Amphastar Pharmaceuticals Inc (AMPH) 2017 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Amphastar third quarter earnings conference call. (Operator Instructions)

All statements in this conference call that are not historical are forward-looking statements, including, among other things, statements relating to the company's expectations regarding future financial performance, backlog, sales and marketing of its products, market size and growth, the timing of FDA filings or approvals, acquisitions and other matters related to its pipeline of product candidates, the timeline for completion of construction at the company's IMS facility, 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 http//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 conference call referenced above to reflect events or circumstances in the future, even if new information becomes available or if subsequent events cause the company's expectations to change.

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

Thank you, operator. Good afternoon, and welcome to Amphastar Pharmaceuticals' third 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 will now turn the call over to our CFO, Bill Peters, to discuss the third quarter financials.

Thank you, Jason. Sales for the third quarter decreased 10% to $57.9 million from $64.2 million in the previous year's period. Sales of enoxaparin declined to $6.5 million from $15.4 million due to both lower volumes and lower average selling prices.

Please remember that enoxaparin volumes were high in the third quarter of last year because we recognized our final shipments to activists for the retail market in that quarter. Those shipments covered almost all of our retail sales for both the third and the fourth quarter of last year.

Naloxone, which was our biggest selling product in this quarter of 2017, saw sales increase to $12.7 million from $12.4 million on the higher unit volumes at lower average selling prices. As we've previously disclosed, we had to discontinue our epinephrine vial product in the second quarter. This lead to a decrease of our epinephrine sales to $2 million from $5.3 million in the third quarter of 2016.

Our other finished pharmaceutical products had volume increases due to competitor shortages, which led to an increase of sales of -- to $14.2 million from $9 million in the comparable quarter last year. Sales of insulin declined to $3.5 million from $5.2 million as we had no shipments to MannKind in the current quarter. Cost of revenues increased to $37.3 million from $36.6 million. Gross margins declined to 36% of revenues from 43% of revenues in the previous year's period, primarily due to lower margins for enoxaparin and the discontinuation of epinephrine vials.

Selling, distribution and marketing expenses increased to $1.8 million from $1.3 million in the previous year's period. General and administrative spending increased to $11.7 million from $10.8 million, primarily due to increased legal expenses related to the patent trial against Momenta and Sandoz.

Research and development expenditures increased slightly to $10 million from $9.7 million on increased expenditures for APIs and materials.

The company reported a profitable quarter with net income of approximately $175,000, which rounds to $0.00 per share compared to last year's third quarter net income of $3.9 million or $0.08 per share. The company reported an adjusted net income of $3.5 million or $0.07 per share compared to adjusted net income of $6.6 million or $0.14 per share in the third quarter of last year. Adjusted earnings exclude amortization and noncash equity compensation.

On September 30, 2017, the company had approximately $73.6 million of cash, cash equivalents, short-term investments and restricted short-term investments. In the third quarter, cash flow from operations was approximately $2.5 million and was positive for the 14th quarter in a row.

I will now turn the call back over to Jason.

Thanks, Bill. We had a very good third quarter in which we received 2 FDA approvals. On September 19, we received approval of our ANDA for sodium bicarbonate, which was one of our unapproved commercial products on the FDA drug shortage list. Then on September 25, we received approval of our ANDA for Neostigmine Methylsulfate. We're especially proud of the Neostigmine approval as it was approved by FDA in the first review cycle.

We plan on launching Neostigmine in December. According to IMS Health data, U.S. brand in generic sales of Neostigmine were approximately $163 million for the 12 months ended September 30, 2017.

Our wholly owned subsidiary, Amphastar Nanjing Pharmaceuticals, or ANP, was inspected by FDA in October and received 0 483s. As we previously have discussed, ANP is important for our vertical integration strategy. We have a pending ANDA supplement to use ANP as an alternative heparin source as well as DMFs for 2 ANDAs that we currently have on file with the agency.

With respect to the pre-GDUFA ANDA, for which we have been expecting approval, we have received a new target action date for the fourth quarter. And there are no outstanding questions from the FDA. We remain confident that we will receive FDA approval this year.

Next regarding Primatene Mist, we continue to have positive communications with the agency. Based on these communications, we plan to perform one more small human factor study and have already submitted our protocol for FDA feedback. Given the speed at which FDA has been handling this matter, we expect to receive the agency's comments to perform the study and resubmit our NDA in the first half of 2018.

Finally, with respect to our intranasal naloxone NDA, we have formulated a plan to respond to the CRL and have a meeting scheduled with the FDA for later this month to discuss the plan.

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

(Operator Instructions) Our first question comes from Elliot Wilbur with Raymond James.

First question for Jason. Just with respect to your comments around Primatene Mist and the additional human factor study, is that looking at something new? Or is that just asking you to verify or clarify some work that's previously been done?

Yes. Sure. So it really is nothing new. It's to clarify the previous work that was done. On the last call, I talked about that we had submitted a risk analysis with some additional data. And based on that, we have slightly revised the label. And so in our discussions with the FDA, they suggested that we perform one more small study with these minor tweaks to the label. But we really are confident that at this point, the label is about as easy as it can be to understand, and this study should be very fast. And essentially, we feel, over the last year, we've had very much increased communication on this product candidate with the FDA. And so again, it's been a long haul, but we do feel that this study should take care of it. And we are planning to resubmit the NDA in the first half of next year.

Okay. Can you just update us on the status of ongoing dialogue regarding intranasal naloxone? And then also with respect to epinephrine? And what is happening there in terms of potentially returning that product to market?

Sure. So with respect to the intranasal naloxone, there were several issues in the CRL, including both the device and the volume. So we have addressed those issues internally. We've come up with a plan that we believe will be very acceptable to the FDA. I mean, we're essentially agreeing with what they stated in the CRL and have put together a plan to address those issues. So we actually have a meeting this month with the FDA to discuss that plan and then move forward with that program.

Okay. And then epinephrine?

So with respect to epinephrine, what we previously disclosed was that we had 4 of our 7 unapproved products filed with the FDA. One of those has now been approved, which was sodium bicarbonate. So there are 3 on file. We have not said whether or not the epinephrine vial is one of those 3 that are on file with the agency. But we have said, we are committed to bringing back the epinephrine vial. We continue to sell the prefilled syringe, which is on drug shortage. But the epinephrine vial, we have not publicly disclosed whether that's currently on file, but we will be bringing it back.

Okay. And then last question. I apologize. I may have missed this in your prepared comments. But with respect to approvals before year-end, how many are still possibilities? And then what's the status of the pre-GDUFA that is on file?

Important question. So we have 3 shots on goal in the fourth quarter. One of those is the pre-GDUFA product. So we do have a new target action date, fourth quarter. And as I said, there's no outstanding questions with the FDA. So we are confident that, that will be approved in the fourth quarter. And in addition to that target date, we have 2 GDUFA dates in the fourth quarter as well.

Our next question comes from David Maris with Wells Fargo.

A few questions. So first, on the pipeline. You have products filed with the FDA now. Are there any more that you expect to have filed by year-end? Also you mentioned in the press release that you have 3 biosimilars in development, 11 ANDAs and 4 proprietary products. Of those, which -- how many do you think you'll have filed by the end of next year? And then lastly, are any of those products respiratory products? Because you mentioned that of the ANDAs, market cap of 12 -- market value of $12 billion. That seems to be a very -- much larger than your usual average market per product. So there must be some pretty big ones in there.

Correct. Correct. All good questions. So let me start with -- in terms of more filings this year, we actually are not going to file any more this year. We had intended to, but there was some external supply issues that delayed us slightly. So those will be pushed to next year. Conservatively, we're looking to file 4 applications next year, and one of those will be respiratory.

Great. And is it fair to think that, I mean, of the -- since it's $12 billion, you're targeting much larger things? Or is it all like one ADVAIR and that's taking up the big bulk of it?

Well, there are several big ones in there. And you are correct that on the inhalation side, there are some significant ones. So it's not just one. There are several products that are very big.

Yes. There is probably 3 that are more than $1 billion. And -- but most of these are over $100 million, almost all of them.

(Operator Instructions) Our next question comes from David Amsellem with Piper Jaffray.

So just first on the intranasal naloxone. Just wanted to get a sense of whether you think actually getting that to market could expand your overall naloxone sales position given that you already have a needle-free product that you could offset with a nasal adapter. So just talk about how you see the opportunity developing assuming you get the intranasal product to commercialization.

Sure. So we do think it can expand the market for us. We've taken a look at the CRL in detail, and we think that the comments from the FDA are reasonable and will actually make the product better. So we're looking to do that. And we think there's also an opportunity for discussion about having an actual OTC approval as well. However, that's still to come. But the overall prescription market does continue to expand. We see more and more states arming their first responders with the product. It's, at this point, been elevated to a national emergency. And clearly, there is currently one FDA-approved product intranasal. That's Adapt's. And we think there is a lot of room in this market, especially given that -- at the current moment, we are the least expensive. So we continue to see the units go up, but we think with an improved product that's FDA approved, we can see further expansion.

And I'd say just to expand on that, I think where the new product would have more penetration is the retail. Because right now, we have a very little of the retail market. And I think that's a market that's expanding the fastest right now.

That's right. And that does tie into the OTC comment, where many of -- even the prescription products have standing orders. So it's sort of behind the counter and easier to get than your typical prescription. And so they're already sort of in that quasi OTC. So Bill's point on retail is, there's opportunity there.

Okay. And just secondly on Primatene, and I may have missed this earlier, so I apologize. Can you elaborate on the nature of the human factor study? Just discuss, what I guess, the FDA got hung up on, and what you're trying to accomplish with this latest human factor work.

Sure. So again, it's -- all comes down to the fact that this is OTC, and they just want to be very, very sure that people can understand the label and use it appropriately. The most important critical step, which we will be monitoring in the human factor study, which is very easy to achieve is shaking. And we've made some changes to the label, as I said earlier, and have made it crystal clear, you need to shake this. The other 2 things that are a little more difficult and that's where we're fine-tuning for this last study, were issues of cleaning it and priming it, getting it ready for use. However, we do have data that shows that those 2 other factors are not as critical as the shaking. And so FDA has agreed that those would be review issues after looking at our risk analysis, but we will still score those for purposes of the human factor study. But they ultimately may be determined to be less important once they review our bench studies.

And so just to be clear, the main goal here is instructions or adhering to instructions regarding shaking. That's what really the FDA wants to tease out here?

Yes. So I mean, that is critical. The other 2, still they want to tease out the cleaning and the priming. But we believe that once they start to review the application after being resubmitted, they will see the bench data that will put less emphasis on to those 2 factors. And in the past, we have been -- we're very much a science-based company. And we have used a statistical model, which may have just complicated things. So now this study will be more straightforward and essentially qualitative in nature. So we're confident. This is -- obviously, we've gone through several rounds of these human factor studies. And we've discussed with our outside vendor, the most recent communications with FDA, and they feel confident as well. So hopefully, this will be the last study. I know we've said that before, but we are -- really believe that the communication has been enhanced. So we feel we have a better understanding of what exactly they want in this last study.

Our next question comes from Gary Nachman with BMO Capital Markets.

How much could Neostigmine and sodium bicarbonate contribute in the fourth quarter and into next year? Just talk about what you expect the market dynamic to be with those products. And then if you resubmit Primatene in the first half of next year, would that be a 6-month turnaround? And does it delay that you've been experiencing change in market opportunity in your mind at all for that product?

So let me start with the sodium bicarbonate. That's a product, where we're already selling products. So there is no new revenue that come from that product. And for the first 9 months of the year, we had about $7 million in sales of that product. So that's just an ongoing thing. It's a little bit hard to say on the Neostigmine because we are the fourth generic to come in. So while it was a relatively large market when we filed it, it's always hard to be the fourth player in these markets. So that remains to be seen. So while we think it will be incremental, I'm not going to say it's going to fundamentally change the earnings outlook of the company next year.

And then with respect to Primatene, we believe -- we'll need to have this discussion with FDA. But in terms of the review period because we're really down to one issue on this human factor study, and they've already reviewed a lot of our data, we do believe it should be a 2-month review. But that is out of our control and we have not gotten any confirmation as to what the review period would be after resubmission. So it could be 6 months, but we're hopeful that it will be a 2-month review. And in terms of the marketing, it's the same marketing plan. It has been off the market for a long time, but it still has name recognition. Prior to the last PDUFA date, we had engaged a marketing company that had done some market research. And it showed that the name recognition was very strong, especially among baby boomers. And the retailers are constantly checking in with us and excited by it because it does generate foot traffic for them. So they're very supportive of the product as well.

Yes. Even one of the retailers had a meeting this week with us just to discuss the plan. They remain committed to asking about it and putting it on the shelf as soon as they can.

And very supportive. I think I had mentioned on a previous call prior to the last PDUFA date, one of the retailers was looking and putting it in actually 3 sections of the store. So it is important for the retailers.

Okay. And then just a couple of more, Jason. When do you expect to hear the court decision on the $100 million bond from the Momenta/Sandoz litigation? And then, Bill, just how will gross margins trend into the fourth quarter? Will it stay sort of at the same level that we just saw in the third quarter?

So I'll start with the litigation, a good question. So first, we've been briefing, and the briefing actually was completed on October 25, a very precise issue regarding the inequitable conduct before the USP. So that was one of our equitable defenses. It's not regarding the invalidity. So that delayed the process. The briefing ended on October 25. So at this point, I'm predicting any time around Thanksgiving, but you never know with the court. But I believe we could see at any time, end of the year, early next year, a final judgment. That's the next step, they enter final judgment. We have not moved on the bond. We've been very conservative. We're waiting for the final judgment. Once the final judgment comes in, then we will move on the bond and also proceed with our antitrust case.

And then on the gross margin?

Yes. On the gross margins, the trend should be relatively flat compared to the third quarter. The Neostigmine revenues that we will get, and we believe we should have a smaller amount of revenues in December, will be at a higher gross margin. But the rest of the business should be pretty much the same as it was in the third quarter.

And we have a follow-up question from Elliott Wilbur with Raymond James.

Sure. Just a quick financial question for Bill. Can you just talk a little bit about the cash movement in the quarter? Obviously, you had modest positive OCF, but then it looks like maybe $10 million, $11 million came off the balance sheet just trying to reconcile those 2?

Sure. So we did spend about $7.5 million in the buyback program in the quarter. So that was very active. And in general, we buy the stock plan. We believe it's lower than it will be in the future and buy less of it when it rises. So overall for most of the quarter, the stock was relatively low. So we did -- very active in the buyback. The other thing that changes the cash levels that we're still -- we still have some very large capital expenditures in both China and in France. So those are also drivers of the cash change.

And then a follow-up question for both of you. Just maybe give us kind of your current perspective in sort of what you're seeing in terms of the BD environment, acquisition opportunities. I think a lot of us would like to see the company be a little bit more aggressive in terms of pursuing external growth opportunities as you wait for some of these other potential high-return assets to come to market when you've got an attractive valuation on the equity, certainly, versus many companies in the space. You got cash and seems like there's kind of a lot of assets starting to bubble over the surface. So just curious kind of what you're seeing there, and whether or not we should be thinking about external opportunities as you continue to dedicate a lot of resources towards some of your pipeline assets.

Sure. So first of all, we are always more focused on the R&D and our internal growth than we are on BD activities. But over the last couple of quarters, we've looked at a couple of things that we found very attractive and bid at rates that we thought were very reasonable and we did not get those things because we were not the high bidder. But then there's been probably even more things that have come our way that we have said that, that we would just pass on even though that there are somewhat -- there is some sort of synergies with our businesses. But we -- we're really focused on things that, I'd say, are easily digestible. So they're reasonably sized or -- either individual products or groups of products as opposed to companies. So that's where our focus has been. And no, we remain committed to look for those things and to evaluate those things when they come by. But as of now, we haven't seen the prices that those things are trading for come down significantly. And I think the expectations are still relatively high for the valuations that people are willing to dispose of assets.

Okay. And then one follow-up question for Jason as well with respect to Primatene Mist. I think on past calls, you've mentioned that the FDA -- or FDA dialogue involves in conversation around interpretation of appropriate usage of the product and some confusion on the part of the agency as to interpretation that it is intended for intermittent exacerbations and not an acute rescue usage. I'm just wondering based on recent conversations if you think that particular issue has been fully clarified now.

Yes. Good point. So I do believe that issue was clarified. It was an important point that we made in our in-person meeting and had a very good discussion where we talked about the fact that currently there's nebulizers on the market up through the OTC monograph, and of course, Primatene has gone through clinical trials and is much more consistent in delivering the epinephrine dosages. So I think we got a lot of clarity in our meetings over the last 6 months. And they made it clear that they want to get this to market, and they just want to make sure that it's right because it is a controversial product in both the company and the FDA want to dot every I and cross every T. But we did receive clarity on that. And the indication is for intermittent asthma, albeit that some people may try to use it that have perhaps more severe asthma. So thus the need to just be extra cautious and do another study.

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

Thank you very much, operator. This concludes our call for the day. Hope everybody has a great day and a good evening. Thank you.

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.