Amphastar Pharmaceuticals Inc (AMPH) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Amphastar's First Quarter Earnings Conference Call. (Operator Instructions) As a reminder, this call is being recorded.

All statements in this conference that are not historical are forward-looking statements, including, among other things, statements relating to the company's expectations regarding future financial performance, sales and marketing of its products, market size and growth, the timing of the FDA filings for approvals, acquisitions and other matters related to its pipeline of product candidates, its share buyback program and other future events. These statements are not historical facts, but rather, are based on Amphastar's historical performance and its current expectations, estimates and projections regarding Amphastar's business, operations and other similar or related factors. Words such as may, might, will, could, would, should, anticipate, predict, potential, continue, expect, intend, plan, project, believe, estimate and other similar or related expressions are used to identify these forward-looking statements. Although not all forward-looking statements contain these words, you should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and assumptions that are difficult or impossible to predict and in some cases, beyond Amphastar's control. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described in Amphastar's filings with the Securities and Exchange Commission. You can locate these reports through the company's website at ir.amphastar.com and on the SEC's website at www.sec.gov. Amphastar undertakes no obligation to revise or update information in this press release or the conference call referenced above to reflect events or circumstances in the future even if new information becomes available or if subsequent events calls the company's expectations to change.

I would now like to introduce your host for today's conference, Mr. Jason Shandell, President of Amphastar Pharmaceuticals. Sir, you may begin.

Thank you. Good afternoon, and welcome to Amphastar Pharmaceuticals' First Quarter Earnings Call. My name is Jason Shandell, President of Amphastar. I'm joined today with my colleague, Bill Peters, CFO of Amphastar. We appreciate you joining us on the call today and look forward to speaking with you and answering any questions you may have.

I'll now turn the call over to our CFO, Bill Peters, to discuss the first quarter financials.

Thank you, Jason. Sales for the first quarter decreased 5% to $56.7 million from $59.4 million in the previous year's period. Sales of enoxaparin declined to $10.4 million from $18.4 million due to both lower volumes and lower average selling prices. Naloxone, which, for the first time, is our biggest-selling product this quarter, saw sales increase to $10.9 million from $10.3 million on higher unit volume at lower average selling prices due to increased discounts and rebates.

Sales of our epinephrine vial totaled $8 million in the quarter and were the main reason why our total epinephrine sales increased to $9.6 million. However, we will have to discontinue selling epinephrine vials by May 10, unless the FDA grants our request for an extension to sell our current inventory.

Our insulin API business generated sales of $700,000. Backorders are not usually a material factor for the company. However, we ended the first quarter with an $8 million backorder. This resulted from our IMS plant shutdown in December and early January. We shut down the finished products manufacturing area to install new equipment to increase capacity and improve our quality systems. However, the project took longer than expected. Compounding this situation, a competitor experienced a shortage of 3 products in the quarter, leading to a surge in order for these products. We expect to relieve the backorder situation by the end of our second quarter, which should lead to an increase in sales for products from our IMS facility in this quarter.

Cost of revenues declined in dollar terms to $33.8 million from $34.5 million. Gross margins declined slightly to 40% of revenues from 42% of revenues in the previous year's period, primarily due to lower margins for enoxaparin and because our reduced manufacturing at IMS facility led to a decrease in overhead absorption.

Selling, distribution and marketing expenses increased slightly to $1.5 million from $1.4 million in the previous year's period. General and administrative spending increased to $11.3 million from $10.9 million, primarily because of increased legal expenses. Research and development expenditures increased to $11.3 million from $8.6 million as we increased expenditures on APIs and other supplies ahead of several clinical trials planned for later this year.

Additionally, we recognized a gain of $2.6 million on the sale of ANDAs we had previously purchased. The company reported a profitable quarter with net income of approximately $900,000 or $0.02 per share compared to last year's first quarter net income of $2.5 million or $0.05 per share. The company reported an adjusted net income of $4.5 million or $0.09 per share compared to adjusted net income of $5.5 million or $0.12 per share in the first quarter of last year. Adjusted earnings excludes amortization, noncash equity compensation and impairments.

On March 31, 2017, the company had approximately $79 million of cash, cash equivalents, short-term investments and short-term restricted investments. In the first quarter, cash flow from operations was approximately $22.4 million and was positive for the 12th quarter in a row. We used a significant amount of our cash to increase our share buyback program as our stock price declined over the quarter, with cash spent on buybacks totaling over $10 million from the quarter.

We reviewed our financial assumptions for the year on the last call and they have not changed, so I will now turn the call back over to Jason.

Thanks, Bill. We continue to make good progress on our pipeline. Since our last earnings call, we filed one additional ANDA. That brings the total number of ANDAs on file with the agency to 6, which represents a market size of over $1.1 billion.

In March 2017, the FDA performed a preapproval inspection at Amphastar for 5 of the 6 ANDAs on file with the agency. Four of these products have GDUFA dates in 2017, and one was filed pre-GDUFA. With respect to the pre-GDUFA ANDA, there are no outstanding questions from the FDA. And we hope to be able to launch the product in the second half of the year, which would provide meaningful revenues for the company in 2017.

With respect to our CRL for Primatene Mist, we had a meeting with the FDA in the first quarter, in which the agency provided a more detailed explanation of its request for an additional human factor study. We are currently assessing this information.

With respect to our CRL for intranasal naloxone, we have a meeting scheduled with the FDA in the second quarter to discuss the issues that need to be resolved in order to receive approval. We believe that the real-world data for this product demonstrates its safety and efficacy, and FDA approval is in the interest of the public health given the ongoing opioid epidemic that is plaguing our country.

As Bill discussed, we had an $8 million backorder at the end of the first quarter. This backorder was the result of the IMS facility shutdown, increased demand due to supply interruptions of our competitor and several stability fills for one of our high-priority pipeline products. IMS is currently manufacturing commercial products as fast as it can, and we expect to make up for the $8 million in sales in the second quarter.

With that update, I will now turn the call over to the operator to begin Q&A.

(Operator Instructions) And our first question comes from David Amsellem with Piper Jaffray.

Just a couple. So first, on Primatene. Can you just elaborate on your thought process on potential next steps or whether you're leaning towards abandoning the asset altogether? And then secondly, regarding the products with GDUFAs, can you just say which are -- how many of them are injectables versus inhalation products; and the non-GDUFA product, if that's an injectable or an inhalation product or something else?

Sure. So your first question about Primatene, no, we're not looking to abandon the product. We still believe it's approvable. I think we had a good conversation with the FDA. We got into some details regarding the human factor study they requested and some of the specifics around the protocol. At this time, we're discussing this with our third-party consultants to determine the next steps with this application. With respect to the GDUFA, at this time, all 6 products that are on file, all the 6 ANDAs on file with the agency, they're all injectable. So that includes the non-GDUFA as well. And the non-GDUFA is the one we've talked about in previous calls, where it's been on file for quite some time, so we've got more transparency with respect to that product. So we feel good. There's no outstanding questions. So we're still hopeful for approval of that product, although there is no GDUFA date.

Our next question comes from David Maris with Wells Fargo Securities.

This is Katie Brennan on for David. Can you let us know, when will you know if the FDA grants that extension to sell the epinephrine vials? Do they typically give more than 2 days' notice of a decision like that? And do you intend to eventually get this product approved for manufacturing and distribution in the future?

Yes. So first of all, we had requested for more time, and that was denied. But we're kind of appealing that request and -- to some higher-level people there, so we're in that process right now. So that's why we're down to just a couple days left. And as far as -- we do want to get that product approved eventually. We've been selling it for a very long time. And we are working on that process. As we've mentioned, we have 7 unapproved products that we sell. This is one of the 7. And of the 7, we filed for those products. And then 3 -- the other 3, we're working on filings.

Okay, great. Also, can you speak to the time lines for ultimately -- your internal time lines for hopefully getting your 2 NDAs that were recently -- you received CRLs on refiled? So I know you gave an update on kind of where they stand, but do you have a goal for when you will refile those NDAs?

So with respect to naloxone, we do have a meeting with the FDA this quarter. So that will give us -- probably by the next call, we'll have a better idea with respect to that application. And then on Primatene, we did have our meeting. It was helpful. So right now, we are talking with our third-party consultants in terms of what we should do. So I can't say we have an exact time line on refiling. Once we have further discussions with the consultants, we'll figure out our next step.

Our next question comes from Elliot Wilbur with Raymond James.

Gentlemen, could you just provide us with an update on enoxaparin market dynamics? And then specifically, just thinking about your presence in the retail market, basically, where you think you are in terms of current share dynamics then how you thinking about that opportunity going forward, whether or not potential distribution partnership is still on the table or, basically, you've thoroughly vetted the explored debt, just not really getting what you want and you're prepared to go it alone. Maybe a little bit just more color on current dynamics there.

Sure. So right now, as you know, at the end of December, we began shipping into the retail channel as we took over for Actavis in that area. We did lose some share on the retail side. And unfortunately, because Actavis had lost some before they -- their agreement with us had ended, and we were not able to get that back. The dynamics right now is that the pricing is very low, which is why we took that inventory write-down at the end of the year last year. So it's difficult to gain any kind of market share from where we are right now. So -- and that's why that combination of price decline and market share decline led to the decline in the sales that we had this quarter. I will say that at the beginning of the quarter, the sales were even a little slower than we had thought, I think, because there were still some Actavis inventory kind of making its way through the inventory channel. So that could tick up a little bit, but we're definitely significantly below our run rate from a year ago.

Okay. So I guess that's what I'm ultimately trying to get at. So if we look at the weekly Rx share out there, I mean, there hasn't been that much of degradation for the IMS product, but I'm assuming some of that still represents legacy Actavis inventory. Is that fair?

Yes. So right now, there's still some legacy Actavis share out there. But the reality is the customer that they did lose, they lost, I think, in November. So I don't think that, that customer really has -- there shouldn't be any more of the inventory out there flowing from that customer. So I think that as far as this quarter's sales, they might be a little light because January. I think there were still some inventory flowing through the channel, but we are down significantly from a year ago.

Okay. And then just a follow-up question on some of your earlier pipeline commentary, Jason. I apologize, I may have missed this in your prepared commentary. But the ANDAs, the 4 with GDUFA dates that were part of the preapproval inspection, all of those are calendar '17 GDUFA dates, I would assume?

Yes, that's right. We actually -- the one that we just filed recently, we got a 2018 on that, but the 4 that we filed over the last 2 quarters have 2017 GDUFA dates.

Okay. And those were all -- but those were all included as far as the PAI -- the most recent PAI?

Yes, exactly. So the most recent PAI was for 5 products: and so the 4 that have GDUFA dates this year as well as the one pre-GDUFA. The one that we just filed recently that makes number 6, that has not received a preapproval inspection yet.

Right, okay. And then just one final question. You previously talked about potentially submitting a respiratory asset for -- or by the end of this -- potentially by the end of this year or possibly early '18. Just wanted to see if you had a little bit more clarity in terms of the time line there. But I can't recall previously if you've disclosed whether or not that's a 505(j) or a 505(b)2. But any additional color there would be helpful.

Sure. So yes, we're still aiming for the end of the year to file 2 more ANDAs. So we wanted to do 2 to 3 this year. We just did one recently, an injectable ANDA. We've got 2 more ANDAs, so 505(j). One is in inhalation, and one is an injectable. And we're hoping for the end of 2017, but it could slip to early '18.

And our next question comes from Gary Nachman with BMO Capital Markets.

This is Nicole on for Gary. Just a quick question on the gross margins. So gross margins were around 40% in 1Q. Is that a good level for the rest of the year?

Yes, it's a pretty good level until we get any new approvals.

Okay. And just one more quick question, going back to enoxaparin. Could you talk about the difference in the economics to you for the portion of the volume that flows through retail? I'm just trying to get a sense of what the runway should look like going forward for enoxaparin over the next few quarters.

Yes. So the way it used to work for Actavis is that we sold them product at a transfer price and then split the profit. Although for over the last year, the profit was pretty close to 0. The transfer price -- our cost of goods that come down slightly by the end of that contract, so we were making a small margin on that. So -- but right now, this is a product where, on average, we're not making any money on. So our margins are 0 or below 0 and as -- we potentially have to reserve inventory for a lower cost to market situation there.

Our next question comes from David Steinberg with Jefferies.

Just an additional question on Primatene. On your last quarterly call, you had indicated you could probably do another study relatively easily in a short period of time, but that was before your FDA meeting. I was curious, do you still think, post that meeting, that you could have a relatively short time line? And secondly, you got a CRL and they asked for another human factor study, but they had already asked for human factor studies. Did you ask them during the meeting? Why, all of a sudden, they're asking you to do additional studies in the same realm? And how can you be sure, if they ask -- once you finish this human factor study, they're not going to ask you for another one next time?

Sure, that's a good question. I mean -- and this is what we're assessing right now. So with respect to the first question, to do another study, that does remain the same. It would be a very short time line. The real issue is getting on the same page with them with respect to the protocol. So we did have a discussion regarding what they were looking for. And of course, we asked, "Look, we feel that the human factor studies that we did had good results." And that's what it came down to was, actually, the protocol in terms of the participants, their interaction with the moderator and exactly how to refer back to the label. So we got into a lot of specific protocol questions. And also, it has been collaborative in that they do try to emphasize that it could be another study. They had some suggestions on some of the label, some of the wording. And some of the suggestions, we agree with. So they feel if we modify the label another time to further improve it, they'd like to see one more study with the endpoints that we had agreed to.

Okay. And then on M&A. Obviously, generic pricing is cyclical, and we're clearly in a bad, bad period of time during that cycle. Yet, at the same time, there are still acquisitions going on. Just curious, are you looking -- are you pretty active on the M&A front? If so, are you seeing a lot of products available? And secondly, if you're looking at private companies, have valuation expectations come down in line with the publicly-traded comparables?

Yes. I'll say we've looked at a couple things this year so far, and I would say the valuations have not come down from what -- for the assets that we've been looking at.

And our next question comes from David Maris with Wells Fargo Securities.

I am not sure if my colleague asked this already, but a number of the setbacks, have there been any changes in personnel or addition of consultants or -- that may make the probabilities higher of approvals going forward?

Yes, thanks for the question. So actually, in terms of consultants, we have added some consultants on regulatory that could be very helpful and have added some value already. So I would say that we have engaged some very good consultants to help us with some of these products.

At this time, I'm showing no further questions. I would like to turn the call back over to Mr. Jason Shandell for closing remarks.

Thank you very much, operator. This concludes our call for today. Thanks again for participating. Have a great day.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.