Amphastar Pharmaceuticals Inc (AMPH) 2021 Q3 法說會逐字稿

I'd like to thank everybody for joining us this afternoon. As you have seen, Amphastar recently reported our financial results and I am pleased to announce that the upward momentum from last quarter's strong execution was sustainable and carried over into the third quarter.

With that said, we saw another great quarter of top line and bottom line growth, as we remain generally insulated from the typical challenges facing our sector in the pharmaceutical space. Again, this is another validating quarter, highlighting the importance of Amphastar's core strengths as our vision, strategy and vertical integrated platforms continue to deliver on our growing commercial proficiencies.

After my portion, I will turn the call over to our CFO and Executive Vice President of Finance, Bill Peters, who will provide an update on the company's financials. After Bill's remarks, we'll move on to the Q&A portion of the call where Tony Marrs, Senior Vice President of Regulatory Affairs and Clinical Operations, Bill and myself will answer any questions.

I want to begin with our commercial results, where the third quarter saw net revenues just over $112 million, which is a 10% increase from last quarter and an impressive 34% increase on an annualized basis. Amphastar has seen remarkable growth on a quarterly basis and annualized in revenue, gross profit, net income and earnings per share. I want to emphasize that Amphastar has a bright 2022 ahead based on this trajectory.

While R&D expenses enhance our base business in setting up a foundation for more successful future quarters' performances from an operations perspective, equally important is our vision with specific regards to our pipeline strategy, coupled with our vertical integrated platform continues to be proven by our more recently launched products.

Since the beginning of 2021, we have observed that our glucagon, Primatene Mist and epinephrine products have been key revenue drivers. We continue to believe that these 3 products will be significant growth drivers for the remainder of the year due to their recent performance.

Regarding our glucagon product. Sales of the product were $12.1 million in the third quarter. We're very pleased with the performance of this product and the ability to capture market share since its launch in February of this year. With that said, we believe glucagon is still positioned to have a positive trajectory for the remainder of the year.

On the top of Primatene Mist, sales maintained a positive trend, seeing a 38% increase compared to Q3 in 2020. As trends continue, Primatene Mist annualized sales will likely exceed our goal of $65 million this year as our continued nationwide TV, digital and radio marketing efforts, coupled with our physician sampling program, have proven effective.

On epinephrine. Sales of both the prefilled syringe and the multidose vial presentations grew to $13.9 million due to our ability to capitalize on opportunities when they are presented. As we have said before, Amphastar can consistently supply the product when our competitors cannot. This is mainly due to our investment in our recently added state-of-the-art production line. We anticipate similar opportunities continuing into 2022.

On another note, our careful planning and supply management has allowed our commercial portfolio sales to remain strong regardless of the impact felt from COVID-19. However, the impact from COVID was not without its limitations, especially in regards to the clinical site impact.

On the clinical front, our clinical and other third-party vendors continue to face various COVID-related restraints that are out of our control. Therefore, we anticipate refiling for intranasal naloxone in Q1 of 2022. The same can be said for our intranasal epinephrine, which is now expected a filing in 2023.

As for our filed ANDAs, AMP 002 and AMP 006 both remain on track to have a GDUFA date for the first quarter of 2022. If a preapproval inspection is necessary for either product, the GDUFA date may be postponed for 2 months.

For our teriparatide ANDA, our first pen product, we have had continued dialogue with the agency. It is still in a first cycle review, which is now anticipated to have a GDUFA date in the second quarter of 2022.

Concerning our Paragraph IV filings. AMP 008, our first inhalation ANDA, is anticipated to be filed in the fourth quarter of this year. We continue to believe we have a strong non-infringement position. Likewise, we feel the same with AMP 009, another Paragraph IV filing that is currently being litigated.

With regard to our products in our diabetes portfolio, specifically our insulin program. We believe that though -- that through the advanced technologies we have developed, we can create a more standardized process in developing these types of products to have a robust diabetes portfolio. To accomplish this, we have developed a framework based on FDA guidance and our extensive complex molecule experience.

In closing, I would like to reiterate that we continue to make significant progress in our commercial portfolio's revenue growth trajectory with a further emphasis on our pipeline. Amphastar sees our future progress towards interchangeable biosimilar and proprietary products. We are confident we can achieve these goals as our long-term vision, proven strategy and vertically integrated platform serve as complementary forces in building momentum towards its future as we head off into 2022 with a great start.

I will turn the call to Bill to discuss the third quarter's financial results.

Thank you, Dan. Sales for the third quarter increased 34% to $112.2 million from $83.4 million in the previous year's period. Glucagon, which we launched in the first quarter, once again led the growth with sales of $12.2 million. Primatene Mist saw sales growth of 28% to $16.6 million from $13 million in the third quarter of last year, with strong sales to all of our current customers.

Epinephrine sales increased to $13.9 million on strong sales of both the multi-dose file and the prefilled syringe, the latter of which saw a surge in demand due to competitor shortages. We have been consistently able to meet the demand caused by competitor drug shortages quarter after quarter, which is why we increased the capacity in our IMS facility. Enoxaparin sales decreased to $8 million, primarily due to increased competition which led to reduced volumes and lower average selling prices. Other finished pharmaceutical products saw a sales increase of $5.6 million, driven by increases in medroxyprogesterone, Petrosen and Amphadase.

Our insulin API business had sales of $3.2 million, up from $2.1 million last year, primarily due to the timing of orders. Cost of revenues increased to $61 million from $46.9 million. Gross margins improved to 46% of revenues from 44% as newer higher-margin products such as glucagon, Primatene Mist and epinephrine multi-dose files more than offset the lower pricing for enoxaparin.

Selling, distribution and marketing expenses increased 29% to $4.7 million from $3.7 million due to increased advertising distribution costs, including television commercials for Primatene Mist. General and administrative spending decreased 7% to $10.9 million from $11.7 million due to lower legal expenses.

Research and development expenditures decreased 39% to $10.8 million from $17.6 million as lower clinical trial expenses and a decrease of R&D costs in China due to the restructuring of our subsidiary, Amphastar Nanjing Pharmaceuticals, or ANP, and the deconsolidation of its subsidiary, Hanxin.

Our nonoperating income line includes a onetime gain on the divestiture of 80% of ANP's subsidiary, Hanxin. The strong results this quarter show the significant operating leverage available to the company as we grow sales faster than our expenses. The company reported net income attributable to Amphastar shareholders of $29.5 million or $0.59 per share in the third quarter, a significant increase from $3.9 million or $0.08 per share in the third quarter of 2020.

The company reported an adjusted net income of $23 million or $0.46 per share compared to an adjusted net income of $7.6 million or $0.15 per share in the third quarter of last year. Adjusted earnings exclude amortization, equity compensation, impairments of long-lived assets and onetime events, including the gain on the divestiture of 80% of our interest in Hanxin.

In the third quarter, we had cash flow from operations of approximately $2.6 million, and we used a portion of our cash to buy back approximately $6.1 million of stock. As mentioned on the last conference call, we completed a syndicated debt offering in the third quarter, borrowing $70 million and increasing our lines of credit to $70 million. In the process, we lowered our interest rate significantly and have paid off approximately $36 million of higher interest rate debt.

I will now turn the call back over to Dan.

Thanks, Bill. If we can now turn to the Q&A section of our presentation.

(Operator Instructions) Our first question comes from Jacob Hughes with Wells Fargo Securities.

I have just a couple. On Primatene Mist, I think the sales in the quarter were flattish quarter-over-quarter. Is there anything to call in the quarter? And how should we think about that for the fourth quarter? And will you be providing a new target since we're basically already at greater than $65 million?

Yes. So the sales were just up a little bit or pretty relatively flat from the second quarter. But we did see strong growth year-over-year, which we took as a very good sign. And we started off, I'll say, the fourth quarter pretty strong as well.

So while we're not going to give any formal guidance at this time about a different sales target, at this point, we do feel very confident that we will be above the $65 million mark this year. And we might address further targets probably on our March call.

Okay. Got it. And then on the shortages that you called up for epinephrine and other finished pharmaceutical products, do you expect -- is that going to be a similar benefit in the fourth quarter? Or have those been resolved now?

So the epinephrine specifically, we see that trend continuing into next year. That has not been resolved, and we still see very strong demand for that product today. So our competition doesn't seem like they're going to get it from what they've indicated. To drug shortage at FDA, it doesn't look like they will be back on track until next year.

Some of the other products, they've been -- some have been resolved, some haven't been. But I think the real important point here is what Dan and I both mentioned, which is we increased -- we spent a lot of money to increase the capacity of our facility at IMS. And by doing that, we're now able to capture and take care of the demand for those things when they do occur.

And honestly, I've been here at this company for over 7 years. And I think pretty much every quarter, there's been some sort of supply issue from one competitor or another. And now we have the ability to take advantage of that. So I think we really delivered on that this quarter.

All right. And then lastly, just on the pipeline. I saw the new disclosure in the slide deck is for AMP 018. Is there anything you can say about that program?

That's the new one we've just recently added to the deck. And we're -- it's one that has been in development here for a little while. We've just added it to the deck just as further disclosure. And as time moves along, we'll give further development -- further information about that one. But we're just -- today, we're just indicating that that's one of the products that's out there in development and part of that unfiled injectable $6.5 billion of IQVIA sales.

Our next question comes from Elliot Wilbur with Raymond James.

Just a follow-up question on Primatene Mist trends and just looking at the chart in the deck. I mean, it looks like unit sales continued to trend higher even though you saw flattish sequential performance in terms of revenue. Just wondering what the impact may have been on obviously not pricing, but I don't know if there was an increase in couponing or sampling.

Then I want to get a sense from you in terms of your sampling program, just a sense of how effective you believe that's been and whether there's any anecdotes you can share in terms of whether or not you've been able to initiate starts on the product in patients that are new to the asset haven't really utilized it before.

Yes. So first of all, I will say that while we don't have hard data on the sampling program, we think it's a really effective way to get some people who have mild cases of asthma on the product when they go to their doctor. Their doctor can give them a free sample of the product, then they can go out and try it afterwards.

As far as coupons go, we actually are not doing any couponing. So none of the sales growth was led by that or the unit growth. And thanks for mentioning the updated slide on the deck. As you know, that trend there shows continued steady growth in sales of the product. So we're very happy about that trend.

Okay. And then a question for you, Bill. Could you just walk us through the change in the R&D line? Obviously, a significant number. Trying to figure out, is the run rate this quarter sort of a good representation of new baseline spend, how things change in terms of cash flow implications or your rights to products in development by some of the subs that have been deconsolidated now. Just not sure I understand fully the implications of the change in that line.

Yes. Good question. So we did -- back when we announced this reorganization, we had mentioned that we'd get about a $0.03 a year savings this year, and I think it was $0.12 next year savings on the income line. A big part of that was the lower R&D cost as we moved some of the projects that we weren't -- that weren't really for us out of our R&D line. So that's part of the trend.

The other trend is we did lower the head count at our ANP facility slightly as well. So there's a little bit less expense out of that. And part of it, the third thing is really timing, and that goes back to what Dan had mentioned in his part of the script, which was the timing of certain clinical trials. We've had some delays there on some of the R&D projects.

So the clinical trial expense is one that can be variable and large at times. So that number you see this quarter is more of a floor and you should only expect up -- increased expenses from that line as more of the clinical trials move forward.

Our next question comes from Serge Belanger with Needham & Company.

A couple for me on Primatene also. First, do you expect any winter seasonality? And then secondly, product is now in all the major big box stores. So where do you foresee the next leg of growth here? Is it just more penetration within these segments? Or there's additional segments to penetrate?

Yes. With Primatene Mist, seasonality is still a little hard to determine. Typically, Q4 is a good quarter for it. And so we'll be monitoring that situation. As far as growth for Primatene, yes, we hit -- we're in all the major retail commercial. I think the next big growth is as we develop our marketing strategy and brand recognition and getting the -- letting people know that the product is back on the market and we expand into maybe a younger demographic with some of the more concentrated marketing efforts that our team has planned. So I think that's where we could see some growth moving forward.

And then similarly on glucagon, do you expect that product to continue growing? Is this a question of expanding that -- the market size of the product? Or just continuing to grow your market share?

Yes. So we don't see the market share or -- changing much for this because we already have significant market share. When you take a look at the IQVIA data, we already have a large majority of that market for the -- this injectable version. We see the overall glucagon market growing for a couple of reasons. And one is that we believe with a generic alternative out there, which we now provide, we think that there'll be more people that are likely to get a script filled given the fact that it was an expensive product in the past. So we see this as a growing market, but we see our market share probably remaining about where it is.

Our next question comes from Tim Chiang with Northland Capital.

Bill, could you just talk about the -- just -- you sort of highlighted the financial leverage and it seemed to be pretty apparent given the fact that your operating margins were north of 20% this quarter. Do you see that sustaining into the fourth quarter as well, these type of operating margins?

Yes. So right now, we do see sales kind of trending the same way they were in the third quarter. So again, another quarter of very strong sales. We think our gross margin will be pretty similar, and our SG&A lines will be relatively similar. The R&D line is the one line that could be a little bit more variable. As I mentioned, we had a little bit of delays in some of the clinical trials. So the clinical trial expense was a little bit low in the third quarter. So in all likelihood, that goes up a little bit in the fourth quarter from where we are today.

I see. And maybe just a follow-up on the pipeline. I think you guys did update that pipeline slide. In AMP-015, I think that's one of your bigger ticket items. I guess you've said a GDUFA date of, what, the second quarter of 2022, is that right?

Yes. Yes, that's correct. They haven't -- this is not a CRL. This is just as a complex product that we work on. This is just an interesting thing, which is the agency through our communication. And as we progress with them, they've extended that action date until that quarter.

Can you comment a little bit just on capacity for that product? I mean do you think you'll have ample capacity to meet supply assuming you get approval sometime in the second quarter of next year?

I think it's part of our planning. So we have invested in the capacity. So I think it's -- Bill, do you want to say anything else?

Yes. Yes, we do have -- it's not a very big unit volume item. It's a relatively high-priced item. So the capacity, we have the capacity here at our Amphastar headquarters to make that product and fill the market share that we believe that we will be able to get to. So we don't see that as being an issue.

And Tim, to reiterate that, it's a separate line. It's a dedicated because it is a pen product. So from encroaching in some of our other products, it would be just this product on that line.

Our next question from David Steinberg with Jefferies.

I apologize if you've already addressed this, there's a couple of calls going on simultaneously. The first one is on 002. Do you -- could you remind us of the potential size of this product? How long the brand has been off patent without any generic competition? And when you do get on the market, do you foresee any competition near term?

And then secondly, on M&A. It seems like in the last few quarterly calls, your interest level has waned. You obviously have a lot on your plate pipeline-wise. Are you actively looking at any candidates? Or just you have so much going on, there's no need to buy anything? And if you are looking, have prices come in at all? Are they still relatively high in your view?

Sure. About the size of the 002 market, it's about a $300 million IQVIA sales market and has been off patent for a very long time. So it's not something that we would expect anybody else to get approval on in the near future. And just to reiterate, we do have that GDUFA date coming up early next year. So we're looking forward to that. And your second question was...

On M&A.

M&A. So on the M&A, Dan, do you want to take that?

Yes. I mean it's fine. We are very -- as we've mentioned before, we're very focused on what we have going on here. We have a very robust pipeline, and we're very focused on executing on our pipeline. But that said, I think there's always -- we have a very solid balance sheet. And if the right opportunity presented itself to us, it's something that we would pay attention to. So in that regard, it really hasn't changed much.

And just to follow up on 002. Bill, you indicated that sales were over $300 million, has been off-patent for years, you expect no competition. So if you work out the math on that, that should become your biggest product over time. Is that a reasonable way to think about it?

I think I would hold off on making that extrapolation, though I see how your math gets you there. I'm not really sure that we do -- it does become our biggest product over time. Right now, I think that's going to remain Primatene Mist. So I'll just leave it at that for now.

Our next question comes from Elliot Wilbur with Raymond James.

Just a couple of quick follow-ups. I guess, with respect to the shortage products, did any of those benefit from off-contract pricing terms in the quarter? And then just a quick follow-up on naloxone. And just how are you guys seeing that market today? Obviously, there have been a couple of recent approvals of injectables in the [high-rent] category. Just sort of wondering how you're now thinking about the opportunity in light of incremental competition in the market.

Let's see. So I'll start with naloxone, and then we can go to the shortage on the contract pricing term. Bill can answer that one. On naloxone, we keep seeing that program -- or the market for that growing. So we believe that there's still room for us. We have experience in this market. I think there is -- it is getting crowded, you're right. But I do think as the market continues to grow, there's still room for our product.

Then with the shortage, off contract pricing or on the drug shortage, the off contract pricing. Yes. So the off contract, most of the products that were on shortage and related to shortages that we had sales on did not have that benefit. So they're straight normal pricing because they were multisource products. So there wasn't really any issue with that.

There are no further questions at this time. I would like to turn the floor back over to management for any closing comments.

Okay. Well, thank you, Paul, and thank you, everybody, for joining us today. We were very pleased to be able to have a great quarter this quarter, and we look forward to the momentum carrying on for the remainder of the year. And we look forward to talking with you all again very shortly.