Amneal Pharmaceuticals Inc (AMRX) 2018 Q3 法說會逐字稿

Good day. My name is Jay, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Amneal Pharmaceuticals Third Quarter 2018 Earnings Conference Call. (Operator Instructions)

It is now my pleasure to turn today's program over to your host, Mr. Mark Donohue, Vice President, Investor Relations and Corporate Communications. Sir, the floor is yours.

Thank you. Good morning. Welcome to Amneal's Third Quarter 2018 Earnings Conference Call. A copy of the slides that will be presented on this call are available within the Investor Relations section of Amneal's website at amneal.com and as part of the webcast.

Our discussion today includes certain forward-looking statements, and actual results may differ from those presented here. The factors that could cause such a difference are outlined in our SEC filings and on our website.

Our discussion today includes certain non-GAAP measures as defined by the SEC. Management uses both GAAP financial measures and then disclose non-GAAP financial measures internally to evaluate and manage the company's operations and to better understand its business. Further, management believes the inclusion of non-GAAP financial measures provides meaningful supplementary information to and facilitates analysis by investors in evaluating the company's financial performance, results of operations and trends. A reconciliation of GAAP to non-GAAP measures is available in this morning's press release.

On the call this morning are Bob -- Rob Stewart, our President and Chief Executive Officer; Bryan Reasons, our Chief Financial Officer. Following the prepared remarks, we will hold a Q&A session. Also on the call and available for Q&A is Paul Bisaro, our Executive Chairman; Andy Boyer, our Executive Vice President of Commercial Operations; and Joe Todisco, Senior Vice President of Specialty Commercial.

With that, I'm going to turn the call over to Rob.

Thank you, Mark. Good morning, everyone, and thank you for joining us today.

Summarizing our performance on Slide 4, we reported another strong quarter of solid financial performance across all metrics, made excellent progress with the integration of Impax and continued to execute in both our Generics and Specialty businesses. For the third quarter, we delivered double-digit adjusted EBITDA and EPS growth. We generated strong cash flow of $62 million from operating activities. We continue to target double-digit earnings growth driven by an ANDA pipeline of 238 projects, an industry-leading 56 approvals year-to-date, our ability to supply a significant number of new products to customers and our increased confidence in being able to deliver at least $200 million in annual synergies at an accelerated pace. In addition, we are strategically deploying our capital to support our long-term growth target of double-digit earnings growth. During the quarter, we announced a 10-year licensing and supply agreement with Jerome Stevens for levothyroxine, a high-value, durable product. We also completed a 5-year supply and distribution agreement for generic alternative to Markena (sic) [Makena]. Pursuing additional opportunities like these to fuel growth is an important part of our strategy and remains a top priority going forward. Stated differently, we're open for business.

Looking specifically at the financial highlights for Q3 on Slide 5. We delivered sequential growth on an adjusted basis for revenue, EBITDA, net income and EPS as we executed on new launches, delivered cost synergies and benefited from our increased scale following the Impax combination. On a sequential basis, revenue was up 3% as we benefited from higher sales on a few of our larger generic products as well as heavy flow of new generic product launches. Compared to last year's third quarter, revenue was essentially flat. While we benefited from increased specialty revenue and new generic product revenue, it was offset by lower sales of our Epinephrine Auto-injector due to the ongoing supply constraints, increased competition on certain generic products and our continued portfolio rationalization. For the third quarter of 2018, adjusted EBITDA was $163 million and adjusted EPS was $0.28. As a result of favorable product sales mix and successfully executing on operational priorities, including cost synergies, we drove double-digit growth across financial metrics on a sequential.

Before Bryan details our third quarter results, I'd like to review the highlights from our segment performance. Moving to Slide 6. In the third quarter, on an adjusted basis, the Generics business achieved 2% top line sequential growth. We capitalized on the high-value Yuvafem opportunity as we were the only generic on the market until late third quarter when new competition emerged. Additionally, we benefited from 11 new product launches. This was partially offset by new competition on a few of our largest high-margin products, including aspirin dipyridamole and diclofenac sodium gel 1%.

On a year-over-year basis, generic revenue declined 4% due largely to the ongoing intermittent supply on the Epinephrine Auto-injector as well as increased competition on a number of base business products and our continued portfolio rationalization. While we remain optimistic that the availability of epinephrine's supply will improve, it continues to be significantly slower than our expectations. We continue to work closely with Pfizer in order to receive the supply needed to meet the demand for our product.

A key component of our generics strategy is to shift the mix of our portfolio away from more competitive tablet and capsule products and increase the percentage of higher-margin and more complex products. Year-to-date, we have received 56 ANDA approvals and 10 tentative approvals from the FDA, of which we launched 39 products. This includes 11 launches in the third quarter alone. Approximately 35% of these approvals and launches have been in complex products, including injectables, topicals and oral liquids. Amneal's ability to get complex, hard-to-manufacture generic products approved and launched helps to set us apart from many companies within our industry.

Moving to Slide 7, significant opportunities to drive future growth. We continue to make significant progress in growing our pipeline and driving expansion into the complex dosage forms and technologies, a top strategic priority to drive future growth for Amneal. Today, Amneal has one of the largest pipelines of filed and developed products in the U.S. with 238 projects in the pipeline targeting more than $112 billion U.S. brand and generic market sales. We've continued to see a significant number of our complex products approved, which now represents over 50% of our total pipeline. So far, in 2018, we have 17 ANDAs filed, and we continue to target more than 30 ANDAs to be filed this year. We have a solid track record of getting products approved and commercialized, and we believe we're well positioned to continue execution on this in the future.

Turning to Specialty Pharma division on Slide 8. In the third quarter, we delivered top line growth of 6% sequentially and 24% year-over-year as we capitalized on strong demand for Rytary, Unithroid, and Emverm. With Rytary, we continue to focus on growth within this important franchise and improving access for patients. Our specialty team was successful in adding Rytary to Humana's Med D Formulary of covered medicines effective February 1, 2019. With this milestone, nearly 8.5 million more people will have coverage for Rytary in 2019. This milestone also means that Rytary will be listed on the Medicare Part D formulary for 2 of the top 3 payers. We'll continue to pursue additional Medicare coverage so that patients living with Parkinson's disease will have coverage for our product. In response to the generic competition we began to experience in late September with ALBENZA, we immediately launched an authorized generic. We continue to focus on growth of Emverm, and we are planning to expand our market focus beginning in 2019.

On Slide 9, we also continue to make good progress with IPX203, our extended-release formulation of carbidopa-levodopa, which we believe has great potential for Parkinson's patients. We were recently issued a patent which expires November 2034 and also have additional intellectual property protection in the works. We also initiated patient enrollment for our Phase III study on schedule as the first patient was recently dosed. We expect top line results in the first half of 2020. This program is a perfect example of our commitment to investment in organic growth opportunities while we also explore external opportunities to increase the value and scale of our specialty business.

Turning to Slide 10. We have made excellent progress with the integration of Amneal and Impax, a combination that has advanced Amneal to the top-tier companies in our industry. We are well ahead of schedule on key deliverables, including the closure of the Hayward, California facility, which is expected to be completed within 1 year of the merger. In fact, of all of the major initiatives linked to synergies have been completed, and we are on track to achieve more than $200 million in cost synergies at an accelerated pace.

With an expanded set of capabilities, scale and resources, the new Amneal is solidly positioned to deliver sustainable growth, and we're very excited for the possibilities that lie ahead.

With that, I'll turn the call to Bryan to review details on the second quarter -- third quarter performance.

Thanks, Rob. Good morning, everyone. My remarks focus on our adjusted results as we believe they provide a comparison of our performance and trends in the quarter. A full reconciliation of all GAAP to adjusted results can be found in the tables to our press release.

Turning to Slide 12 and a review of our Generic division results for the third quarter of 2018. On a sequential basis, net revenue increased 2% compared to the second quarter of 2018. The increase was driven by higher sales in Epinephrine Auto-injector, up $18 million due to seasonality. However, as Rob noted, the ongoing supply constraints from our third-party manufacturer has not been fully resolved. Compared to last year's third quarter, sales of Epinephrine are down $12 million. The supply issue has clearly impacted our ability to deliver significantly more product to our customers during the high seasonal period. During the third quarter of 2018, we also benefited from higher sales of Yuvafem, which increased $16 million over the second quarter due to spot buys from noncontract customers. This, of course, was prior to new competition entering the market late in the third quarter. Partially offsetting these increases are lower sales of Aspirin Dip and Diclofenac Sodium Gel 1%, each down approximately $5 million compared to the second quarter of 2018 due to new competition. Compared to the third quarter of 2017, net revenue declined 4%. A $90 million increase in sales of Yuvafem and the 27 new generic products launched during the first 9 months of this year which contributed approximately $44 million to the third quarter only partially offset the year-over-year decline. The third quarter 2018 decrease was due to a $90 million decline in generic Tamiflu as a result of an early flu season last year and lower sales of our Epinephrine product. Additionally, sales of Diclofenac Sodium Gel 3%, generic Solaraze; Aspirin Dip, Lidocaine; and Budesonide were down approximately $32 million in aggregate due to new competition. Our adjusted gross margin improved in the third quarter by 130 basis points on a sequential basis and 260 basis points year-over-year, primarily due to favorable product mix. Adjusted operating income in the third quarter of 2018 increased to $132 million, up 17% compared to the second quarter. The sequential increase was due to an improvement in gross profit as a result of favorable product mix and lower operating expenses as we begin to realize the benefits of cost synergies.

Moving to Slide 13 on our specialty division results. On a sequential basis, our net revenue in the third quarter of 2018 increased 6%, driven by growth in Rytary, which was up 9%, primarily the result of continued strong volume growth and higher sales of Zomig and Emverm. Compared to the third quarter of 2017, net revenue increased 24%, primarily due to increased sales across almost every product in our specialty franchise. This included a 52% increase in Rytary revenue driven by a 49% increase in volume as we're seeing the benefit of last year's changes to sales and marketing. Adjusted gross margin for the third quarter was 79%, flat compared to both the second quarter of 2018 and last year's third quarter. Adjusted operating income for the Specialty Pharma business in the third quarter of 2018 increased to $44 million, up 15% from this year's second quarter and up 43% from the same period last year, primarily due to increase in sales.

Turning to Slide 14 and a review of our strong cash flow and other items for the third quarter. During the third quarter of 2018, we generated strong operating cash flows of $62 million. We used $27 million to invest in our business through capital expenditures. We also used approximately $12 million to purchase the remaining noncontrolling interest in a subsidiary in the United Kingdom and $10 million for an earn-out payment related to Yuvafem. We currently expect to generate strong cash flows once again in the fourth quarter as well as in 2019 to reinvest in the business, support our business development activities and to continue to pay down debt.

I'll now turn the call back to Rob for a review of our guidance and closing remarks.

Thank you, Bryan. Now let's turn to Slide 16 to discuss our guidance assumptions and our sharpened outlook for 2018. We continue to expect our financial performance to benefit from the full year impact of new generic product launches, synergy capture and growth within our specialty business. As we progress through the third quarter, competition on high-value generics Yuvafem and Aspirin Dipyridamole ER emerged several months ahead of our expectation. We also experienced new competition on Diclofenac Sodium Gel and the loss of exclusivity on ALBENZA. In addition, the ongoing and extremely frustrating Epinephrine Auto-injector supply constraint is expected to have an additional impact on this year's results. And finally, we've had a soft start to the flu season and higher level of competition on our generic Tamiflu. As a result, we've tightened our existing guidance ranges for the full year 2018. We now expect adjusted EBITDA of between $580 million and $585 million and adjusted diluted EPS between $0.90 and $0.92.

Turning to Slide 17. Looking out to 2019 and beyond, we continue to focus on building Amneal from our position of strength in order to maintain double-digit earnings growth while also taking the necessary steps to insulate the business as much as possible from quarterly fluctuations inherent in the Generics business. To achieve these goals, we are focused on following near-term -- on the following near-term priorities. First, we'll continue to leverage our industry-leading approvals and on-time launch performance to capitalize on our organic growth. Second, we'll continue to strive for excellence by maintaining superior customer service and the highest level of compliance so that we remain a consistent supplier of product to our customers. And third, we'll improve our earnings potential by completing synergy capture from the merger and maintaining a focus on tight cost controls.

Turning to Slide 18. From a long-term perspective, we're focused on strategically deploying our capital to support our long-term target of double-digit earnings growth. To achieve this, we'll continue to drive organic growth through our ongoing investments in Generic and Specialty R&D that will continue to place us at or near the top of our peer group, but we will use creative business development to pursue tuck-in acquisitions and larger transactions that strengthen key portfolios. And we will explore additional commercial adjacencies that further diversify Amneal's commercial footprint.

In conclusion, we're very optimistic about Amneal's growth potential. Not only do we continue to successfully introduce new high-value products at an industry-leading rate, but through the combination with Impax and new strategic partnerships, Amneal is solidly positioned with the expanded set of capabilities. We're committed to executing against our long-term growth plan and believe that our strong operating cash flows gives Amneal the flexibility to support our strategic priority to diversify and grow the business while also reducing our long-term debt. We're excited for the opportunities that lie ahead for Amneal. I'd like to thank all of our employees for their ongoing hard work and our customers and shareholders for your continued support.

With that, I'll turn the call back over to Mark.

Thanks, Rob. (Operator Instructions)

Thank you for your participation, and we'll turn it back to Jay to open the line up for questions.

(Operator Instructions) Our first question comes from the line of Randall Stanicky.

Great. Just to -- the first one. As we look at the fourth quarter EBITDA guide, it was better than expected and implies roughly a $20 million step-up in the face of some of the generic competition that, Rob, you called out that I would have thought would hit 4Q a little harder than 3Q. So can you help us bridge the drivers to that step-up in 4Q over 3Q? That's number one. And then secondly, are you still committed to the $1.1 billion EBITDA target in 2020? And then for those investors who might step back and say, "Look, competition came early on some of these key products this year. The FDA is continuing to approve products at a high level. That could happen again going forward," how do investors get comfortable that the value of your pipeline as we look forward is where you think it is given that competitive uncertainty?

Yes. Thanks, Randall. First off, I'll hit the fourth quarter question, I guess, first. It really kind of speaks to just the quality of our pipeline that we're able to bring it through and have all of these successful launches. We had 11 launches in the third Q -- in the third quarter. We continue to have launches in the fourth quarter. That is helping us offset with, let's say, the earlier competition that we saw on some of the higher-value products. That, coupled with synergy, coupled also with the growth of our specialty business, all of that -- all of those levers are basically used to be able to offset that. So it was competition that came earlier than we expected. But again, our ability to grow through that is what's so special about this company. In terms of the $1.1 billion, we're still committed to delivering that. We're focusing hard on continuing to execute our pipeline so that we can deliver those kind of numbers over the long term. So -- and I would say that competition on those products, with Yuvafem and Aspirin Dip, those were -- we assumed that we would have competition over this period. In our 2- to 3-year guidance we kind of -- we assumed that we would have competition on that. But we have other assets in the pipeline that are the next Yuvafems or the next Aspirin Dips. And again, with the breadth of portfolio that we have, the type of assets that we have in the portfolio, that's what's going to continue to drive that growth for us in the future. And then we'll continue to pursue other tuck-in deals like you saw us do with Jerome Stevens and others that I think that's what we're going to continue to execute on to be able to deliver that long-term growth.

And then, Rob, just to follow up on that. When you -- you talked about tuck-ins, but you also on the -- on Page 18 called out creative business development and talked about larger transactions. Is it fair to assume that MOEs or transformational M&A is part of that?

Well, it's not part of our long-term guidance, but I would -- but we're open for business. And I think you know Paul and I, our history, and we want to look at other options to continue to grow and diversify this company. And so all of those things are on the table. We're continuing to look at other opportunities in terms of strengthening up our specialty business as well as how can we further accelerate our injectables business. So these are things that are always going to be considerations for us. And especially now that we have our integration largely behind us with Impax and we're building that integration capability, we'll have the ability to go and do other transactions and be able to integrate them very successfully.

Our next question comes from the line of Louise Chen.

So my first question here is it sounded like you said that you have an aspiration of a double-digit EPS growth in 2019. I just want to make sure I heard that correctly. And can you also help us bridge that 2019 given some of the headwinds you have from competition and then the supply issue and potentially Teva coming in on a different product I know but still an Epi product? Second question I have was on synergy capture. I know you're well ahead of schedule. Are there additional synergies that we'll see in 2019? And if so, could you quantify them in any way? And the last question I had was on IPX203, the successor to Rytary. Do you think that there's an opportunity to get even greater sales out of that product than what you've seen with Rytary? Why or why not?

Okay. There's a whole lot of questions there. Regarding 2019, we assumed that we would have competition on all of these products in 2019. And so it's a headwind for us in the fourth quarter, but it was an anticipated headwind for us in 2019. I am committing to double-digit growth from '18 to '19 driven by, again, pipeline execution as well as continued growth in our specialty as well as getting now the full year benefit of synergy capture. So -- but we're not -- I'm not providing 2019 guidance today. I'm just providing directional guidance. But -- and again, the headwind that we saw in the fourth quarter on all of the key products here that we talked about, that was always assumed in our long-term plan, and we would have expected competition on those products in 2019. Regarding synergy, I've committed to more than $200 million. We have not actually shared what that number is, but we will do more than $200 million, and we're going to do it faster than we originally planned. We said it was $200 million after 3 years or in our third year. We're going to do that faster than 3 years, and we're going to do more than $200 million. And all of the key integration activities that we needed to do or decide on are all now done and behind us, and now it's about just seeing the flow-through of that synergy in the P&L. Regarding 203, I do believe that this -- I don't look at this as a continuation of Rytary. This is a new product, and we're going to position this as a new levodopa-carbidopa combination. It has a superior -- assuming we can execute the Phase III study and approves out what we saw on Phase II, it would have a better label than Rytary. It would have improved on time and potentially allow for a BID label, and that I think could be a game changer for Parkinson's patients and allow them another tool or a new tool that can help manage their disease. And so we're really excited about that. We have our investigator meeting later this week on Friday, and we've already started dosing patients. And so we're really, really excited about this product, and we look forward to reporting out top line results in early 2020 or in the first half of 2020.

Our next question comes from the line of Elliot Wilbur.

Just one question, right? Specifically for Rob on some recent comments you made around the Copaxone opportunity. Just number one, if there's anything you can say with respect to potential timing of the Amneal approval. I'm not sure where that is in the review queue, and you guys have been relatively quiet, I think, since the 2 companies came together but just wonder if that's potentially a 2019 opportunity. And then more specifically, I think you had suggested previously at a competitive conference that what's really needed to sort of open up the market is a third generic entrant. I'm just sort of wondering given the desire for rebates versus savings why you think that necessarily a pure generic strategy may be successful in opening up the market or you're really referring to something more along the lines of a branded generic strategy that itself may involve a heavy level of rebating to drive ultimately net savings outside of the fact you may have a lot of disintermediation of those actual savings.

Okay, Elliot. Regarding Copaxone, I have publicly stated and continue to believe that what ultimately will unlock this market is another entry or another generic entry because it does change the dynamics when you're just in kind of a pure brand versus generic kind of situation. I think on a lot of these complex generics, whether it be the inhalation products, whether it be products like a Copaxone, biosimilars, I think they're going to behave more like branded generics. And I do think that -- and we see it even with some of the products that we've recently launched that there needs to be a little bit more sales and marketing support behind these products. It's not just throw it out there and allow it to be substituted. You need to put some conditioning in the market. You need to make people aware of the interchangeability, and patient support services are needed on some of these products as well. So I think you're going to continue to see that play out in -- as the market matures around some of these more complex type of products. Regarding our application, we're not providing any specific update on the call today around that. I will tell you it's not in our 2018 guidance. But when we talk about 2019, we'll update you on kind of what's in and what's out. I will continue to be a bit stealthy on some of our pipeline opportunities purely because of the fact that there is a competitive advantage to not sharing too much out in front of the launch, but we will provide a little bit more color in terms of what's in and what's out of our assumptions when we provide 2019 guidance.

Our next question comes from the line of David Amsellem.

So just a couple of quick ones on some specific products. First -- and I apologize if I missed this. But can you talk to how you're thinking about the potential for another generic levothyroxine entrant in 2019? And I know this is a unique market. But how does -- how do you size up the impact of one additional entrant if that materializes next year once you're distributing the product? And then secondly, I know you entered the Accutane market earlier this year. I believe you had some supply issues. Maybe talk to how impactful that product can be, how you're thinking about that. And then lastly, on ALBENZA, are you expecting any additional entrants over the next 6 to 12 months?

Yes. So on levothyroxine, yes. We did assume and we believe that additional competition will come into this market, but we also believe that this is a market that does not necessarily want to convert or change because of the fact it's got a narrow therapeutic index. And patients are very, very loyal, not only to the brand but also to their generic. And as a result, we think that there's going to be a stickiness or an adhesion to this business even with new competition. I know some of the competition that -- is stating that they're coming into the marketplace as early as late first quarter. Well, we'll see how that dynamic plays out. I think the key for any, I guess, substitution here or potential real competitive threat is that once somebody is AB-rated to all of the brands that are out there, I think coming out with just AB rating to Synthroid is not going to be enough to basically I think unseat an incumbent. And so in order to be a real competitive threat, I think you're going need to be AB1, 2 and 3 rated. And that's our belief, and we'll see how that plays out. But our agreement with Jerome Stevens contemplates additional competition to protect Amneal's, let's call it, margin or contribution of this asset over the 10-year period. So we've kind of assumed that competition in our structure, and -- but we'll be aggressive in making sure that we defend our position and market share position, even in face of new competitive entries. Regarding Accutane, we did have a temporary supply issue on that. We've been able to do resolve that, and we'll be reentering the market. But I don't see that as an enormous opportunity. That's a pretty competitive marketplace. So it didn't have a material impact on our results this year, but it is an asset that we'll reintroduce in the near term here. And -- but again, it's not going to be a major driver for us. Regarding ALBENZA, we think that there will be additional competition, generic competition on that, and we'll just continue to support our AG in the marketplace. But we do think that there'll be more competition on ALBENZA in the future.

Next question comes from the line of David Risinger.

So I'm hoping that you could discuss the unchanged target of $1.1 billion for 2020 a little bit more. So I guess I'm surprised about that because some material negatives have occurred since you've provided that guidance. That includes much greater competition to existing key franchises and the FDA's moves to further commoditize limited competition, high-profit drugs for generic companies. Second, an AB-rated Epinephrine, which was not expected to EpiPen and could change the dynamics there. And so obviously, you see things and you see upside that is, I guess, not that clear to investors and me that will offset those negatives. So if you could talk a little bit about that, that would be very helpful.

Thanks, David. Regarding competition on some of our key franchises, we live in a competitive environment. And we know that there's going to be competition on these key products, which is why we need to replace them with new products and new product launches. And you can see that just the continued execution of the Amneal pipeline here. So there was never an assumption that we wouldn't have saw -- that we wouldn't see competition on Yuvafem or Aspirin DP or Adrenaclick in the next 2 years. So we've always assumed that we're in a competitive environment, that we're going to see competition on some of our high-margin assets, which is why we've got to continue to launch other high-value assets and we continue to do that. I'm proud of the way that the company is diversifying away from the commodities solid oral dosage side of things. 30% of our launches have been on the injectables side. We're continuing to build more and more capability there. We've got over 50 other products that we have either pending or in active projects, very high-value targets in the space, and you'll continue to see us add more and more products that are durable. And we'll have other opportunities like, for example, years ago, you wouldn't have thought Yuvafem was going to be the opportunity that it turned out to be. And so we'll have other assets like that, that will be better than what we're expecting, things that we'll continue to add other products and durable products in that we'll just keep adding layers and layers of performance on to get us to those kind of growth targets. On additional competition on EpiPen, we assumed that we would see competition on Epinephrine and specifically EpiPen or Adrenaclick, though is not AB-rated to EpiPen. So any other generic entry into -- and Teva is obviously signaling they're going to launch in the first quarter that will be AB-rated to EpiPen, not AB-rated to Adrenaclick. That said, we still believe that this will be a competitive marketplace and we'll continue to support our Adrenaclick product over the next several years as well.

Our next question comes from the line of Chris Schott.

Just one -- my first one was just coming back to some of the 4Q commentary and as we think out to 2019. Any color you can give in terms of the competitive dynamics you're seeing for some of these high-value products where you're experiencing incremental competition, maybe specifically Yuvafem given its size? Are you thinking about fairly severe erosion fairly quickly here? Or are you thinking about a more gradual fade of that portfolio of recent competition assets? My second question was also just some color about how you're thinking about gross margin next year. I know you're presenting your formal guidance. But when we think about erosion of these higher-margin products, we think about levo coming onboard. It may be a bit lower margin. This being offset by synergies and new pipeline. I guess when I think about all those pushes and pulls, is it still reasonable to think about gross margin expansion for the company in 2019?

Yes. Great questions, Chris. Regarding Yuvafem, we do see that this is going to be a pretty competitive market here in the fourth quarter. Not only has Glenmark launched, but Teva has come back into the marketplace. Before, it was a 2-player market when Teva was on the market. But then obviously, they came off for a period of time. We do think that Teva will ramp up in terms of their share. Glenmark will get their share. But we also do think that pricing in a 3-player market here, especially with some level of limited supply, that we think there'll be some good durability is still in the margin of that product. And I think that will be the case on a lot of these. Even though we're seeing competition on some of these products, we're not seeing 5 or 6 competitors enter into some of these products. You're seeing 1, 2 or maybe 3. And so that will allow a different kind of margin contribution in that type of competition as opposed to your 9-player type of market. In terms of gross margin, maybe I'll turn that over to Bryan, but I think you could still see margin expansion through -- but Bryan, maybe...

Yes. I agree, and we'll give guidance later. But I think you -- Chris, you hit on a couple of the items right. Certainly, pricing competition will put pressure on the margin, but the high-valued new product launches come with higher margin. In the -- in 2019, you'll start to see synergies roll through the P&L, and a lot of those are in COGS. So that will help the margins. And then we still expect growth on the brand side, especially in Rytary, which brings a lot higher margins. So that -- the combination of all those we do think we can continue to expand gross margin overall.

Our next question comes from the line of Dana Flanders.

I just have 2 just kind of product-specific questions. And, Bryan, maybe first, did you say you acquired an earn-out on Yuvafem this quarter? And then I also think I heard just -- I think it was an interest in a U.K. company or maybe I misheard that. But did that -- either of those benefit results this quarter? And if so, could you just, I guess, quantify the impact? And then my second quick one, just on Aggrenox. I know competitors have had just challenges supplying that market in the past. Do you have any sense at this point just the level of supply that will be there heading into '19 from some of these competitive entrants?

Yes. So I'll get the Aggrenox, and then I'll turn the -- turn it back over to Bryan on some of the other questions. We -- there's a lot of approvals out there for generic Aggrenox, and none of them are able to supply the market. There is a manufacturing know-how and a complexity factor of that product and that manufacturing process that Amneal has been able to unlock and has been able to fully supply the marketplace. We did see a competition, which is the AG. That was reintroduced back in late third quarter. We'll see that competition, we believe, through the fourth quarter. There was other recent approvals but not recent launches. And so we continue to produce in full production quantities to supply as much in a marketplace as we can, and we'll deal with new competitive entries as they happen. But right now, it is only us and the AG in the marketplace. Bryan, maybe handle the other...

Yes. Thanks, Rob. Dana, the 2 items you talked about, during the quarter, we did buy out a small noncontrolling interest in our U.K. business. The impact on the results was very immaterial. And then the milestone, the payout -- the milestone payment on Yuvafem, that did not impact our adjusted results. So the payment was called out on our GAAP to non-GAAP reconciliation, and there's no impact to the underlying results.

Our next question comes from the line of Gary Nachman.

Rob, following on some of your previous responses. What has the environment been like in general for launching new generic products versus the last couple of years? Are you getting the type of share that you initially expect? Or is it getting more challenging to get traction with some of these, whether complex or not? What are the key dynamics driving that? And then just quickly on the Epinephrine supply issue, I apologize if you mentioned this earlier. But when do you think that should be rectified? And how long would it take before you can try and bring that capability in-house? I know you've talked about that before.

Yes. Thanks. Regarding the product launches and kind of the, let's call it, the share that you get, in particular around the complex products, the share ramp-up is slower than what you -- what we've seen in the past. So traditionally, you kind of just saw rapid substitution, rapid uptake. But now I think it's a little bit -- the dynamics are slightly different, and I do think that you -- that the ramp-up is a little bit slower than what we have traditionally seen. And I think that's going to be the case going forward, and I think it's going to be largely driven by the -- more the complex nature of some of these products. There's -- branded companies are getting aggressive in terms of rebating aggressive, in terms of contracting. And what we have to continue to do is find creative ways around that and creative ways to deal with it. And we are proud of the performance that we're able to generate here with the launches. I also do think that they may be slower in terms of basically moving up in terms of market share, but I also think they'll be slower in terms of coming back down for the same reasons. And so I think the durability of the portfolio will still be there, and the contribution from these launches will still be there, but it just may be a longer period of time before you can fully recognize the real value. On the Epinephrine supply, we continue to work with Pfizer. It's been frustrating. It's been slower than I expected. We've been able to work very closely with them to make sure that patients had supply, and we were able to work with our customers to build more of a downstream distribution capability to get product directly to the store door to make sure that people had access to the product. It's created some choppiness in terms of our quarter-to-quarter performance. We certainly would have been able to take additional market share in the third quarter had we been at full supply, but we are working with them to continue to build inventory as we start entering into 2019. They're making progress, but it's just been slower than what we would have liked. Regarding bringing in-house, that is something that we are working on, but it's going to take years before we can actually do that. We would also -- as we bring it in-house, we would also look to make other improvements through the device itself, and that's going to be more of a longer-term project. So we're going to have to continue to work with Pfizer in the intermediate stage here to continue to ramp up production and make sure that we don't have these challenges throughout 2019.

Our next question comes from the line of Ami Fadia.

Can you hear me okay?

Yes.

Yes.

Okay, great. Just coming back to the $1.1 billion EBITDA. Can you help us understand a little bit with regards to whether the new product launches are loaded more into 2020 rather than 2019? And also, are there any inorganic growth opportunities that are included in that? And then just separately, 2 quick questions. When do we start to see some of your respiratory product pipeline come to market? Is it within that time frame of the $1.1 billion guidance? And separately on the Xyrem settlement, can you give us some early thoughts on your expectations for building your own REMS to distribute your own product in the future?

Yes. So on the $1.1 billion, we're going to have contributions from all of our different technology groups to get there, and that means transdermals, that means complex injectables, that means inhalation. And that's one of the values of Amneal here is that we've got the capability across all the different dosage forms that -- so that from that standpoint, we've got a lot of different assets, a lot of different technologies that collectively will drive growth for not only 2019 but 2020 and beyond. We haven't broken out any specifics around what is going to happen in 2019 versus 2020. I will say that we've got a lot of great assets in the pipeline that will come to the market in 2019 as well as in 2020, but we're not breaking out yet at this point what's in our guidance assumptions for 2019 or 2020. So we'll provide that as we get further along here, but we've got -- we'll have contributions from all of our different technology platforms, both in '19 as well as in '20. And regarding the REMS program on Xyrem, we have an AG arrangement with Jazz and that we would have access to the REMS program.

Sorry, my question was...

Ami?

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Our next question comes from the line of Dewey Steadman.

I guess on the Makena opportunity, how should we approach that with the new presentation from the brand out there? And then with JSP and the thyroid product, is that a switch that gets flipped on, on the transition? Or is it something that we should be expecting a ramp and bleed out of supply from the existing generic? And then will your marketing efforts on Unithroid change with that generic launch on the Amneal label? And then broadly on pricing, where do you think we are on the pricing curve? And these sort of crowded markets where we have 7, 8, 9 competitors, I'm thinking like Concerta and Adderall XR, does it make sense to launch into markets like that and other categories? Or is 3 or 4 competitors sort of the norm at this point?

Dewey, I think because we worked together before in our past, you felt like you can ask 18 questions. On Makena, it's -- we still see this as an opportunity. We're working with our partner on this and trying to unlock value. I think you're not seeing Amneal's share being reported yet on this product, largely because a lot of IMS data does not actually provide -- or you don't get the clarity of share per se because it's not all captured in IMS data. But we're happy with how this is going, even though that it's a competitive market. We also -- you'll see that the share continue to increase as we continue to unlock opportunities here so that -- so we're pretty pleased with how that's going. Regarding Jerome Stevens, we'll continue to work with them as well as Lannett to make sure that we transition this business over well. We want -- both companies, all 3 companies are committed to making sure that we do a smooth transition on this so that we do not disrupt supply in the marketplace. We've got good working relationships amongst all 3 firms, and everybody is committed to transitioning this in the most responsible way and we're very happy with how that discussion is going. Regarding Unithroid, we're not going to change our strategy. We'll continue to support this brand. We do see that this is kind of more of a brand to generic type of market and that again good adhesion to the brand and good -- a lot of loyalty amongst the patients. And so despite the fact that we're going to be on the generic side of this that we're going to continue to support the brand and continue to invest behind that as well. And then the pricing environment, I would still call it late innings of -- and I do see, in terms of pricing stability, I think we're seeing more and more discipline in the marketplace amongst our competitors. And that's allowing for, I think, more sensibility in terms of pricing. Regarding products and whether you make the decision to enter into a multiplayer kind of market, you mentioned 3 or 4, it really depends. It depends on the product. It depends on how that product fits your portfolio. It depends on what your cost structure looks like, so it really is a product-by-product decision. There's going to be products that -- if it's 3- or 4-player market, we won't enter. And there may be products that where there's a 3- or 4-player market but because of the fact that strategically it fits and it makes sense for us to kind of leverage it amongst our broader portfolio, we potentially would enter into it. So it really depends on the product and the opportunity. And also what -- who you're competing against also enters into the equation as well. So -- and sorry for the kind of broad answer, and it's not specific. But it really kind of depends.

Ami Fadia.

Sorry. Just wanted to clarify my question from before. My question was about the Xyrem product but after your authorized generic product ends. What are your initial thoughts with regards to building your own REMS to sell your own generic product?

Well, the REMS stands alone. So you -- so although we have access to it with the AG, even once that AG is no longer, if we launch our own program, we still have access to the REMS. Joe, I don't know if you want to...

Just to clarify, there is a separate generic REMS that's already been established. So that separate framework has been created and would be there for after we launch our authorized generic, should we launch our own product.

Our next question comes from the line of David Buck.

So just a couple of questions. Rob, can you talk about what the -- remind us what the level of ALBENZA sales was before generic competition, just so we have a sense of what's at risk to your own generic and other entrants? And can you talk a little bit about the outlook for new product launches as we get into the fourth quarter? And then finally, what impact, if any, did the extension of expiration date have for Epinephrine? How do you see that playing out in 2019?

Yes. So in terms of the expiration date, I mean, the -- all of our new production will be at the 20-month dating. We were able to work with the FDA in terms of extending dating on a number of our lots that were in the distribution channel, and so that allowed us to make sure that patients didn't go without product. And that was just kind of one additional benefit that we tried to work with the agency on to ensure that we didn't have any supply disruptions out there and that people understood that they could continue to use their device for an additional period of time. Regarding ALBENZA, the third quarter was in the low-teens. So that kind of is the run rate on a quarter basis in terms of the impact. But again, we've launched our authorized generic, which will help offset a portion of that. And then in terms of -- you had another question on launches. In terms of the outlook?

Outlook.

In terms of the outlook?

Yes. How many launches?

Yes. So -- and we haven't disclosed exactly how many launches that we're going to have in the fourth quarter. We will -- we had 11 in the third quarter. We continue to have other launches that we will have between now and the end of the year, but there's -- we have up -- we have the ability to launch up to about 47 products this year. So that will kind of give you a little bit of range in the terms of the math.

Our last question comes from the line of Tim Chiang.

Rob, I had a longer-term question for you on your specialty brand business. It's going quite well. It seems like you're continuing to optimize the revenues and the profits, but it's still less than 20% of your total revenues. I mean, are you guys thinking of continuing to do more business development? Will you expand this segment in the future?

Yes, absolutely. So we are excited about the performance of the specialty business. It continues to do incredibly well. Joe and his team are doing a fantastic job at really simplifying the message, getting better sales execution, sales -- better sales call execution. And I think also that -- just you see that in terms of the overall performance, and that's given me the confidence to make the investment behind IPX203. And so we'll continue to support this business organically through that effort. But we're also, as I said, open for business, and we're looking at other business development opportunities as well. My near-term priority is to continue to accelerate our injectable business, and there could be options and opportunities out there to do that as well as further diversify the company away from just pure generics. And as you said, our specialty business is about 20% today. I'd like to see that number increase in terms of its percentage relevance in the company. And so we'll look for more business development opportunities, look at other products and other adjacencies that -- where we think that we can integrate it into our commercial machine and in particular around movement disorders as well as neurology. And we'll look at opportunities to further strengthen the bag, no doubt.

And that concludes our call for today. I'd like to thank everyone for participating. As always, Investor Relations is available to take any follow-up questions that you may have. Thanks, and we look forward to speaking to you

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concludes our call for today.

Thank you again for joining us today. This concludes today's conference call. You may now disconnect. Have a great day.