Amneal Pharmaceuticals Inc (AMRX) 2021 Q4 法說會逐字稿

Hello, and welcome to Amneal's Fourth Quarter and Full Year 2021 Earnings Call. My name is Alex, and I will be coordinating the call today. (Operator Instructions) I would like to turn the call over to Amneal's Head of Investor Relations, Tony DiMeo. Over to you, Tony.

Good morning, and thank you for joining Amneal's Fourth Quarter and Full Year 2021 Earnings Call. Today, we issued a press release reporting our financial results. The press release and presentation are available at amneal.com. We are conducting a live webcast of this call, a replay of which will be available on our website after the call.

Please note that certain statements made during this call regarding matters that are not historical facts, including, but not limited to, 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 encourage you to review the section entitled Cautionary Statements on Forward-Looking Statements in our press release and the presentation that applies to this call. Also, please refer to our SEC filings on our website and the SEC's website for a discussion of numerous factors that may impact our future performance. We also discuss certain non-GAAP measures. Important information on our use of these measures and reconciliations to U.S. GAAP may be found in our earnings release in the appendix of the presentation.

On the call this morning are Chirag and Chintu Patel, Co-CEOs; Tasos Konidaris, CFO; Andy Boyer and Joe Todisco, Chief Commercial Officers for the Generics and Specialty segments; and Jason Daly, our Chief Legal Officer and Corporate Secretary.

I will now turn the call over to Chirag.

Thank you, Tony, and good morning, everyone. Yesterday, we were so thrilled to announce the approval of RELEUKOTM, our biosimilar version of filgrastim. This is truly a watershed moment for Amneal and reflects the team's tireless effort to bring this important oncology biosimilar to the market. On the call, we will discuss our broader growth strategy in biosimilars.

Turning to results. Amneal delivered solid results in the fourth quarter, capping off a year of exceptional performance and execution. For the full year 2021, revenue grew 5%, and adjusted EBITDA grew 18%.

Before we go forward, let us look back for a moment. Since Chintu and I returned 2.5 years ago, Amneal is now a much stronger company with a more diversified portfolio. We are driven by our R&D engine with a rich innovation pipeline and talented global team in place that is executing well.

Since 2019, revenue is up $468 million or 29%, and adjusted EBITDA is up $182 million, 51%. As we have grown, our innovation pipeline is as deep as ever. Also, we have added key capabilities through the acquisition of Kashiv Specialty, Puniska Healthcare and Saol's Baclofen franchise that we believe will power our next chapter of growth.

Now looking forward, our 2022 guidance reflects continued top and bottom line growth that includes investments ahead of launches in higher growth areas of business such as injectables, specialty and biosimilars. Our ability to continue growing while making long-term investments reflects the diversity and sustainability of our growth profile. We believe we have the right strategy to be successful and the right team to continue executing and innovating, and we are well positioned in several key growth areas, as the core of the strategy is our focus on affordability, unmet patient needs and providing access as a global essential medicine company.

Overall, we see Amneal's growth profile accelerating over the next several years as we increasingly shift our business mix towards higher growth and higher growth end markets.

Let me now walk through our key business areas at a high level, both where we are today and our strategy for growth in each. Starting with our retail generics business, which has grown consistently over the last few years as our robust R&D engine has significantly diversified the portfolio with new complex products. In 2021, we delivered $1.37 billion in net revenue and launched 28 new products. We see the $20 billion U.S. retail generics market continue to expand and grow. The pipeline for the industry remains robust with approximately $284 million in total brand product revenues facing loss of exclusivity in the next decade.

We are confident that our core competencies in R&D, manufacturing, quality and commercial excellence will drive our continued momentum in retail generics for years. About half of our 2021 generics revenue came from non-oral solids and 87% of our pipeline is non-oral solids, which underscores a shift to more durable and complex portfolio. With a clear line of sight to continue in innovation and the increasing complexity of our portfolio, we expect continued growth in our retail generics business going forward.

Regarding our injectable generics, we announced the acquisitions of Puniska Healthcare in Q4. As a reminder, the acquisition adds key manufacturing infrastructure, capabilities and capacity to support the U.S. and international markets. Building on that, we were pleased to announce another tuck-in transaction in January with the acquisitions of Saol's Therapeutics Baclofen franchise, which advances our strategy in a few key ways. First, it expands our neurology presence into spasticity with an established durable institution product in Lioresal and expands our annual institutional injectables business to about $150 million. Second, it also adds the recently approved LYVISPAHTM to a specialty bag with commercial launch planned in June. And third, it adds a specialized institutional commercial team in advance of our biosimilar launches this year.

We expect strong growth in the $5 billion in institutional injectable market. As we scale the injectable business with a remarkably larger portfolio over time, over the end our expanded global capabilities, we expect injectable revenues will ramp up substantially in the later part of 2023 on our way to annual revenues in excess of $300 million by 2025 as we aspire to be the top 5 in the United States and also become a global player.

Now in biosimilars. We expect to enter the market in 2022 with our initial oncology portfolio of 3 products. The total addressable market for these products is $6.3 billion, with $2.9 billion representing the biosimilar portion. Beyond those, we are also actively looking at additional partnership opportunities where we can be early to market, preferably first or second. The pipeline for the industry remains robust with approximately $148 million in total biologics products revenue facing loss of exclusivity in the next decade.

After initial launches, gaining share and adding to the portfolio, we expect biosimilar revenues will build over time. Our goal is to build a global business through in-licensing and being vertically integrated as we look to become a meaningful player in biosimilars.

In our AvKARE business, we saw solid performance in 2021 with $349 million in net revenue. We are focused on a strong commercial and operational execution as we expand across multiple channels, including the federal government health care market, distribution channel and unit dose. We expect substantial growth in this durable business going forward.

In specialty, we see multiple growth opportunities over the next several years. In 2021, our commercial organization executed very well, delivering $378 million in net revenue. A year ago, we invested to expand our endocrinology sales force, which led to significant growth this year in Unithroid, our branded product for treating hypothyroidism. Rytary, our branded carbidopa-levodopa product for Parkinson's also had a strong year. While at the same time, the team did an excellent job advancing our IPX203 pipeline product. Positive Phase III data showed that this innovation has the potential to achieve more good on time and less frequent dosing for Parkinson's patients.

We expect high single-digit growth in the $7 million brand market for our products and pipeline. As we execute on our existing portfolio and rich pipeline, we see the specialty business expanding meaningfully over the next several years.

In international, we are advancing our global expansion plans in key several markets. As you know, in China, we have our Fosun partnership and look to be commercial starting next year in the second largest pharmacal market. In India, we have a small hospital business today that came through the Puniska Healthcare acquisition, and we look to build our in-market presence in the estimated $25 billion Indian pharmaceutical market today, projected to go to $36 billion by 2025.

Also, in other geographies, we are pursuing distribution agreements to leverage our portfolio to enter certain emerging markets.

I hope you share our excitement as we see several businesses that are healthy, expanding and growing through innovation and new capabilities and execution. As we progress and implement our strategy, we expect Amneal will be increasingly durable, diversified and differentiated.

With that overview, I'll pass it over to Chintu.

Thank you, Chirag, and good morning, everyone. As always, I will start by acknowledging and thanking our 7,000-plus Amneal team members who work incredibly hard to make healthy possible. As you know, at Amneal, we live our culture and core competencies every day. We remain relentlessly focused on operational excellence, ensuring a resilient supply chain and driving cost efficiencies across the business.

In 2021, our team executed on these areas brilliantly, driving supply chain savings and better inventory management with reduced obsolescence and the lowest level of back orders in our history. At the same time, we are committed to the highest standards of quality and current good manufacturing practices. We are proud that we have maintained our excellent manufacturing quality track record with an impeccable compliance history at all of our sites.

Let me now walk you through the tenets of our growth strategy and our focus on innovation across our business lines. In generics, we continue to find new development opportunities across complex product categories such as inhalation, implants, drug device combination and ophthalmics. Our internal R&D and manufacturing capabilities make this fast to market and hard to make complex launches possible, which we believe differentiates Amneal in the industry.

In 2021, our 28 new product launches were excellent, including generic version of Zafemy, Zytiga, TobraDex, Decadron, and Durezol, and we expect another 20 to 30 launches in 2022 as well as every year going forward.

In 2022, we expect to file approximately 30 ANDAs, of which 15 to 20 are injectable. Importantly, Amneal continues to maintain the highest number of CGT designated products in the industry. In retail generics, we have 85 ANDAs pending for approval and expect to launch 15 to 20 of them in 2022. We also have clear visibility to a long runway of future launches with another 55 pipeline products. Of these roughly, 40% are expected to be first to market or first to file.

In injectables, we remain acutely focused on expanding our portfolio and growing our commercial business. We expect to launch 5 to 10 injectables in 2022. So far, in Q1, we have already received approval for 4 new products. We have 29 injectable ANDA spending and another 73 pipeline products, OVER half of which are expected to be first to market, first to file or 505(b)(2). As previously stated, we expect over 40 new injectable launches from 2021 through 2025 in a variety of complex areas, including drug device combinations, peptide, long-acting injectables, liposomals and large volume parenteral banks.

In addition to complex injectables, we are focused on 505(b)(2) opportunities that target unmet patient needs in hospitals. We will leverage our in-house capabilities, including our expanded commercial infrastructure to bring more products to market, including our first 505(b)(2) injectable launches expected in 2024.

The next key piece to the injectable strategy is adding global capacity and capabilities. Earlier in 2021, we expanded our existing manufacturing capabilities in LVP bags and vials. Then with Puniska Healthcare acquisition, we added even more infrastructure. The integration of Puniska Healthcare is going well, and we expect FDA inspection and approval of the site in early 2023. Altogether, we now have 16 production lines, twice as many as we had 1 year ago with a broad range of production capabilities across LVP bags, immersion, prefilled syringes, vials and cartridges to serve the U.S. and international markets.

We believe there is a clear opportunity and need to better serve the global injectables market with consistent supply of high-demand products to avoid drug shortages and provide a broad portfolio of high-value products to meet patient needs.

In biosimilars, we expect to enter the U.S. market this year with our first 3 biosimilars, filgrastim pegfilgrastim and bevacizumab. Our first approved biosimilar for filgrastim, RELEUKO, will launch in Q3, and this product will be made in Chicago. We are so proud of the team for this significant accomplishment as it signals Amneal has a bright future ahead in biopharmaceuticals, particularly biosimilars. Pegfilgrastim and bevacizumab have FDA action dates upcoming, and we look forward to launching both this year upon approval.

By the end of '22, our target is to add more biosimilar products in our portfolio where we can be first or second to market. As the dynamics and economics of the biosimilar market shift over time, similar to our success in complex generics, we believe the key to success is being vertically integrated from development to commercialization to manage margins well.

In biosimilars, we look to build our business in a smart way as we leverage partnerships and acquisitions to start and then develop products organically over time. We are very excited about the future potential pipeline in biosimilars. In specialty, we continue to advance our pipeline and expect to launch 2 new branded products this year. The recently acquired and approved LYVISPAH product for spasticity is expected to launch in June. In addition, we are hopeful that the DHE auto-injector for migraine and cluster headaches will launch in Q4, pending inspection of the CMO site and FDA approval.

Next, IPX203 remains on track for NDA submission in Q2 with expected launch in the middle of 2023. Our market development work continues to validate the view that 1.55 hours of increased good ON time per dose with IPX203 as compared to IR CD/LD is very meaningful and the commercial opportunity is broader as we see the potential for $300 million to $500 million in peak sales for IPX203.

For K127 for Myasthenia Gravis, we expect to file our NDA by end of '22, and we are pursuing multiple other indications. For K114, a modified release T3 product for hypothyroidism, we plan to file our IND application in the middle of this year. This 505(b)(2) program utilized our proprietary drug delivery technology platforms, GRANDE and KRONOTEC. Going forward, we expect to launch at least one new specialty product per year. For our full specialty pipeline, we see between $500 million to $1 billion in potential peak sales.

In international, we are pursuing expansion in several key markets. In China, we currently have 5 products filed with 10 to 15 expected by the end of 2022 and 20 to 30 over time.

In the last year, we have strengthened our team and infrastructure to enable us to register our products in select markets around the world. Our overall, our strategy for growth is built on the strong foundation established over the last few years with a clear plan in place for each area of our business. As a company, we are leveraging our core competencies in innovation, superb quality and manufacturing to position us for sustainable long-term growth. Our team is squarely focused on execution.

With that, I will hand it over to Tasos.

Thank you, Chintu. Good morning, everybody. I'll discuss our fourth quarter and full year results, and then I'll move on to our 2022 guidance. For the fourth quarter of 2021, we reported total net revenue of $537 million, up 5%; adjusted gross margin of 43.3%, a 270 basis points extension; adjusted EBITDA of $126 million, up 18%; and adjusted EPS of $0.18, which grew at 29%.

As has been the case throughout the year, Q4 performance was driven by revenue growth and higher gross margins across all of our 3 business segments.

Q4 generics net revenue of $346 million grew 1%. Our growth was driven by the strength of new product launches, particularly Zafemy, Abiraterone and [Norepinephrine], which contributed $35 million in incremental revenue in the quarter. Also, as an update on [Escitalopram] from last quarter, the team has been working very closely with the FDA, and we're happy to report that we expect resolution during the first half of 2022 for our key products.

Q4 specialty net revenue of $101 million grew 18%, driven by Unithroid up 38% and Rytary up 6%. Our Q4 AvKARE net revenue of $90 million was up 9%. Our Q4 adjusted gross margin of 43.3% was driven by all 3 segments, with generics expanding 130 basis points, specialty, up 400 basis points and AvKARE spending 280 basis points.

As you may recall, in our second quarter call, we said that our first -- after our strong first half, we expected some moderation in the second half gross margins due to the mix of products and timing of overhead absorption, and that's exactly how it played out.

Our Q4 adjusted EBITDA of $126 million was up $19 million, growing at 18%. Gross profit growth added $25 million and was partially offset by higher operating expenses, which included the expansion of our endocrinology sales force earlier in the year. Q4 adjusted diluted EPS of $0.18 was driven by the strong EBITDA performance.

Let me now summarize our full year 2021 performance. For the full year, we reported total net revenue of $2.1 billion, growing 5%. Generic net revenue of about $1.37 billion grew 2%, driven by the strength of new product launches. Specialty net revenue of $378 million was up 6%, driven by Unithroid, up 24%; and Rytary, up 7%, partially offset by declines in our non-promoted brands. AvKARE net revenue of $349 million was up 19% and up 9% organically.

Moving down the P&L. Full year 2021 adjusted gross margins was 45.7%, and slightly ahead of our expectations. This reflects 530 basis points of expansion in generics, driven by successful new product launches, the renegotiation of a key third-party agreement and a number of other operational efficiencies. 370 basis points of expansion in our specialty business was driven by favorable mix and 150 basis points of expansion in AvKARE reflects a number of operational improvements.

2021 adjusted EBITDA of $538 million was up $82 million and growing at 18%. 2021 adjusted diluted EPS of $0.85 grew 35%. And our 2021 operating cash flow was $242 million, in line with prior years. And we finished the year with $257 million in cash and cash equivalents, which reflects the Puniska Healthcare acquisition closing in Q4.

Finally, we're pleased to finish 2021 with net debt to adjusted EBITDA of 4.6x compared to 5.3x a year ago and 7x 2 years ago.

Let me turn to our 2022 expectations now. From a top line perspective, we expect 2022 total company net revenue between $2.15 billion and $2.25 billion, which reflects mid-single-digit growth. In regards to generics, we expect mid-single-digit growth, which is an acceleration from the 2% growth in 2021. Our growth will be led by retail generics as we introduce new products and the strength of the recent launches been able to offset low double-digit price erosion, similar to what we saw in 2021. This consistent growth profile reflects the depth of our R&D pipeline, cumulative impact of years of innovation and a transition to a more complex resilient portfolio.

In addition, we expect strong growth in injectables, driven by new product launches, the addition of Lioresal and some initial revenue from biosimilars in the latter part of the year.

In specialty, we expect 2022 revenue to be in line with 2021, with continued strong Rytary and Unithroid growth, offset by the exclusivity loss of Zomig. The launch timing of LYVISPAHTM will have limited impact due to the time of launch. And in regards to AvKARE, we expect mid-single-digit growth for 2022.

Moving down to P&L. We expect 2022 adjusted gross margins to be broadly in line with 2021. This includes the benefit of higher-margin, new product launches, continued operating efficiencies, partially offset by inflation pressures. Keep in mind, the big piece of the gross margin improvement last year came from supplier efficiencies, but did not repeat this year to the same extent.

Next, we expect 2022 adjusted EBITDA of $540 million to $560 million. Our outlook includes approximately $40 million in incremental investments as we look to scale the higher growth areas of our business with new launches. In 2022, we're making those key investments, particularly in sales and marketing and R&D to support upcoming launches across injectable, specialty and biosimilars. Our outlook also includes approximately $20 million from inflation on materials and other costs beyond normal merit.

On the bottom line, we expect 2022 adjusted EPS of $0.80, $0.85, which reflects solid EBITDA growth as well as slightly higher interest expense and growth in minority interest related to AvKARE.

On the cash side, we expect 2022 operating cash flow between $225 million to $250 million and slightly an increase in CapEx between $75 million to $85 million.

In terms of quarterly phasing in 2022, we expect our financial performance to accelerate over the course of the year for 4 reasons. First, we expect to successfully resolve the majority of the Synchron over the next coming months. Second, the timing of new product launches as they build throughout the year, particularly in the second half. Third, timing of manufacturing fixed overhead absorption. And finally, our investments to support our multiple upcoming product launches as they are more frontend loaded. From a dollars perspective, we're targeting Q1 revenues of about $500 million and adjusted EBITDA of about $100 million.

With that overview of Q4 full year 2021 and '22 expectations, let me hand it back to Chirag.

Thank you, Tasos. In summary, 2021 was a very successful year for Amneal, as the team executed well on all elements of our strategy across the business. We entered 2022 with strong momentum. As a result of our focus in higher growth areas and strong pipeline in large effective markets, we expect our top and bottom line growth to accelerate over the next several years.

With that, let's open the call to questions. Tony?

(Operator Instructions) Our first question for today comes from David Amsellem of Piper Sandler.

Okay. So a couple of questions. First, a high-level question about business development. I mean, you recently acquired the Baclofen assets. And with that in mind and with the expansion of the specialty brand portfolio, can you talk about your appetite, really your capacity for additional acquisition of assets, brand assets? And ultimately, what do you see as being the mix between brands and generics over the next few years for the business? And I guess that's #1. #2, regarding the biosimilars that you have in the portfolio, filgrastim, pegfilgrastim, bevacizumab. These are fairly crowded market, not very crowded markets. But I guess how are you thinking about contribution? How are you thinking about pricing erosion in these specific markets and ultimately, your penetration for those 3? And then lastly, I wanted to pick your brain on the DHE injector product. The question here is, how do you see coexisting with the intranasal product that Impel has launched recently?

David, we'll start with one at a time. So first, high-level BD is -- on specialty, as you know, we did the tuck-in acquisitions related to KSP to bolster our pipeline, which we have excellent organic pipeline. So we're not in a dire need to do some deal.

If there is a good deal, we always are looking. And if we can afford it, because at the same time, we are very mindful of deleveraging. We are at 4.6% of a stated goal to be between 3% to 4%. So whatever we can afford and when we find the right deal, we'll do more of a tuck-in deal for the specialty brand side.

And we expect to have good opportunities this year and next year as the corrections happening in the biotech field. We may acquire pipeline assets as well on the specialty side. So very excited about the growth in specialty.

Your question, how do we see the breakdown. So the way we see it, as we said, we are very excited about all growth areas. So let's talk about our retail generics. We said we would be maintaining, stabilizing -- we have stabilized the business, growing a few percent, which would be the probably only company that can say we're growing my retail generics business because of a very powerful pipeline. And we're not -- we don't expect that to be a higher growth, but we do expect it to maintain where it is and grow slowly. The distribution falls under the same umbrella.

Now you take the -- on the specialty side, we have various launches, LYVISPAH, DHE auto injector, got IPX203 next year, potentially K127 in '24.And every year, we have lined up. These is, you know it takes time to ramp up, but it adds a meaningful contribution, and we expect that to become almost 25% of core business from a revenue perspective and contribution perspective would be higher on a specialty.

And then just finishing it off, where other powerful growth area is biosimilars, where we see 3 launches for this year. We're very excited that the first approval came. This has reminded us of folic acid approval in 2005 at Amneal when we launched our label. And then right now, today, we sit on 350 approvals. Biosimilars do not have that many products, but we expect the 1 to 2 to 3 to keep going every year, and we are actively looking at various options on how do we vertically integrate, how do we add to the biosimilar pipeline. And commercially, we are investing to set the -- already have done it and doing it more to set the infrastructure to completely support the providers and patient support.

I will pass the -- and the markets would be, as you know, we have a couple of levers to pull the pass-through for our [GC asset], which is RELEUKO, because we would be the new biosimilar. And we would use our collective relationship between -- from the retail, injectables, specialty to launch these and the newly built biosimilar team to penetrate as much as we can. It's going to be competitive. And then same thing with pegfilgrastim and then Avastin. So all 3 very excited for this year. BHE, I'll pass it on to Joe.

Okay. Thanks, Chirag. David, for competitive reasons, I don't want to disclose too much about our planned marketing strategy, but I want to point to a couple of things. First, I do think we're going to have a little bit different of a labeled indication from the Impel product. We see it as a differentiated product, different mechanism of action and a different target patient profile. So from that standpoint, I don't see us really competing for the same patients. I think we're going to be competing in a little bit different of a segment of the migraine market, a different niche segment. And as we get closer to launch, we'll talk more about our launch strategy.

Our next question comes from Balaji Prasad of Barclays.

Congratulations. A couple of questions for me. Firstly, on the biosimilar side, Chirag, I just want to understand your comments both on the need for being vertically integrated and also your focus on future biosimilars coming from partnered and licensed products. How do these 2 comp against each other? And if you could also give an update on the FDA inspection of the manufacturing side for biosimilar Avastin would be great.

And on the guidance part of things, Chirag, $2.15 billion at the lower end of the range implies around an incremental $60 million of revenue. The lower end EBITDA is flat versus 2021. Indeed, you called out that you are investing into the business. But considering all the positive traction across each of the segments, I'm just trying to think about how conservative is this guidance.

Balaji, so on biosimilars, on the strategy front, as we discussed several times on the call that, look, this market is becoming better and better from all fronts, right? Regulatory, it's much easier compared to when we started in 2015, '16. So FDA understanding, our understanding, the requirements for the clinicals, all that is reasonable. It still has room to improve, and there are various actives are working on it to make it much better. And because this is one of the key areas to bring more access and affordability in biologics, as you know.

So we remain -- on the strategy side, we have disclosed 3 pipeline assets from the partners. We may have more pipeline from the in-licensing. And why vertical integration is important is as we -- in a small molecule, same thing. It can't have 2 players. The margins are not enough to be shared between 2 players. So that's the first thing. We want to maximize. We're doing all this hard work. We just do not want to have a commercial expertise. We want to have the development expertise in entire integrated chain. That allows us the quality controls, which we are best known for, which is going to be even more important in biologics than any other form. Allows us our cost controls, allows us to develop global products for global markets, and we see higher growth opportunities and higher margins, and it's a serious investment in biosimilars, as we have made since the last few years. And going forward, we're very excited. And this is why I believe why particularly integrated company would lead and become -- be in the top 5 in the United States or globally.

You want to say something Chintu?

Balaji, this is Chintu. So regarding the Avastin inspection, the inspection was conducted. We don't have feedback from FDA. Overall, inspections went well. But at this point, we are not able to make any outcome comments. So we'll wait and see. Our goal date is sometime in April. So it's in very near term.

About being vertically integrated, it is very important, as Amneal is known for its innovation, science and cost-effective execution that we have some development to commercialization capabilities in-house, plus it's a global market reach for us as biosimilars have a very good market outside of U.S. So given all these reasons, we are working with partners right now, but we formally believe is to have vertical integration.

Yes. And Balaji, on your question on the guidance, as you know, the last 2 years, we met our guidance and raised our guidance. We like to be like that. Across the segment, investments are that, $40 million in sales and marketing expenses, which builds up our teams in specialty and biologics, biosimilars. That revenue, as you know, the uptake is slow on like the small molecule to convert the patients and the providers to using biosimilar. So it slowly ramps up. And then also, we got a hit by $20 million inflation, inflation-related costs, which unfortunately, we cannot pass and it's on the retail side ad hoc, because of, as you know, I don't have to say it again, it's unfairly set with the 3 big buying groups completely controlling the buying powers, the suppliers, many times, it becomes a sustainability issue. It's really concerning that -- hope it doesn't cause future shortages and other issues.

And that is why the guidance are given the way they are given. And look, we still have growth and very excited about how '23, '24, '25 lines up.

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

First, on the injectable business, you're looking to more than double that over the next few years. I think you said greater than $300 million as a target. How much of that will be organic with your own pipeline versus going out and doing more tuck-in deals in that space? And the 4 new approvals in the first quarter, just talk about those and how much you expect that will contribute this year? And then in generics, are there certain dosage forms where you currently don't have strong capabilities that you want to get into or perhaps an area that you want to get into in a more meaningful way? Or are you happy on that front? And the low double-digit price erosion in generics, is that a normalized rate at this point that we should be thinking about?

So on your injectable growth, is mostly organic, pretty much organic. Because we do have the capabilities as we said, and capacity to -- and R&D, and as my brother mentioned, all the technology capabilities we have.

The 4 approvals, we expect even more approvals. We do not give product-specific guidance, but they are good products in the injectable and there's always some products are in shortage. So we expect good contributions from those launches.

On the generic side, what we haven't launched is the inhalation product. We're excited that inhalation can be coming this year and definitely for the next year -- Chintu you want to expand?

Sure. So I think just to expand on injectables, our forecast is based on our current capabilities and pipeline. Historically, we used to file 5 to 6 products with expanded capacity, in Puniska acquisition, it gives us the manufacturing plus R&D increase capacity. So starting with this year, we will be filing 15 to 20 new products in a variety of differentiated products. So we have a very good diversified manufacturing and R&D capabilities as far as injectables are concerned.

One of the areas we are expanding is inhalation, as my brother said, but also other is the implant products and more drug device combination products. Those are complex products, which requires a device and formulation, different capabilities. We have some. But that's the area we are investing little more going forward to give us that edge as they are very high barriers to entry areas.

Yes. And your question on low double digit, Gary. Yes, it is for now, it's a norm for the base business. We don't expect any changes.

Our next question comes from Chris Schott of JPMorgan.

Just a couple for me. I guess, first on the 1Q results, I think you said you're targeting $100 million of EBITDA. Can you just help me understand the dynamics there a bit as it seems like that is a step down from recent performance. So is that just kind of an expense timing issue? Or is it something else we should be keeping in mind with the 1Q number?

And then the second one to me was maybe a broader biosimilar kind of pipeline question. Can you just talk a bit about the approach you're taking as you're thinking about adding further assets? So are you looking to stay kind of hospital focused of the portfolio? Would you look more broadly? Are there any therapeutic areas that are particularly attractive to you? Just a bit more color of when you envision kind of expanding this out? What kind of criteria are you looking at, I guess, as you think about the products you're targeting?

Chris, this is Tasos. I'll take the first question. Yes. So a couple of things. So we don't -- I mean you've seen -- if you look at our quarterly performance in the last 3 years, the company is not on autopilot, right? So there happens to be volatility at any given quarter. So we look at it more in terms of kind of full year numbers. So that's #1. #2 is, as we look at Q1, it's playing out exactly how we're planning it for in regards to our 2022 internal budget. And what this accounts for is, #1 is the kind of the substantial amount of investments that we're making to the business, which we're not going to sacrifice, right? So we're delivering growth in 2022, but also we want to position the company for sustainable growth. So we're not going to sacrifice the required investments.

So we have a front-load of investments and then you have the product launches and the incremental revenue in the back end of the year. So that's the key driver, #1. #2 is Q1, you always have some seasonality, right? It tends to be one of our lower quarters just between Q4 and Q1, some seasonality. And the #3 issue is, any given quarter, primarily Q1, we just have a little bit more fixed overhead -- less overhead absorption just between the timing, the way we run our manufacturing plants and some of the lesser impact of COVID in our workforce. So you put all these things together, that's why we're targeting about $100 million, and then we see a substantial amount of ramp-up from there for the rest of the year.

With that, let me just turn it over to Chintu.

Chris, regarding your second question on biosimilar pipeline and product selection. Our approach is that we want to be first or second to market. That's our key criteria. We are not looking from the therapeutic perspective. We are looking broadly as a global play for biosimilars, and we are also looking from acute to chronic. So we are taking approach from the interchangeability, non-interchangeability product. As you know, you're aware, there is a lot more adoption, acceptance of biosimilars from the provider and payers' perspective. So I think as the markets are opening up and more, we are looking at opportunistic approach on biosimilar, time to development, cost of development. And again, the stated goal is to be first and second. And our targeted pipeline puts us in the position to have highest number of first-to-market biosimilar. So I think it's a very holistic view keeping IP and other norms in mind, but not focused on therapeutic area.

Our next question comes from Greg Fraser of Truist Securities.

A couple of follow-ups on the guidance. How much of the anticipated revenue growth for generics will depend on approvals that are pending? And is Vasopressin one of the launches that you expect this year? And on your comment about gross margin being grossly in line, does that apply for both generics and specialty? And then on biosimilars, clearly expanding the pipeline as a priority. For the next wave of biosimilar launches over the next few years, are there assets available that could be among the first 1 or 2 to get to the market or deals for biosimilars that will get to market later in a decade more likely?

Greg, I'll take the first 2. So when we look at the growth of our generic business is, I would say, 50-50. So 50% of the growth is coming for brands that we launched late last year, right? So those are growing. And 50% of the growth should come from new product launches. And as we talked about it, is we're never relying on any one product, whether or not that was vasopressin, Zafemy or anything else. So we think of it as a bundle of 2030 new product launches and some of them are larger than others. So we're not overly reliant on any one which kind of helps with the durability and the predictability, right, of our business? That's #1.

In terms of gross margin, at a high level, I think we feel great about the progress the company has had over the last few years, right? So in 2020, right, our overall gross margin was about 42%. We finished last year at about 46%, and we expect to kind of stabilize this year at this level. Over the course of time that should further improve as we push more and more on the specialty business biosimilars and capex generics. So we feel good about it.

The more specific question about this year, I think generics, I think they're going to be relatively flat, give or take 1 point. I think AvKARE is just going to be down a little bit just because of the mix of business where that's coming from. And we should see some specialty gross margin growth, just again mix of products and having Rytary and Unithroid fueling the growth that are higher-margin products.

And with that, let me just kind of turn it over to Chirag.

Thank you, Tasos. Greg, biosimilars next wave, as you probably know, we have a partnership with 2 partners when we work very deeply and there are a few others we are evaluating. So as we said, it's going to be a mix, and the mix will be more of -- we're looking at various development house to bring them in-house, so Amneal becoming vertically integrated, along with continued opportunistic partnership, the licensing. So if I see the next 3, 4, 5 years, it will be pretty much 75% in-house products, 25% in-licensed products. That's how the next wave will come. It will come from 2020, 425 launches, and then it continues to build up, that's our internal plans that we have. And when we have more information, we will be very excited to disclose. But Amneal, it's a very growth area for us, and it's part of our growth strategy, as I mentioned, our key growth areas, specialty, biosimilars, injectables and international markets. These 4 will drive us out of the melting ice cube business of retail generics, which, by the way, we do really well there as well.

Our final question for today comes from Elliot Wilbur of Raymond James.

Maybe just 2 high-level questions. Chirag, going back to your commentary earlier with respect to the biopharma environment presenting or potentially presenting some unique opportunities in terms of funding assets or acquiring companies are going to be raised capital, one source of potential new assets or revenue, the other, of course, being the more traditional generic market.

I mean that asset market looks to be getting a little bit more momentum, a lot of more properties coming to market that we've seen, I think, in some time and probably going to see more of the -- not traditionally been your focus, but just wondering how you're sort of viewing the ongoing dynamics there in terms of larger companies continuing to scale back, put up larger properties for sale.

How are you thinking about potentially advancing some of your ambition in some of these areas, injectables and some of the more complex dosage forms, an immediate acquisition that might give you assets that could be in the company's pipeline already or sort of on the radar screen just given their availability and pricing. And then I have a follow-up for Chintu, but maybe I'll ask you to respond to that.

Okay. Thank you, Elliot. So let's -- so what I mentioned is the biotech companies and so many right. And some of them could be injectable companies as well with the platform technology. So we're looking at all of them. And right fit, we would like to do a deal there. The retail generics has been to be very tough for us, because we've got 350 approved products, 140 pipeline, 110 pending at FDA. The FTC divesture process would not allow us to go through a successful transaction. I know with Sandoz out there, with private equity being active, a few other assets, Perrigo asset has gone. So we're excited. We do need consolidation in generics. It's just unsustainable.

How do we play in that? That's entirely a different game, which we do not know exactly when that gets played out. But let's put it this way. At this point, it's interesting that it is moving in that that side, because there is a sustainability for many players on the Gx retail side. And if they don't consolidate, they won't be able to compete well. But we stay very excited about the biotech and injectable side to look at all the tuck-in opportunities and bolster where obviously the vertical integration for our biosimilars capabilities.

And then just one last question for Chintu. Just thinking about the competitive environment in the overall injectable space, certainly, that market still remains much more concentrated, obviously, than most areas of the traditional generic market. And I guess we've seen sort of the larger entrenched players just seem to sort of concede shares to some of the upstarts and still seems to have sort of protected new product launch dynamics and margins. But if you look at the competitive environment, at least in terms of the companies who want to get into the space, there are certainly a lot of companies out there with a lot of ANDA in the filing.

So obviously, any new approvals or incremental revenue for you, but just how do you think about this from sort of a big picture perspective in terms of all these new entrants looking to get in the space, how does that impact sort of new launch contribution, return on investment and margins? Or do you think we're going to see just kind of continuation of what we have for the past couple of years, where just certain large incumbents just kind of continue to back away from the market, so you don't really sort of see change in any of those key dynamics?

Elliot, great question. So first of all, yes, there is capacity and there's maybe new capacity coming in the market for injectables. But always, if you see historically, still days on an average 100 plus product in shortages. So I think the key to success in injectable space is not just approval but consistent quality supply, and that's what Amneal gets differentiated, because we have one of the best quality track record. And that's what we are focused. Also, we're doing redundancy in our supply chain and try to be a consistent long-term supplier. So that's our one key differentiator.

Second, we have so much further diversification in our pipeline as we have long-acting injectables. We have these large parenteral bags, large-volume bags. We have the PFS, we have drug device combinations. We have the liposomal products. So plus we have a separate site for our onco product. So we are well positioned -- and plus our infrastructure is also pretty new, brand-new. So we are so well positioned to kind of cater multiple areas of growth. And with Saol acquisition, now we have the front-end commercial team also where we are looking at very unique, which we already had some, but we are bolstering our 505(b)(2) pipeline in injectables, where we are bringing unmet needs to the hospital.

So I think looking at our broader pipeline, what we've invested in our people, in R&D infrastructure and now manufacturing infrastructure, we are very uniquely positioned to be a consistent supplier and also bring high-end value products. So combination of that would definitely lead to a margin expansion than the regular typical products.

Thank you. We've no further questions for today. So I will hand back to Chirag Patel for any closing remarks.

Well, thank you, everyone, for joining today. Have a great day.

Thank you, everyone.

Thanks, everyone.

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