Amneal Pharmaceuticals Inc (AMRX) 2020 Q1 法說會逐字稿

Good morning, and welcome to Amneal Pharmaceuticals First Quarter 2020 Earnings Conference Call. Please note, today's call is being recorded. At this time, I'd like to turn the conference over to Tasos Konidaris, Chief Financial Officer at Amneal. Please go ahead.

Good morning, everyone. Earlier this morning, we issued a press release reporting our quarterly results. The press release as well as the slides on this call are available on our website at www.amneal.com. We're conducting a live webcast of this call, and a replay of it will be available on our website after its conclusion. Please note that today's call is copyrighted material of Amneal and cannot be rebroadcast without the company's expressed written consent.

I would like to remind you that statements made during this call stating management's outlook or predictions for future periods are forward-looking statements. These statements are based solely on information that is now available to us. We encouraged you to review the section titled Cautionary Statement on Forward-Looking Statements in our earnings release and presentation, which applies to this call. Our future performance may differ due to numerous factors, many of which are listed on our most recent annual report on Form 10-K and are revised and updated on our quarterly reports on Form 10-Q and current reports on Form 8-K, which you can also find on our website or on the SEC's website at sec.gov.

We also discuss certain non-GAAP measures. You will find important information on our use of these measures and our reconciliations to U.S. GAAP in our earnings release. Included in the appendix of today's presentation, you will find U.S. GAAP financial statements that correspond to some of our non-U. S. GAAP measures we reference throughout the presentation.

On the call this morning are Chirag Patel and Chintu Patel, our co-CEOs. In addition, Andy Boyer, our Executive Vice President of Commercial Operations; Joe Todisco, Senior Vice President of Specialty Commercial; and Steve Manzano, our General Counsel and Corporate Secretary, are on the line and will be available for the Q&A session. I would like to note that all of us are at different locations due to COVID-19, so please bear with us if there are any technical issues.

And with that, I'd like to turn the call over to Chirag.

Thank you. Thank you, Tasos, and good morning, everyone. Tasos joined Amneal as the CFO in March, and we are pleased to have him on our team.

I will begin by addressing our response to COVID-19. First, I want to acknowledge the difficult environment we are all navigating, as individuals, as a company and in our communities around the world. Our thoughts go out to those impacted by this global pandemic, and we hope all of you are healthy and safe. We are equally proud of how Amneal has and continue to respond to the COVID-19 crisis. We were proactive and mobilized quickly to evolve our business to protect the health of our colleagues and communities while sustaining the supply of medicines for patients.

We established a strategic task force made up of top leaders across all business functions to ensure our preparedness, oversee our response and enable mitigation and continuity across our business operations. I want to recognize the exceptional efforts of our employees. Our operational teams have capital facilities running to ensure our products get across the finish line. We have also ramped up production in certain areas to help meet new demand. Our distribution teams have done a terrific job getting our products out to our customers.

In addition, our sales and marketing teams have been innovative and productive as they work remotely. For example, they have created new procedures and automated processes to deliver samples to physicians and launched virtual lunch and learns to continue physician engagement.

Importantly, our supply chain also continued to perform well. Our procurement teams have done a great job of sourcing and receiving the active pharmaceutical ingredients needed to keep our manufacturing and production operations running as smoothly as possible. As we continue strengthening our supply chain, we are pleased with how we operated during the quarter and confident in our ability to continue procuring materials and delivering finished products.

Given the nature of our business and Amneal's commitment to patient access, we believe it is our responsibility to help combat the global COVID-19 pandemic. We quickly accelerated production of hydroxychloroquine sulfate to move beyond our traditional 4% market share, which helped us meet demand from states and government agencies and continue supplying this medication to lupus and RA patients. While we have seen some disruptions as a result of this pandemic, our teams have done an incredible job minimizing the impact to patients, customers and Amneal. With our diversified supply chain, substantial U.S. manufacturing footprint and track record of quality, we are well in position for unique challenges of COVID-19.

That said, this crisis is shining a spotlight on the dependency of the American pharmaceutical supply chain on foreign manufacturing. The U.S. is almost completely reliant on other countries' supply chains and manufacturing for the production of APIs and key starting materials to produce finished drugs. It is more apparent than ever there is a need for more drug manufacturing to be in the United States. We want to ensure that when another global emergency comes along, we are ready and able to ramp up production and manufacture life-savings medicines. We know there is a bipartisan support around this issue, and people on both sides of aisle understand its importance for national security. As the largest U.S.-domiciled generic drug manufacturer, we believe Amneal is uniquely positioned to be a key part of the solution. We look forward to participating in the dialogue.

Now let me review the first quarter. We are pleased with our operational and financial performance, which demonstrates continued progress in our efforts to build Amneal 2.0. We are focused as ever on improving our operational execution by strengthening our supply chain, increasing plant utilization, reducing cost and addressing inefficiencies. All of this is expanding our margins. We have also continued to execute against the strategic priorities we laid out last quarter. These include revitalizing our Generic business, growing our Specialty franchise and diversifying the business intelligently. We remain focused on these initiatives, even as we navigate the challenges created by COVID-19 and believe we will continue building our momentum in 2020 and beyond.

Let me now provide an update on our business segments. Generics had a solid start to the year. It notably achieved 42% adjusted gross margin during the quarter, which is ahead of our long-term goal of 40%. We have 2 main priorities in this business: strengthen the base business and drive new product launches with enhanced preparedness and execution. We have continued building on our large portfolio of products and remain on track in terms of new product launches. We are growing our market share as we continue shifting our focus to developing and commercializing more complex, high-value products.

Last August, we set out to launch at least 15 high-value Generics products by August 2021, and we have already launched 5, including most recently generic butrans transdermal system. Our 2 recent first-to-market launches of generic versions of NuvaRing and Carafate are up and running, and we are pleased with the results to date. Chintu will provide more details on our R&D pipeline and what we have coming up in Generics.

In Specialty, we are continuing to grow our franchise. We outperformed expectations on almost all our products during the first quarter. Looking at some highlights, Rytary saw year-over-year revenue and TRx growth of approximately 31% and 17%, respectively, driven by continued traction in our marketing initiatives. Unithroid revenues and prescription also increased year-over-year by 33% and 18%, respectively. This reflects continued success of our existing marketing programs and favorable comparison to prior year period.

Through the week ended May 1, we have seen a minimal negative impact from COVID-19 on all major Specialty products. Prescription refills have remained strong, while new patient starts have dipped slightly. Post COVID-19, we expect new patient starts to resume growth at the same rate we experienced in the first quarter.

Turning now to our efforts to diversify the business intelligently through new distribution channels. We completed our acquisition of a majority stake in AvKARE on January 31. As planned, it is operating as an independent subsidiary, and we have essentially completed the integration. With this differentiated platform, we are identifying new opportunities to better serve government agencies. And our strategy of selling more unit dose products, which is a niche business, continues to be a part of our strategy for AvKARE platform.

We will continue to evaluate opportunities for value-creating partnerships and smart, accretive M&A transactions. We believe there will be exciting inorganic growth opportunities as a result of recent dislocation in the market. Amneal remains opportunistic and disciplined, which we believe positions us for continued growth, be it through new distribution channels, new geographies or complementary additions to our Specialty business.

As we look ahead to the rest of the year, there is no question COVID-19 has added complexity and a degree of uncertainty to our business and our industry overall. For example, in the second quarter, social distancing and the reduction in physician visits and elective surgeries may impact volumes of certain products across both Specialty and Generics. Importantly, however, we have a diverse business, and our solid first quarter results demonstrate that our strategy to revitalize this business is working. We are confident that the strength and resilience of our team and our focus on execution will enable us to achieve our operating and financial goals.

With that, I'll now turn the call over to Chintu.

Good morning, everyone. Thank you, Chirag. I would also like to acknowledge the tremendous efforts of our team during the COVID-19 pandemic. We have taken a number of actions to help mitigate the impact of the crisis on our company and stakeholders and to provide support to the industry and government where we can. This includes strengthening our own supply chain and working closely with federal and local agencies to avoid shortages of essential drugs. At our core, we have always been a mission-driven organization, and our culture of making healthy possible has never been more important than today.

As you can see from our first quarter results, our focus on operational excellence is bearing fruit. We have strengthened our supply chain and improved the processes and systems by which our products come to market. We have managed inventory more efficiently and worked with customers and suppliers to manage volume forecast. While these efforts are not done, we are proud of our progress to date.

Our Generics business is firing on all cylinders, and we have seen very strong results in both our base business and recent launches. We have worked aggressively to expand sales in the base business, where we have approximately 250 products currently marketed. We continue to work closely with our customers and analyze opportunities to grow market share. At the same time, we remain hyper-focused on new launches. Over the last 6 months, we have launched 16 products, including multiple high-value complex generics. These efforts have substantially improved our gross margin.

Finally, as the current crisis has demonstrated, in-house manufacturing and quality infrastructure are more important than ever. Our ability to develop and manufacture products in-house positions us to take advantage of changes in the market very swiftly. As a result, in the last few months, we have been able to address numerous product shortages resulting from the pandemic.

On the R&D front, our Generics pipeline is progressing nicely. Earlier this year, we filed our first inhalation product, which is a drug-device combination. We have procured exclusive first-to-file status for this product, and it is just the latest example of our commitment to develop, procure regulatory approval and launch complex high-value products that have high barriers to entry and offer more attractive margins. Moreover, we are on track to meet our target filing of 20 to 25 products in 2020, and many of these are potential first-to-market opportunities. We currently have 95 products in the pipeline awaiting FDA approval and approximately 94 products in development.

Our ability to develop this many new and high-value products reflects the strength and breadth of our R&D organization. Our decentralized R&D model allows us to take advantage of dosage form specialization and create multiple centers of excellence across the globe. For instance, our sterile injectable-focused R&D and manufacturing center has already successfully developed and launched multiple products since its inception a few years ago. As a result, we have a growing injectable business that gives us access to attractive institutional and hospital-based end markets. Importantly, we are actively working to increase our injectables manufacturing capacity in both the U.S. and India as part of our longer-term growth plans to become a key player in the U.S. market. We expect this will be a significant growth driver over the coming years.

Finally, we continue to evaluate opportunity to utilize our R&D and regulatory infrastructure to pursue opportunities outside the U.S. While COVID-19 has impacted those efforts to an extent this quarter, the process of expanding geographically still starts with R&D. As a reminder, last year, we entered into a partnership with Fosun, which will help us grow our international presence. We expect to file our first product in the coming weeks with more to follow.

I will now touch on our Specialty business, which continues to grow substantially and where we will continue to allocate more of our R&D budget. We are focused on a strategic selection of products and leveraging our strong infrastructure as well as opportunities to selectively in-license products from external partners and acquire businesses that would be accretive to ours and make strategic sense.

One of our key pipeline assets is the IPX203 development program. Though we have slowed patient enrollment in our Phase III study in response to COVID-19, we still expect top line data in the second half of 2021. We remain excited about this product's potential and expect commercialization in 2023.

As we announced last quarter, our agreement with Kashiv BioSciences has expanded our CNS pipeline into neuromuscular disorders. We now have the exclusive rights to the new drug application and commercialization of K127 for the treatment of Myasthenia Gravis, which we expect to file by the fourth quarter of 2021.

With respect to biosimilars, we are advancing 3 candidates in our pipeline: biosimilar versions of Neupogen, Neulasta and Avastin and are actively working to add additional products. This is an exciting area for growth, and we are pushing forward to become one of the key biosimilar players in the United States market. Our goal is to allocate capital towards mid- and late-stage assets through partnerships and not to spend significant sum on early-stage development and manufacturing risk.

In summary, we remain passionate about our Specialty business and look forward to leveraging our commercial operations as we continue to grow. I want to again thank our dedicated employees for everything they have done to support our business as we work to confront this crisis. I also thank our customers and suppliers for their continued partnership. We are all soldiers in the same fight. Together, as a company and industry and as Americans, we are going to overcome this pandemic.

Now let me turn the call over to Tasos to discuss our financial results for the quarter. Tasos?

Thank you, Chintu. Let me just dive straight into the results. From a top line perspective, net revenue in the first quarter of 2020 was $499 million, up 12% compared to Q1 2019 and up 25% sequentially. This growth was driven by the acquisition of AvKARE and the growth of new Generic products and Specialty brands, which offset Generic competition and the sale of our international business last year.

Hydrochloroquine (sic) [hydroxychloroquine] sales were not a meaningful factor in the quarter as we mostly donated our production. Our net revenue was slightly ahead of our expectations, mostly at AvKARE, and it reflects strong execution by our commercial and supply chain teams in meeting substantial volatility of customer needs. Wholesaler inventory levels for our products were at normal levels at the end of Q1 2020, but there may have been some early fills of prescriptions due to customer supply concerns with COVID-19.

Adjusted gross profit of $225 million was up 5% compared to Q1 2019 and 30% sequentially, driven by the top line growth. The first quarter 2020 margin of 45% was down from Q1 2019 as higher profitability of our new products and higher manufacturing absorption rates partially offset price erosion and the inclusion of AvKARE, who has a lower margin profile. The sequential margin expansion reflects favorable product mix, partially offset by the addition of AvKARE.

Moving on to operating expenses. R&D of $35 million and SG&A of $69 million declined in the first quarter due to our efforts to reduce unproductive activities and focus our R&D spend. R&D expense was slightly lower due to COVID-19 disruption and timing of project spend has been geared more towards the latter part of the year. Adjusted EBITDA of $134 million is up from $112 million in Q1 of 2019 and the $81 million of the fourth quarter last year. This growth reflects a positive revenue trajectory, our focus on operating expenses and AvKARE, which contributed $7 million in the quarter. Adjusted diluted EPS of $0.20 is up substantially from Q1 and Q4 of 2019, where we delivered $0.14 and $0.08, respectively.

Finally, we're pleased with our operating cash flow of $49 million, a substantial improvement to prior periods. This reflects favorable comparison to Q1 2019 along with top line growth and lower restructuring and integration expenses. In summary, this was a very good start of the year, reflecting our sound strategy and solid execution.

Let me now move to our segment results, starting with Generics, where net revenue of $353 million was down $30 million from Q1 2019 but up $53 million, sequentially. The prior year decline primarily reflects 3 dynamics: first, a $29 million reduction due to the divestment of our international operations and shifting of oxymorphone to the Specialty segment last year; second, sales increase from the launch of generic versions of NuvaRing and Carafate, which offset lower sales of Levothyroxine sodium and diclofenac gel due to competition that emerged late last year. Adjusted gross margin of 42.1% was stable relative to Q1 of 2019 and substantially ahead of Q4. The growth compared to Q4 of last year was driven by new product launches, higher manufacturing absorption and operational efficiencies.

As we have discussed, we are targeting 40% plus long-term growth, long-term gross margin for the Generic business. And while we are pleased with the first quarter, there is more to be done before we achieve 40% plus in a sustainable way. Finally, adjusted operating income of $103 million reflects our top line growth, favorable product mix, focused investments and some favorable expense timing.

Let me now turn to our Specialty segment with net revenue of $88 million in the quarter, up 38% compared to Q1 2019. Adjusting for the reclassification of oxymorphone, net revenues grew 14% driven by Rytary and Unithroid. This performance reflects the ability of our sales and marketing teams to stay productive while working remotely and shift activities such as sampling and training to a virtual basis. The decline from the prior quarter was expected and reflects seasonal factors.

Adjusted gross margin of 74.6% was in line with our expectations, and the unfavorable variance to prior year is driven by the reclassification of oxymorphone, which has a lower margin profile. Finally, operating income of $39 million reflects top line growth, tight management of expenses and seasonality compared to prior quarter.

Let me now move on to AvKARE with $58 million in net revenue in the quarter. This new segment only reflects third-party product sales, which account for approximately 80% of AvKARE's total sales. The Amneal products sold via this channel are reported in the Generics segment consistent with prior years. As you may recall, we closed this acquisition on January 31. While this period includes just 2 months of sales, we believe the business benefited by strong demand by the Department of Defense and the VA to build inventory in anticipation of COVID-19 supply challenges.

Let me now turn to our cash flow, balance sheet and also discuss 2 discrete events in the quarter. First, as you can see, we ended Q1 with $407 million of cash. This reflects solid operational performance and temporarily borrowing $300 million from our $500 million ABL facility. This temporary borrowing was driven by an abundance of caution as COVID-19 led to substantial disruption in the financial markets. As markets improved, we returned $200 million and expect to return the remaining $100 million in the next few months, provided markets continue to function properly.

The second discrete event relates to a $110 million cash tax refund we expect to receive in the second half of 2020. This is driven by new legislation and IRS guidance, which allows companies to carry back net operating losses to offset taxable income and taxes paid over the last 5 years. Consequently, we plan to utilize approximately $330 million of existing net operating losses in support of this tax refund. Considering the discrete nature of this event, we have taken the prudent step to exclude it from our operating cash flow guidance.

Moving on to our balance sheet. As you can see, we have substantial financial liquidity in excess of $600 million and no near-term debt maturities. In addition, continued strong financial performance and smart uses of cash will provide a natural reduction of leverage over time. Looking ahead, we remain comfortable with the financial guidance we provided in February, and it may be helpful to provide some insight to our thinking.

First, we have a broad Generic product portfolio that is not overly concentrated in 1 or 2 products and a robust supply chain. Having said that, we have assumed a slowdown in the second quarter as patients may postpone preventive care or health care visits due to COVID-19. Second, we're not only relying on pharmaceuticals administered within hospitals, and our commercial teams plan to be opportunistic in pursuing new business and leverage new product introductions. Third, AvKARE provides a stable platform for growth with long-term contracts and good visibility. Contracts in this business are typically 5 years, and we can increase volumes over time. Finally, we continue to be focused on improving our efficiency and operating expenses.

With that, let me turn the phone over to Chirag.

Thank you, Tasos. Before we open the floor to Q&A, I want to emphasize that we are relentlessly focused on reinvigorating the company and building Amneal 2.0. Despite the added complexity and uncertainty created by COVID-19, we delivered a strong quarter and thanks to the hard work and resiliency of our team. We are positioned to achieve our goals and to drive growth in 2020 and beyond. Thank you.

With that, I'll turn the call to the operator to open it up for questions.

(Operator Instructions) Our first question comes from Gregg Gilbert from SunTrust.

Welcome, Tasos. I wanted to start with you, Chirag, on your comments about U.S.-centric supply chain. How feasible and practical is it to have a more U.S.-centric supply chain? And what do you plan to do as a company to make that happen in a bigger way than you already have.

And my follow-up will be for Chintu, since you brought up the first-to-file opportunity. Is there anything more you can say about that inhaled product? Presumably you filed and were not sued, can you give us any more color about that?

Thank you, Gregg. The U.S.-centric supply chain, look, it took years to get to this level, this position where supply chain is highly reliant, and there are reasons. And you guys know the history for last 50 years, how it moved overseas, antibiotics in China, they concentrated there and then a lot of finished goods production in India. Then Europe and U.S., we have no -- not much of an API manufacturing. It is a long-term event. It is not going to happen overnight. But what we are hearing from the Congress and administration is that they do want to bring back certain essential medicines such as – and not maybe 100% capacity, obviously, but let's say, 30%, 40% or 50%. So we can, in case of emergency, ramp up the production, and we are not completely reliant on foreign sources. So the essential drug list would be probably -- we don't know how big that could be, 50 products, 100 products. It would have to have incentives for the manufacturers to invest in the United States supply chain, and those cannot be temporary. It has to be long-term, permanent changes.

We, as Amneal, are well positioned because we already have large production facilities here. We do not have API facility. We do have API facilities in India, and we would build those, whether it is in the fermentation side or on a small molecule. Again, it will -- it's a project that would have to start with the support of Congress. And then it will continue on for 3 years certain production, then after that 5 years, 7 years, 10 years. But we believe that in that time frame, we can bring back certain capacity and capabilities as well because we need to train the people and bring the skill sets here as well.

Chintu, do you want to answer the FTF?

Sure. Gregg, as I mentioned in my opening remarks, we have procured the exclusive FTF on one of our first inhalation product. We have not been sued, as we can see from public events. So it is a potential launch and approval. We have beautiful infrastructure in Ireland, both for MD and DPI. And at right and appropriate time, we will disclose and do a press release on this product. But at this time, we are not disclosing the name of the product.

Should we think about this as a potential 2021 opportunity?

Yes.

The next question comes from Randall Stanicky from RBC.

Chirag, I want to follow up on the last question. You called out Amneal as being one of the largest U.S. generic manufacturers. Is it your view that any economic incentives from the government could be limited to U.S.-domiciled companies? So that's the first question.

And, Tasos, on the Generics margin coming in at 42%, can you get into some more detail on what you're expecting around some of the puts and takes of that margin for this year? It sounds like you're still holding to that 40% target. What are the factors that could push that Generic gross margin higher?

So Randall, the U.S. domiciled, yes, we're the largest U.S.-domiciled company. I don't believe -- yes, there will be certain incentives given to -- and this is all work in progress. We are part of a dialogue. But it's going to need, obviously, more than U.S.-domiciled companies. It's going to need the companies that already have certain expertise and capabilities somewhere else to bring back production faster pace -- at a faster phase rather than slower pace. And this is -- we need the entire industry to work together to make this happen. Tasos?

Randall, this is Tasos. So a couple of things. So as you said, Q1 Generic adjusted gross margin was 42%. And just to kind of put it in context, that's essentially flat to same period last year. And the dynamic there is we had overall price pressures, as you know, that came in, in the latter part of last year. We had some of our key products we launched last year, Generic competition. And the offset to that was the launch of our new products, generic Carafate and sucralfate. So that's one driver.

The second thing is in Q1, also, we benefited for some favorable manufacturing absorption. So our manufacturing teams worked incredibly hard to keep up with the demand in the marketplace. So that kind of benefited us in Q1, and there may be a slight offset in Q2. So that's more of a time in Q1, Q2 on the Generic gross margin.

But kind of stepping back for a second is, we feel great about the gross margins. We are still targeting this year, making a meaningful progress in terms of adjusted gross margin growth. Last year, as you know, we were at 35.5%. This year, we're looking for a meaningful increase towards the 40% plus. And the key driver to that, I think, is twofold. Number one is our ability to get new products to the market, so we feel good about that. That's what Chintu talked about, focus of the R&D to produce and get approvals of hard-to-make Generic products. So we feel good about that, that's going to be a key driver.

The second key driver, frankly, is we're hoping to see lower price erosion this year as what we had seen prior year. So it is a competitive marketplace. Our commercial teams are spending a lot of time bidding for new projects. So that's going to be the second driver is the price erosion in the marketplace.

Now to one man's opinion, that's my opinion, which says this COVID-19 has put a premium on companies that have diversified supply chains. And at some point in time, that has to show up in the pricing of those products. So let me stop here, and hopefully, that answered your question.

Yes. Are you guys seeing the ability to take price in this current market? Has COVID-19 maybe brought back some of the pricing power that Generics seem to have lost over the last couple of years?

So Randall, I'll take that one. So I just want to reiterate the gross margin increase. As you know, we focused on increasing our base business since August of last year. That has now ramped up, and we'll continue to do that along with new launches in fourth quarter as well as the first quarter, which we have a higher utilization at every plant. The price increase is not -- obviously, the market is still there. We are facing price increases from our API suppliers and freight costs, but we are not able to pass those increases to our customers. We are in a dialogue with them. And hopefully, we'll work to get that done.

The industry still is highly concentrated from the buying power. So what we are not seeing is many challenges, which is good news. And that could be 2 reasons. One is that already prices are way down, rock-bottom prices. So there's no more place to go down in most of the products or many products. And second reason is customers are now thinking about -- more about securing the supply chain, reliable partners. So we're seeing more partnership to do that. And that may improve the pricing environment in Generics.

The next question comes from Balaji Prasad from Barclays.

So a couple of questions on the Generics side. Well firstly, since you commented on the pricing erosion, I'll lay down from there. So what kind of erosion did you see on your existing products as it started to recede versus what you're seeing the last 1 or 2 years? And just on the question that Randall just asked now, are you seeing any fundamental dynamics change between the biosimilar relationships? And how should we think of this going forward?

And lastly, can you also just comment on the -- what are your thoughts of competitive launches into the guidance, especially into NuvaRing and Carafate, and how it may impact the range you provided?

Balaji, so let me take your first question. The price erosions, as I said, we have seen less than the prior years, and we hope that we continue to see that trend. Because frankly, there is not any room left. Otherwise, we would have to discontinue products. And the fundamental change you talked about is happening. I don't know at which phase it's going to go to. But they are now evaluating all 3 big customers on their supply chain, having more API, having -- partnering for longer term. So we don't need to worry about losing a product with them in 6 months, so we can plan properly. So longer-term contracts are in works as well, more diversified, so having alternate sources of API, having alternate sources of finished products.

So all those questions are being asked, where Amneal plays with real --with the strength and obviously the quality track record. Because we have multiple products with dual API services, dual manufacturing in India and U.S. So we are able to win business, more business than maybe our competitors. But I do believe that certain long-term fundamental changes are coming as we focus more on securing the supply chain and partner with the reliable sources.

Your third question on NuvaRing and sucralfate, we had a solid first quarter and continue to build on it. Sucralfate, we already have a great market share, almost 60%. NuvaRing, we build the capacity to get up to 30%, which we'll start doing that now. We have the automated process approved by FDA and already producing more products. Thank you.

The next question comes from Ami Fadia from SVB Leerink.

Just with regards to bringing manufacturing back to the U.S., can you talk about the -- can you help us sort of quantify the increase in cost if manufacturing of certain products were to be brought to the U.S.? And what's the appetite, either in the government or kind of the key buyers, with regards to that increased cost? And with regards to just time lines, you mentioned that this is a long-term process. But is Amneal positioned to respond faster on certain products or in certain fronts given its existing manufacturing footprint in the U.S.?

And then separately, what are your current thoughts with regards to business development or partnerships? And where would you prioritize that? Would it be on the Specialty side or Generics, if you could sort of elaborate on that?

Ami, so back to the U.S., the manufacturing, as I said, it is certain capabilities and capacity needs to be built here. And Congress is exploring various bills. They may be putting the -- it's, as I said, work in progress, putting some task force with National Academies of Sciences and coming up with essential product list. As I said, it will involve the entire industry. It's a pretty large undertaking, but it is being considered seriously. Again, it's an early process. I don't know the timing. When they ask for our input, we provide our input.

And the cost analysis would have to be undertaken. The basic material and raw material costs should be the same, whether it's in Europe, China or U.S. The cost of operating would be higher here and labor costs. So we haven't quantified that, how many products, we need the list of essential products, which when Amneal would be playing a role in it. And it will be a competitive process as in a free enterprise world. Amneal would act fast because Amneal is solely focused on U.S. market. So everything we do is always geared towards United States market, and we have a strong manufacturing position on a finished dosage form. And we are known for our execution for -- this is how we built Amneal 1.0 and doing it again in Amneal 2.0. So we would act faster and participate in a competitive process.

On the business development front, the Specialty remains our focus. We would -- we are looking for complementary assets to our movement disorder franchise as well as endocrinology. It would have to be accretive, not looking for, again, I'm -- I said it before, looking to hit still some singles and doubles and not going for a bigger transaction at this point. We already have so many assets that we can execute upon within our R&D, both on Generics and Specialty. So we’re very focused there as well. Thank you, Ami.

The next question comes from Elliot Wilbur from Raymond James.

Just wanted to ask a couple of questions around future pipeline opportunities and specifically thinking about potential disruption to ongoing review. Just wondering if you're seeing, noticing any impact in terms of FDA time lines, particularly, with respect to some of your higher barrier to entry or complex generic products. Certainly, it seems like the FDA continues to approve a lot of generics, but just wondering if you're seeing time lines maybe slow for review of some of the more complicated products considering issues such as inability to conduct inspections and the like.

And then maybe just an update on some pipeline products that we have talked about previously but maybe haven't been mentioned in the last couple of calls and specifically thinking about generic versions of Copaxone, Restasis, whether or not you still see those as 2020 opportunities.

Chintu, you want to…

Elliot, regarding your first questions, we have not seen any delays on our goal dates from FDA. And you see that it will be company specific, and Amneal enjoys a fantastic quality track record over last 18 years, and I think that goes a long way. And whether it's a complex or regular product, we have not seen any shift in our goal dates and FDA is working very diligently, and I really want to thank the agency for doing all the work they are doing in given circumstances and situation. So we remain positive on our new launches for the remainder of the year.

Regarding your second question on Copaxone and Restasis, Restasis is kind of in a regulatory limbo. So I'm not in a position to say what date. It's regarding the entire industry and whatever the decision comes out of the agency would be applicable to everybody. So I don't have a time line for Restasis. Copaxone is a 2021 launch for us.

The next question comes from David Amsellem from Piper Sandler.

So just expanding upon the theme of pipeline. You cited also a Durezol filing, which I believe is off patent. Do you expect that that's going to be a limited competition and potentially a nearer-term launch. That's, I think, an interesting and unique product given its challenges, but what are your thoughts on potential for that as an opportunity?

And then secondly, in your injectable pipeline beyond -- thinking beyond Copaxone, what's your view on the extent to which you want to further build out a hospital injectable franchise? And from a biz dev or internal development perspective, how big of a priority is hospital injectables in the context of your overall business?

David, this is Chintu. Regarding Durezol, Durezol is a very complex product, and we don't see that much competition. It has many barriers of entry. We are tracking nicely with FDA, and we expect maybe late fourth quarter or next early 2021 launch. Regarding our injectable pipeline, as I mentioned, we are building our injectable portfolio, and we are excited about our pipeline. We have different areas within injectable sterile. We are working aggressively on certain depot to complex injectable in the suspension, drug-device combination products, many ophthalmic products. So we are focused, including certain 505(b)(2) products in our injectable pipeline that open up many more hospital chains.

So we are looking at all aspects. Same time, we are also expanding our manufacturing in U.S. and India for injectable pipeline. We already have about 30 to 40 products in pipeline for injectable portfolio. But it's going to be a very differentiated, high-end injectable product that will bring certain key value to the patient and doctors.

The next question comes from Gary Nachman from BMO Capital Markets.

First, can you quantify how much COVID benefited in 1Q? How much stockpiling there was in the quarter? And how much could that reverse in the coming quarters? Some more color on that would be helpful.

And now that you've owned AvKARE for a few months, what are some of the opportunities you've identified for that business? How much could you potentially drive incremental volume for Amneal's base business through AvKARE's network?

Tasos, you want to take this?

I'll take the COVID-19, Chirag. From a COVID-19 standpoint, it was no material impact to Q1. We were very socially responsible in the way we managed our inventory to try to avoid stockpiling at the commercial marketplace, so there was no material impact in Q1 from COVID-19.

Tasos, you may want to give more color on COVID-19 impact.

Yes. Yes. So I'll just reiterate what Andy said. So I just can provide a little bit more color on some of the puts and takes. So number one is, we do get the same wholesaler inventory data out in the trade, and there was nothing abnormal in terms of total companies. So weeks on hand actually declined at the end of Q1 versus the end of the year, which is typical because the end of the year, they typically order an extra week. So there was nothing abnormal there, number one. Number two, internally, because of the discrepancy -- the impact to the business, we had a number of open positions, but we did not fill. However, we had substantial more overtime in the manufacturing plant. So the substantial overtime in the manufacturing plants offset some operating expense favorability related to headcount-related costs. We also had incremental -- substantial incremental costs regarding freight, which I think every company was impacted by that. The final thing is we saw our R&D expenses were slightly favorable in the quarter, and that's because we couldn't get us active material that we wanted for some of the trials and some of the projects.

So overall, I would say the impact to the quarter was not material, and there is nothing in our head that says that, that will be reversing in Q2.

Yes. Thank you, Tasos, this is Chirag. Gary, I just want to add that, yes, that's a good question. The first quarter performance is solely is Amneal's performance, is what we've been doing since last August, as I iterated, that increasing base business, launching new products, higher efficiencies, all these have an -- and super performance by Specialty with their marketing initiatives and AvKARE, which adds excellent add-on to Amneal, very complementary. Carafate is not being sold yet by AvKARE. Carafate has increased demand due to, as you know, the ranitidine product, Zantac, was pulled out of market. And that has diverted more demand to Carafate. Hopefully, this answers your question, Gary?

Yes. And just a little more on AvKARE going forward, is there anything more you could do with that business to drive more growth than what it was seeing previously? Just how we should think about that trajectory for that business.

Yes. So that is one of our strategic initiatives, along with growth in Generics and growth in Specialty. AvKARE, they very well set in government to sell Generics product, but now they're looking at selling more of a -- or getting in long-term contracts with biosimilar products and Specialty products as well. And then there is other initiatives that BARDA has used up its stockpile or is concerned about any future or current demand through the pandemic. So they're looking to stockpile more products as well.

So all these are opportunities for health care and the unit dose business is small at this point, but we are putting up a liquid infrastructure, which will then take the unit dose liquid business by -- the growth will come by probably next year in unit dose liquid business, multiple avenues to grow AvKARE.

The next question comes from Chris Schott from JP Morgan.

Just 2 for me. First, you mentioned some share recapture on the base business is helping the Generic results. Can you just elaborate a bit more on the trends you're seeing there? And probably more importantly, as we think about the -- is there more opportunity going forward to further improve share on the existing portfolio?

And then my second question was on biosimilars, and I think you referenced a desire to pursue licensing deals or partnership deals here. Just a little bit more color there. Should we think about these as near-term product launches or longer-term opportunities? And should we think about the company targeting assets that've already completed clinical programs? Or conceptually could these deals result in a step-up in R&D spend as we think about the go-forward business?

Chris, your first question on base business, the trend continues as Amneal has a diversified supply chain. And with COVID-19, actually, customers are looking to diversify. So if they're buying 100% of their products from India or Europe or vice versa, they want to diversify. And if you are U.S.-based manufacturing, they're looking to add a certain percentage of their business in U.S. as well. So trend is very positive as we have a very large portfolio of 250-plus products and keep launching new products, a very strong Generic business, and we continue to win new businesses. And our quality track record also comes in handy because of the reliability of our products as well.

Biosimilars, we have 3 products in the pipeline. We expect launches 2021-'22 for those products. And we are carefully adding products as we are learning more and more about the market and how it behaves. It's quasi -- I call it, quasi-branded market, so you need lots of effort. So our focus is more on oncology, where we would have started building some small infrastructure and we will add on to -- we already have a very nice Specialty branded infrastructure. So we'll leverage that as well without adding any further cost there.

So our goal is to in-license the products where we are -- and this is 10-years view. We are always -- we build company over a long time, that we would in-license products which were or potentially we could be -- first is going to be hard at this point. But let's say, second, third, fourth, we do not want to be after that. So -- because it becomes very competitive beyond four players. So that is what we are looking to build, oncology pipeline going forward or any other interesting IP-driven, opportunistic pipeline as well. Thank you, Chris.

This concludes our question-and-answer session. I would like to turn the conference back over to Tasos Konidaris for any closing remarks.

I really want to thank, number one, our team for doing an incredible job in Q1, staying focused on the business for the rest of the year. And I really want to thank our investors for being with us and our customers that rely on our products and services.

Thank you, and have a great night. Bye-bye.

Thank you.

Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.