, the Company renewed the licence agreement with Abbott Inc. for Kadian® and, although a relatively small part of the business, this has lead to 50% growth in sales of the product from expanded marketing effort. Similarly, our Astrix® brand in Korea has also continued to grow (up 8%) through its marketing and distribution partner Boryung.

Cash flow

Net operating cash generated before tax payments was $3.7M. Cash on hand at 31 December 2010 was $13.4M, which has decreased from $19.7M at 30 June 2010, largely driven by the dividend payment of $3.0M, $2.7M in loan repayments and $2.9M in tax payments.

The US$10M debt that underpinned the acquisition of Mayne Pharma International Pty Ltd in November 2009 has been reduced to US$3.75M as at end of January 2011 and will be completely paid down in the 2011 calendar year.

SUBACAP® progression

During the half, it was announced that the Company had submitted a Marketing Authorisation Application in the European Union for SUBACAP®, an improved version of an existing drug (Itraconazole) used to treat fungal infections and targeting the current Itraconazole market (US$550M). In addition, the Company completed a phase II study in the USA that demonstrated SUBACAP® will offer a safe, lower dose replacement to the current market leader, Sporanox®. The Company will be meeting with the FDA in the 2[nd] quarter of 2011 to receive guidance on further requirements for US registration of SUBACAP®.

The Company is expecting to receive formal feedback on the EU dossier by the end of May 2011 with approval anticipated by the end of calendar 2011. Mayne Pharma is expecting to receive income from the first market sales of SUBACAP® in calendar 2012 subject to regulatory approval and the appointment of a marketing and distribution partner. The Company continues to progress negotiations with a number of interested parties around the world for the licensing of SUBACAP®.

Doryx® patent matters

Mayne Pharma and its partner Warner Chilcott continue to take all necessary legal action to protect the patent on Doryx®. This is an ongoing aspect of US patent law and the Company will continue to protect its position, when as expected, the Company receives challenges to its position. For example, Mayne Pharma and Warner Chilcott have initiated legal action seeking damages against Mylan Pharmaceuticals Inc in response to their recent launch of generic forms of 75mg and 100mg Doryx® formulations. These formats currently account for approximately 4% of US sales of Doryx®.

Outlook

Doryx® remains an important component for the overall financial performance of Mayne Pharma. As previously announced, the Company is in the process of transitioning into new improved Doryx® formulations as part of the ongoing development of the Company’s drug portfolio. These new Doryx® formulations are now expected to receive FDA approval during the second half of the financial year, and some discontinuity in sales is likely to continue whilst inventories are depleted and re-stocked during product transition. Furthermore, Mayne Pharma has taken a strategic decision to allow Warner Chilcott to defer existing orders to accommodate delays in the approval process. The Company is confident that the majority of these orders will be fulfilled during the second half. However, the delay is likely to result in some current year orders being deferred into next year.

Wide ranging discussions are underway with Warner Chilcott including the opportunity for significant price increases across various Doryx® formulations. In view of a combination of factors, namely the increased strength of the AUD and the uncertainty now created by the timing of the FDA approvals and the Company’s strategic decision to allow its major partner Warner Chilcott to delay orders, the previous guidance of EBITDA not less than $18.2M is no longer appropriate. The Company anticipates that the normalisation of supply of Doryx® to Warner Chilcott will return to normal patterns within a reasonable period of time, but this will not be in time to normalise earnings in the second half. However, longer term, Mayne Pharma’s position may improve given the possibility of price increases being implemented.

The Directors remain confident in the resilience and sustainability of our business model with our strong product portfolio and pipeline, particularly given the recent filing of SUBACAP® for registration in the EU and on-going discussions with potential marketing and distribution partners.

Dr Aston said “We will continue to invest in developing and commercialising improved pharmaceuticals and launching and marketing existing and new products through partnerships with global licensees. In addition, we will seek to build on our platform through in-licensing and acquisition of products that are either commercialised or nearing commercialisation.”

Special dividend

After careful consideration of the outlook for the Company, the Board of Mayne Pharma is pleased to declare a fully franked special dividend of 1.0 cent per share with a record date of 9[th] March 2011 and payable 25[th] March 2011.

-ENDS-

For further information contact:

Dr Roger Aston 0402 762 204 Lisa Pendlebury 0419 548 434, [email protected]

Mayne Pharma Profile:

Mayne Pharma Group Limited (Mayne Pharma) is an Australian specialist pharmaceutical company with an intellectual property portfolio built around the optimisation and delivery of oral dosage form drugs.

Mayne Pharma has a long and successful history of developing and commercializing improved pharmaceuticals and has launched and marketed numerous products through partnerships with licensees in various countries around the world. Mayne Pharma focuses on delivering to patients improved versions of existing drugs in order to advance safety, efficacy or ease of administration.

A technology driven company, Mayne Pharma has a significant product portfolio and pipeline, global reach through distribution partners in Australia, USA, Europe and Asia and a manufacturing facility based in Salisbury, South Australia that employs over 150 people on a 32 acre site. The facility also undertakes the manufacture of products under contract for third parties to TGA, FDA and EU regulatory guidelines.

RESULTS FOR ANNOUNCEMENT TO THE MARKET APPENDIX 4D – HALF YEAR REPORT

%
Change
2010
$’000
2009
$’000
Revenue from ordinary activities Up 188% 26,898 9,327
Profit/(loss) from ordinary activities before income tax expense N.M. 326 (1,085)
Profit/(loss) from ordinary activities after income tax expense N.M. 1,134 (2,172)
Net profit/(loss) attributable to members N.M. 1,134 (2,172)
N.M: Not meaningful
Net tangible assets per ordinary share $0.088 $0.042
2010
cents
2009
cents
Basic earnings per share
Diluted earnings per share
0.76
0.75
(2.14)
(2.14)
Final dividend in respect of the financial year ended 30 June 2010 (2009) per share
Special dividend in respect of the period ended 31 December 2010 (2009) per share
2.0
1.0
nil
nil

All dividends are fully franked at the corporate income tax rate (2010: 30%; 2009: 30%)

The record date for determining entitlement to the special dividend is 9 March 2011 and the special dividend is payable on 25 March 2011. No dividend reinvestment plan is in operation for this dividend.

Refer to the Directors’ Report and Press Release dated 25 February 2011 for a brief commentary on the results.

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MAYNE PHARMA GROUP LIMITED (Formerly Halcygen Pharmaceuticals Limited) ABN 76 115 832 963

HALF-YEAR FINANCIAL REPORT

FOR THE HALF-YEAR ENDED

31 DECEMBER 2010

1

CONTENTS

Corporate Information 3
Directors’ Report 4
Auditor’s Independence Declaration 6
Consolidated Statement of Comprehensive Income 7
Consolidated Statement of Financial Position 8
Consolidated Statement of Changes in Equity 9
Consolidated Statement of Cash Flows 10
Notes to the Financial Statements 11
Directors’ Declaration 22
Independent Review Report 23

2

CORPORATE INFORMATION

DIRECTORS: Mr Roger Corbett, AO (Chairman)
Dr Roger Aston (CEO)
The Hon Ron Best
Mr Bruce Mathieson
Mr Ian Scholes
COMPANY SECRETARY: Mr Mark Cansdale
REGISTERED OFFICE AND
PRINCIPAL PLACE OF Level 9
BUSINESS: 470 Collins Street
Melbourne VIC 3000
Telephone: (03) 8614 7777
Facsimile:
(03) 9614 7022
AUDITORS: Ernst & Young
8 Exhibition Street
Melbourne VIC 3000
SOLICITORS: Minter Ellison Lawyers
Rialto Towers
Level 23
525 Collins Street
Melbourne VIC 3000
SHARE REGISTRY: Computershare Investor Services Pty Ltd
Level 2, Reserve Bank Building
45 St George’s Terrace
Perth WA 6000
Telephone: (08) 9323 2000
Facsimile:
(08) 9323 2033
BANKERS: National Australia Bank Limited
Level 2
151 Rathdowne Street
Carlton VIC 3053
ABN: 76 115 832 963
DOMICILE AND COUNTRY
OF INCORPORATION: Australia
LEGAL FORM OF ENTITY: Public company listed on the Australian Securities
Exchange

3

DIRECTORS’ REPORT

Your directors submit their report for the half-year ended 31 December 2010.

DIRECTORS

The names of the Company’s directors in office during the half-year and until the date of this report are set out below. Directors were in office for this entire period unless otherwise stated.

Mr Roger Corbett, AO, Chairman (appointed 17 November 2010) Dr Roger Aston, CEO The Hon Ron Best Mr Bruce Mathieson Mr Ian Scholes Mr Craig Bottomley (resigned 29 July 2010)

RESULTS AND REVIEW OF OPERATIONS

The consolidated entity’s net profit attributable to members of the Company for the half-year ended 31 December 2010 was $1,134,000 (half-year ended 31 December 2009: $2,172,000 net loss).

The results for the half include the full six month’s contribution from Mayne Pharma International Pty Ltd compared to two months in the prior comparable period.

Operating performance

Sales of Doryx®, our key proprietary product mainly sold into the US market and representing about 50% of revenue, did not meet Company expectations because, amongst other things, the Company agreed to defer firm orders from Warner Chilcott, as outlined below, and the stronger than expected Australian dollar.

During the past year, Mayne Pharma with its US partner Warner Chilcott, has focused on the development and approval of improved next generations of Doryx®, as part of the product life-cycle management strategy of the Company.

In line with this strategy, the Company was expecting to receive FDA approval for new formulations of Doryx® in the first half, and while this has not yet been granted, approval is anticipated in the second half of the financial year. The Company had received firm orders for the new Doryx® formulations, however, the Company took a strategic decision for the longer term and agreed to the deferral of these orders by Warner Chilcott. The combination of this delay and a reduction in orders for existing product in anticipation of the move to the new Doryx® formulations, led to a $1.7M margin shortfall.

Astrix®, the number one prescribed low dose aspirin in Australia contributing 17% of revenue, was up strongly during the period following new sales and marketing activity and the acquisition of the marketing and distribution rights from Hospira in February 2010. A consumer focused website for Astrix® was launched during the half and we have recently partnered with HealthOne to promote the Astrix® brand of products in pharmacies across Australia.

Sales revenue from the contract manufacturing of liquids and creams, representing approximately 20% of sales, were down marginally.

Regional performance

Australian, Canadian and Korean sales which represent approximately 50% of the group’s revenue were all up strongly. Australian sales revenue showed more than 20% growth on the prior corresponding period in 2009 driven by the proprietary products

4

DIRECTORS’ REPORT

divisi o n (Astrix®, Doryx®, E ryc® and Magnopla s m®) that acquired t h e marketi n g and distri b ution right s from Hos p ira. In Can a da, the C o mpany re n ewed the licence agr e ement with A bbott Inc. for Kadian ® and, although a relatively small p art of the b usiness, t h is has lead t o 50% gro w th in sale s of the pro d uct from expanded m arketing ef f ort. Simila r ly, our Astrix ® brand in Korea ha s also cont i nued to g r ow (up 8 % ) through i ts marketi n g and distri b ution partn e r Boryung.

Cash flow

Net operating c a sh gener a ted before tax paym e nts was $ 3.7M. Cash on hand at 31 Dece m ber 2010 w as $13.4 M , which h a s decreas e d from $19.7M at 30 J une 2010, largely drive n by the di v idend pay m ent of $3.0M, $2.7 M in loan r e payments and $2.9M in tax paym e nts.

The U S$10M d e bt that un d erpinned t h e acquisit i on of May n e Pharma Internatio n al Pty Ltd in Novembe r 2009 has been redu c ed to US $ 3.75M as at end of January 20 1 1 and will b e completel y paid dow n in the 2011 calendar year.

Special dividend

After c areful con s ideration o f the outlo o k for the C o mpany, the Board of Mayne Ph a rma is pleas e d to decl a re a fully franked sp e cial divide n d of 1.0 c ent per sh a re with a record date o f 9[th] March 2011 and p ayable 25 [t] h March 2011.

ROUNDING

The a m ounts cont a ined in this report and in the financ i al report ha v e been rou n ded to the n earest $1,00 0 (unless ot h erwise stat e d) under t h e option available to the Company under ASI C Class Order 98/0100. T h e Company is an entity t o which the Class Orde r applies.

AUDITOR’S INDEPENDENCE DECLARATION

The a u ditor’s inde p endence d e claration is i ncluded on p age 6 of th e Financial R eport. Dated this 25th da y of Februar y 2011.

Signe d in accorda n ce with a r e solution of t h e directors.

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Roger Aston Direct o r

5

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6

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE HALF-YEAR ENDED 31 DECEMBER 2010

Note
Continuing operations
Sale of goods
Royalties revenue
Other revenue
Revenue
Cost of sales
Inventory revaluation on acquisition of subsidiary
Gross profit
Other income / (expense)
3
Research and development expenses
Distribution expenses
Marketing expenses
Share-based payments
Amortisation expense
Administrative expenses
Finance costs
3
Acquisition costs
Profit/(loss) before income tax
Income tax benefit/(expense)
4
Net profit/(loss) for the period
Other comprehensive income
Total comprehensive income for the period
Earnings per share for profit/(loss) from
continuing operations attributable to the
ordinary equity shareholders of the parent:
Basic earnings per share (cents)
Diluted earnings per share (cents)
Earnings per share for profit/(loss) attributable to
the ordinary equity holders of the parent:
Basic earnings per share (cents)
Diluted earnings per share (cents)
31 December
2010
31 December
2009
$ 000
$ 000
25,133
8,885
670
240
1,095
202
26,898
9,327
(14,684)
(3,747)
-
(333)
12,214
5,247
(558)
70
(3,583)
(1,936)
(332)
(14)
(248)
-
-
(1,002)
(3,047)
-
(3,012)
(2,812)
(1,108)
(426)
-
(211)
326
(1,085)
808
(1,087)
1,134
(2,172)
-
-
1,134
(2,172)
0.76
(2.14)
0.75
(2.14)
0.76
(2.14)
0.75
(2.14)

This consolidated statement of comprehensive income should be read in conjunction with the accompanying notes to the financial statements.

7

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2010

Note
Current assets
Cash and cash equivalents
5
Trade and other receivables
Inventories
Other current assets
Total current assets
Non-current assets
Property, plant and equipment
Deferred tax assets
Intangible assets and goodwill
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest-bearing loans and borrowings
Income tax payable / (refundable)
Other financial liabilities
6
Provisions
Total current liabilities
Non-current liabilities
Interest-bearing loans and borrowings
Other financial liabilities
6
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
7
Reserves
Accumulated losses
Total equity
31 December
2010
30 June
2010
$ 000
$ 000
13,400
19,709
7,768
5,999
6,208
6,500
592
321
27,968
32,529
21,275
21,047
3,291
3,347
11,225
14,226
35,791
38,620
63,759
71,149
4,472
3,928
4,874
7,587
(574)
2,586
6,556
6,549
2,891
2,517
18,219
23,167
-
1,027
15,237
14,392
4,929
5,550
904
1,464
21,070
22,433
39,289
45,600
24,470
25,549
30,883
29,649
1,272
1,714
(7,685)
(5,814)
24,470
25,549

This consolidated statement of financial position should be read in conjunction with the accompanying notes to the financial statements.

8

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE HALF-YEAR ENDED 31 DECEMBER 2010

Balance at 1 July 2010
Profit for the period
Shares issued
Transfer for share options
exercised
Dividends paid
Balance at 31 December 2010
Balance at 1 July 2009
Loss for the period
Shares issued
Share issue costs
Share options issued
Balance at 31 December 2009
Contributed
equity
Reserves
$ 000
$ 000
29,649
1,714
-
-
792
-
442
(442)
-
-
Accumulated
losses
Total
$ 000
$ 000
(5,814)
25,549
1,134
1,134
-
792
-
-
(3,005)
(3,005)
30,883
1,272
(7,685)
24,470
15,869
902
-
-
13,566
-
(746)
-
-
1,002
(9,067)
7,704
(2,172)
(2,172)
-
13,566
-
(746)
-
1,002
28,689
1,904
(11,239)
19,354

This consolidated statement of changes in equity should be read in conjunction with the accompanying notes to the financial statements.

9

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE HALF-YEAR ENDED 31 DECEMBER 2010

Note
Cash flows from operating activities
Receipts from customers
Payments for research and development
expenditure
Payments to suppliers and employees
Interest received
Interest paid
Tax paid
Net cash flows from operating activities
Cash flows from investing activities
Purchase of plant and equipment
Purchase of intangible assets
Acquisition of subsidiary
Net cash flows used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Payment of share issue costs
(Repayment) / Proceeds of borrowings
Payment of borrowing costs
Equity dividends paid
Net cash flows (used in) / from financing
activities
Net (decrease) / increase in cash and cash
equivalents
Cash and cash equivalents at beginning of period
Effect of foreign exchange changes on cash held
in foreign currencies
Cash and cash equivalents at end of period
31 December
2010
31 December
2009
$ 000
$ 000
27,080
10,163
(3,778)
(1,715)
(19,614)
(7,107)
206
70
(194)
-
(2,917)
-
783
1,411
(1,035)
(29)
(41)
-
-
(18,250)
(1,076)
(18,279)
792
13,566
-
(746)
(2,658)
11,050
-
(381)
(3,005)
-
(4,871)
23,489
(5,164)
6,621
19,709
7,936
(1,145)
-
13,400
14,557

This consolidated statement of cash flows should be read in conjunction with the accompanying notes to the financial statements.

10

NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2010

1. BASIS OF PREPARATION AND ACCOUNTING POLICIES

Basis of preparation

This general purpose financial report for the half-year ended 31 December 2010 has been prepared in accordance with AASB 134 Interim Financial Reporting and the Corporations Act 2001 .

The half-year financial report does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the consolidated entity as the annual financial report.

It is recommended that the half-year financial report be read in conjunction with the annual report for the year ended 30 June 2010 and considered together with any public announcements made by Mayne Pharma Group Limited during the half-year ended 31 December 2010 in accordance with the continuous disclosure obligations of the ASX Listing Rules .

The accounting policies and methods of computation are the same as those adopted in the most recent annual financial report.

Changes in accounting policy

From 1 July 2010 the Group has adopted the following standards and interpretations, mandatory for annual periods beginning on or after 1 July 2010. Adoption of these standards and interpretations did not have any effect on the financial position or performance of the Group.

  • AASB 2009-4 Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 2 and AASB 138 and AASB interpretations 9 & 16]

  • AASB 2009-7 Amendments to Australian Accounting Standards [AASB 5, 7,107,112,136 & 139 and Interpretation 17]

  • AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 5, 8, 107, 117, 118, 136 & 139]

New accounting standards and interpretations

Accounting Standards and Interpretations issued but not yet effective:

Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective and have not been adopted by the Group for half year ended 31 December 2010 are outlined below:

AASB 9 Financial Instruments Application date of standard: 1 January 2013 Application date for Group: 1 July 2013 Impact on financial report:

The Group has yet to fully assess the impact of the changes but expects them to have minimal impact on the Group.

11

NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2010

1. BASIS OF PREPARATION AND ACCOUNTING POLICIES (continued)

New accounting standards and interpretations (continued)

Accounting Standards and Interpretations issued but not yet effective: (continued)

Summary

AASB 9 includes requirements for the classification and measurement of financial assets resulting from the first part of Phase 1 of the International Accounting Standards Board’s (IASB) project to replace IAS 39 Financial Instruments: Recognition and Measurement (AASB 139 Financial Instruments: Recognition and Measurement).

These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The main changes from AASB 139 are described below.

  • (a) Financial assets are classified based on (1) the objective of the entity’s business model for managing the financial assets; and (2) the characteristics of the contractual cash flows. This replaces the numerous categories of financial assets in AASB 139, each of which had its own classification criteria.

  • (b) AASB 9 allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument.

  • (c) Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases.

AASB 124 (Revised) Related Party Disclosures (December 2009) Application date of standard: 1 January 2011 Application date for Group: 1 July 2011 Impact on financial report: The Group has yet to fully assess the impact of the changes but expects them to have minimal impact on the Group.

Summary

The revised AASB 124 simplifies the definition of a related party, clarifying its intended meaning and eliminating inconsistencies from the definition, including:

  • (a) the definition now identifies a subsidiary and an associate with the same investor as related parties of each other;

  • (b) entities significantly influenced by one person and entities significantly influenced by a close member of the family of that person are no longer related parties of each other; and

  • (c) the definition now identifies that, whenever a person or entity has both joint control over a second entity and joint control or significant influence over a third party, the second and third entities are related to each other.

A partial exemption is also provided from the disclosure requirements for governmentrelated entities. Entities that are related by virtue of being controlled by the same government can provide reduced related party disclosures.

12

NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2010

1. BASIS OF PREPARATION AND ACCOUNTING POLICIES (continued)

New accounting standards and interpretations (continued)

Accounting Standards and Interpretations issued but not yet effective: (continued)

AASB 1053 Application of Tiers of Australian Accounting Standards Application date of standard: 1 July 2013 Application date for Group: 1 July 2013 Impact on financial report: The Group has yet to fully assess the impact of the changes but expects them to have minimal impact on the Group.

Summary

This Standard establishes a differential financial reporting framework consisting of two tiers of reporting requirements for preparing general purpose financial statements:

  • (a) Tier 1: Australian Accounting Standards; and

  • (b) Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements.

Tier 2 comprises the recognition, measurement and presentation requirements of Tier 1 and substantially reduced disclosures corresponding to those requirements.

The following entities apply Tier 1 requirements in preparing general purpose financial statements:

  • (a) for-profit entities in the private sector that have public accountability (as defined in this Standard); and

  • (b) the Australian Federal Government and State, Territory and Local Governments.

The following entities apply either Tier 2 or Tier 1 requirements in preparing general purpose financial statements:

  • (a) for-profit private sector entities that do not have public accountability;

  • (b) all not-for-profit private sector entities; and

  • (c) public sector entities other than the Australian Government and State, Territory and Local Governments.

AASB 2009-11

Amendments to Australian Accounting Standards arising from AASB 9 [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 121, 127, 128, 131, 132, 136, 139, 1023 & 1038 and Interpretations 10 & 12

Application date of standard: 1 January 2013 Application date for Group: 1 July 2013 Impact on financial report: The Group has yet to fully assess the impact of the changes.

Summary

These amendments arise from the issuance of AASB 9 Financial Instruments that sets out requirements for the classification and measurement of financial assets. The requirements in AASB 9 form part of the first phase of the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement .

13

NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2010

1. BASIS OF PREPARATION AND ACCOUNTING POLICIES (continued)

New accounting standards and interpretations (continued)

Accounting Standards and Interpretations issued but not yet effective: (continued)

AASB 2009-12 Amendments to Australian Accounting Standards [AASBs 5, 8, 108, 110, 112, 119, 133, 137, 139, 1023 & 1031 and Interpretations 2, 4, 16, 1039 & 1052] Application date of standard: 1 January 2011 Application date for Group: 1 July 2011 Impact on financial report: The Group has yet to fully assess the impact of the changes but expects them to have minimal impact on the Group.

Summary

This amendment makes numerous editorial changes to a range of Australian Accounting Standards and Interpretations.

In particular, it amends AASB 8 Operating Segments to require an entity to exercise judgement in assessing whether a government and entities known to be under the control of that government are considered a single customer for the purposes of certain operating segment disclosures. It also makes numerous editorial amendments to a range of Australian Accounting Standards and Interpretations, including amendments to reflect changes made to the text of IFRS by the IASB.

AASB 2010-4 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 1, AASB 7, AASB 101, AASB 134 and Interpretation 13] Application date of standard: 1 January 2011 Application date for Group: 1 July 2011 Impact on financial report: The Group has yet to fully assess the impact of the changes but expects them to have minimal impact on the Group.

Summary

The project emphasises the interaction between quantitative and qualitative AASB 7 disclosures and the nature and extent of the risks associated with financial instruments.

It clarifies that an entity will present an analysis of other comprehensive income for each component of equity, either in the statement of changes in equity or in the notes to the financial statements. The standard provides guidance to illustrate how to apply disclosure principles in AASB 134 for significant events and transactions. The standard also clarifies that when the fair value of award credits is measured based on the value of the awards for which they could be redeemed, the amount of discounts or incentives otherwise granted to customers not participating in the award credit scheme, is to be taken into account.

AASB 2010-5 Amendments to Australian Accounting Standards
[AASB 1, 3, 4, 5, 101, 107, 112, 118, 119, 121, 132, 133,
134, 137, 139, 140, 1023 & 1038 and Interpretations
112,115, 127, 132 & 1042]
Application date of standard: 1 January 2011
Application date for Group: 1 July 2011
Impact on financial report: The Group has yet to fully assess the impact of the
changes but expects them to have minimal impact on the
Group.

14

NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2010

1. BASIS OF PREPARATION AND ACCOUNTING POLICIES (continued)

New accounting standards and interpretations (continued)

Accounting Standards and Interpretations issued but not yet effective: (continued)

Summary

This Standard makes numerous editorial amendments to a range of Australian Accounting Standards and Interpretations, including amendments to reflect changes made to the text of IFRS by the IASB.

These amendments have no major impact on the requirements of the amended pronouncements.

AASB 2010-6 Amendments to Australian Accounting StandardsDisclosures on Transfers of Financial Assets [AASB 1 & AASB 7] Application date of standard: 1 July 2011 Application date for Group: 1 July 2011 Impact on financial report: The Group has yet to fully assess the impact of the changes but expects them to have minimal impact on the Group.

Summary

The amendments increase the disclosure requirements for transactions involving transfers of financial assets. Disclosures require enhancements to the existing disclosures in IFRS 7 where an asset is transferred but is not derecognised and introduce new disclosures for assets that are derecognised but the entity continues to have a continuing exposure to the asset after the sale.

AASB 2010-7 Amendments to IFRS 9: Fair Value Option for Financial Liabilities Application date of standard: 1 January 2013 Application date for Group: 1 July 2013 Impact on financial report: The Group has yet to fully assess the impact of the changes.

Summary

The requirements for classifying and measuring financial liabilities were added to AASB 9. The existing requirements for the classification of financial liabilities and the ability to use the fair value option have been retained. However, where the fair value option is used for financial liabilities the change in fair value attributable to changes in credit risk are presented in other comprehensive income (OCI) and the remaining change is presented in profit or loss.

If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk are also presented in profit or loss.

15

NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2010

2. SEGMENT REPORTING

The Group has identified its operating segments based on the internal reports that are reviewed and used by the executive management team (the chief operating decision makers) in assessing performance and in determining the allocation of resources.

The operating segments are identified by management based on the manner in which the individual entity in the Group operates. Discrete financial information about each of these operating segments is reported to the executive management team on at least a monthly basis.

The consolidated entity operates in two operating segments, being Mayne Pharma International Pty Ltd (MPI) and Mayne Pharma Group Limited (MPG), and one geographical location, being Australia. The MPI segment provides optimisation, manufacture and delivery of oral dosage form drugs and has a long and successful history in developing and commercialising improved pharmaceuticals.

The MPG segment’s main activity, in addition to the provision of corporate activities, is the development and commercialisation of a new product, SUBACAP®.

16

NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2010

2. SEGMENT REPORTING (continued)

The consolidated entity reports the following information on the operations of its identified segments:

MPI MPG Total
consolidated
$000 $000 $000
Half-year ended 31 December 2010
Sale of goods 25,133 - 25,133
Other revenue 1,765 - 1,765
Revenue 26,898 - 26,898
Cost of sales (14,684) - (14,684)
Gross profit 12,214 - 12,214
Other income (1,522) 964 (558)
Amortisation of intangible assets (3,042) - (3,042)
Other expenses (4,530) (3,758) (8,287)
Profit / (loss) before income tax 3,120 (2,794) 326
Income tax (expense) / benefit (430) 1,238 808
Net profit / (loss) for the period 2,690 (1,156) 1,134
Assets 62,801 1,158 63,759
Liabilities 12,625 26,664 39,289
Half-year ended 31 December 2009
Sale of goods 8,885 - 8,885
Other revenue 485 - 485
Revenue 9,370 - 9,370
Cost of sales (4,080) - (4,080)
Gross profit 5,290 (44) 5,291
Other income - 70 70
Amortisation of intangible assets - - -
Other expenses (1,243) (5,202) (6,445)
Profit / (loss) before income tax 4,048 (5,132) (1,085)
Income tax expense (1,087) - (1,087)
Net profit / (loss) for the period 2,961 (5,132) (2,172)
Assets 60,634 - 60,634
Liabilities (41,280) - (41,280)

17

NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2010

3. REVENUE AND EXPENSES

Other income / (expense)
Interest
Net loss on foreign exchange
Borrowing costs
- Interest expense
- Notional interest expense for change in fair
value of the earn out liability
- Amortisation of borrowings costs
Share-based payments
Depreciation included in consolidated
statement of comprehensive income(1)
Employee benefits expense
Wages and salaries
Defined contribution superannuation
expense
Other employee benefits expense
Total employee benefits expense(2)
31 December
2010
31 December
2009
$000
$000
206
70
(764)
-
(558)
70
161
94
852
270
95
62
1,108
426
-
1,002
808
320
6,477
1,572
581
193
1,167
326
8,825
2,091

(1) Depreciation expense is included in R & D expenses and cost of sales.

(2) Employee benefits expenses are included in the combination of administrative expenses and cost of sales.

4. INCOME TAX

The prima facie tax on operating profit / (loss) differs from the income tax provided in the accounts as follows:

Profit / (loss) before income tax
Prima facie tax (expense) / benefit at 30% (31
December 2009: 30%)
Tax effect of amounts which are not deductible
in calculating taxable income
Tax effect of accumulated tax losses for which
no deferred tax asset has been recognised
Research and development tax offset
receivable in relation to the 2009 tax year.
Income tax benefit / (expense)
326
(1,085)
(98)
325
414(1)
-
122
(1,412)
370
-
808
(1,087)

18

NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2010

4. INCOME TAX (continued)

(1) The tax effect of amounts which are not deductable comprised:

Interest on earn-out liability
R & D concession
Restatement of deferred tax balances upon entry to a tax consolidated
group
31 December
2010
$000
(255)
153
516
414

Tax losses

The Group has Australian tax losses for which no deferred tax asset is recognised on the consolidated statement of financial position of $5,014,000 (2009: $4,708,000) which may be available indefinitely for offset against future profits subject to the Company continuing to meet the relevant statutory tests.

Tax consolidation

Mayne Pharma Group Limited and its 100% owned Australian resident subsidiary, Mayne Pharma International Pty Ltd, formed an income tax consolidated group with effect from 31 October 2009. Mayne Pharma Group Limited is the head entity of the tax consolidated group. The members of the group have entered into a tax sharing agreement that provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement on the basis that the possibility of default is remote.

5. CASH AND CASH EQUIVALENTS

For the purpose of the consolidated statement of cash flows, cash and cash equivalents are comprised of the following:

Cash at bank and in hand
Short-term bank deposits
31 December
2010
30 June
2010
$000
$000
13,314
19,626
86
83
13,400
19,709

6.

OTHER FINANCIAL LIABILITIES

Current
Earn-out liability
Non-current
Earn-out liability
6,556
6,549
15,237
14,392

19

NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2010

6. OTHER FINANCIAL LIABILITIES (continued)

The consolidated entity has recognised a total of $21.793 million following the payment of $1.095 million in February 2010 in relation to the earn-out liability incurred as part consideration on the acquisition of Mayne Pharma International Pty Ltd on 30 October 2009. The earn-out payable to Hospira amounts to a maximum $41.6 million payable over a six year period. The earn-out payment is based on the level of gross revenue recognised by Mayne Pharma International Pty Ltd in relation to existing products at the time of the acquisition greater than $40 million in a calendar year period and capped at $65 million in a calendar year period, with a maximum $7.8 million payable in the first two years to 31 October 2011 and $6.5 million for each of the subsequent four years.

The value of the earn out has been determined in relation to expected future cash flows required to be paid on the earn-out utilising a discount rate of 8% and an assumed foreign exchange rate of US$1:A$0.95 for the 2011 calendar year and US$1:A$0.90 for subsequent years.

The earn-out liability represents the net present value of estimated future payments. The earn-out liability at balance date includes an interest charge of $851k for the period representing the change in fair value as a result of the unwinding of the discounting.

7. CONTRIBUTED EQUITY

(a) Issued capital

Ordinary shares, fully paid
(b)
Movements in contributed equity
Balance at beginning of period
Options exercised
Transfer from employee equity benefits
reserve on exercise of options
Balance at end of period
31 December
2010
31 December
2009
$000
$000
30,883
29,649
31 December 2010
Number
$000
148,178,700
29,649
2,475,000
792
-
442
150,653,700
30,883

20

NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2010

8. DIVIDENDS

On 25 February 2011, the Board of Directors declared a fully franked special dividend of 1.0 cent per ordinary share. The record date is 9 March 2011 and the dividend will be paid on 25 March 2011.

Declared and paid during the period
Dividends on ordinary shares
Final fully franked dividend for 2010: 2.0
cents per share (2009: Nil)
31 December
2010
31 December
2009
$000
$000
(3,005)
-

9. SUBSEQUENT EVENTS

There have been no events subsequent to the balance date, other than the declaration of the special dividend noted in note 8.

10. COMMITMENTS AND CONTINGENCIES

There were no commitments or contingencies as at 31 December 2010.

21

DIRECTORS’ DECLARATION

In acc o rdance wit h a resolutio n of the dire c tors of May n e Pharma G roup Limite d , I state tha t :

In the opinion of the directors:

  • (a) t he financial statements and notes of the cons o lidated entity are in a c cordance w ith the C orporation s Act 2001 , i n cluding:

  • ( i) giving a true and f air view of t he financial position as at 31 Dece m ber 2010 a nd the perfor m ance for the half-year e nded on th a t date of the consolidate d entity; and

  • ( ii) compl y ing with A ccounting S tandard A A SB 134 In t erim Finan c ial Reporti n g and Corpo r ations Reg u lations 200 1 ;

  • (b) t here are re a sonable gr o unds to be l ieve that th e Company will be able to pay its d e bts as a nd when they become d ue and pay a ble.

On be h alf of the B o ard

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Roger Aston Direct o r

Melbo u rne, 25 Fe b ruary 2011

22

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