Amneal Pharmaceuticals Inc (AMRX) 2022 Q1 法說會逐字稿

Hello, and welcome to Amneal's First Quarter 2022 Conference Call. My name is Alex, and I will be coordinating the call today. (Operator Instructions).

I would now handover to Amneal's Head of Investor Relations, Tony DiMeo. Over to you, Tony.

Good morning, and thank you for joining Amneal's First Quarter 2022 Earnings Call. Today, we issued a press release reporting our financial results. The press release and presentation are available at amneal.com, and a replay of this call will be posted after the call.

Certain statements made on this call regarding matters that are not historical facts, including, but not limited to, management's outlook or predictions are forward-looking statements, that are based solely on information that is now available to us.

Please review the section entitled Cautionary Statements on Forward-Looking Statements in the earnings presentation and our SEC filings for a discussion of factors that may impact our future performance.

We also discuss non-GAAP measures. Important information on our use of these measures and reconciliations to U.S. GAAP may be found in the earnings presentation. Beginning in the first quarter of 2022, the company will no longer exclude R&D milestone expense from non-GAAP financial measures. In our press release we provide revised prior period results reflecting this change.

On the call this morning are Chirag and Chintu Patel, Co-CEOs; Tasos Konidaris, CFO; Andy Boyer, Generics; Joe Todisco, Specialty; 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. The first quarter was a good start to the year with a revenue of $498 million and adjusted EBITDA of $100 million as expected. We are on track to achieve our full year 2022 guidance commitments of continued top and bottom line growth. Building on our consistent results and continued success in executing our strategy over the last several years, we are expanding in high growth areas, including specialty, injectables, and now biosimilars.

As a global essential medicines company, underlying our strategy is our focus on affordability, access, and addressing unmet patient needs. Looking forward, as we continue to execute, we see our growth profile accelerating, our business mix increasingly diversifying and our impact on Global Health Care expanding.

Let me now provide a few updates across our businesses; starting with Generics, our business continues to grow as our productive R&D engine continues to diversify the portfolio with new complex medicines. As a result Amneal has a low product concentration with our largest generics product represents only 5% of total company revenues, and our top 5 generics products are only 17%. With our focus on more complex and higher barrier products, over half of generics revenue today is non-oral solids, as compared to 35% a few years ago.

The mix -- the mix shift towards complex medicines is continuing as 86% of our pipeline is non-oral solids. Accordingly, we expect durable growth in this business, and we continue allocating returns into high growth areas.

In regards to our injectable business, as we have shared with you in the past, this is a key growth area for Amneal. We are pleased that injectables will grow approximately 30% this year to more than $160 million in revenue as we are well on our way of achieving $300 million plus by 2025.

We look to scale our business with expanded capabilities, increase capacity and new products in our portfolio. We believe these initiatives will drive substantial and sustainable growth in injectables for years.

In biosimilars, we are very excited to enter the U.S. biosimilar market, with the upcoming launch of our first 3 oncology products. We are pleased with the approvals of Releuko, filgrastim biosimilar and Alymsys and bevacizumab biosimilar, which are wonderful achievements by team Amneal and our partners. In addition, we expect approval for a third biosimilar pegfilgrastim, in the next few weeks.

As we have said with you in the past, we are positioning Amneal to play a large critical and long term role in the fast growing $28 billion U.S. biosimilar market. We estimate the market size for these 3 products based on net revenue is approximately $4 billion of which about half is biosimilars.

Together, we see peak sales for these 3 U.S. biosimilars of $200 million, this is the first time we are sharing a biosimilars revenue estimate for us. We are also looking for additional opportunities where we can be early to market as we build our portfolio through in-licensing to start and vertical integration in time to become a meaningful player in biosimilars.

In Healthcare, our distribution business, we saw continued nice growth in Q1. We expect sustainable growth driven by strong commercial and operational execution as we expand across multiple distribution channels.

In international, we are leveraging our portfolio of complex generics, injectables, specialty and biosimilar medicines to meet local needs. We believe this strategy will add considerable revenues in time and be highly profitable as we utilize partners and our existing infrastructure.

In China, we are making good progress with our Fosun Partnership, and we look to be a commercial later this year or early next year. In the $25 billion branded generics India market, we have launched our label there and are expanding our end market presence. Around the rest of the world, we are pursuing distribution agreements and look forward to share with you as we make progress.

In specialty, we remain focused on driving strong commercial execution of our key branded products and advancing the pipeline. We expect continued full year growth from Rytary in Parkinson's and Unithroid in hypothyroidism.

As our pipeline delivers new branded products, including LYVISPAH and DHE this year and IPX-203 next year. We see our specialty business expanding very meaningfully over the next several years.

Before I pass it over to Chintu, I would like to acknowledge Joe Todisco, who is moving on from Amneal to be a CEO for a Biopharmaceutical Company here in New Jersey. So I want to thank Joe for his awesome contribution to Amneal over 11 years and his strong leadership. He has built a great team and has contributed to Amneal in a great way. We wish him all the best.

And with that, I will hand it over to Chintu.

Thank you, Chirag, and good morning, everyone. First, my sincere thanks to 7,000-plus members of the Amneal family who work hard every day to make healthy possible.

We believe our relentless focus on excellence across operations, supply chain, quality and fans driven innovation differentiates Amneal. Through our excellence programs, we are constantly reducing costs and improving efficiencies. In R&D, we are directing more spend towards high-growth areas, particularly biosimilars, specialty, injectables and complex generics.

Let me now walk through the different aspect of our business. In generics, we feel great about our pipeline and continued innovation in complex categories. So far in 2022, we have 8 new launches. We expect 20 to 30 new launches this year and each year going forward.

Just this past week, we received another CGT approval for bexarotene gel. Amneal is the industry leader in CGT approvals. Overall, we have 111 ANDAs pending across all dosage forms in generics and expect to file approximately 30 more ANDAs this year in our pipeline of 101 products, 86% are non-oral solids and most are expected to be first to market, first to file or 505(b)(2).

We continue to move towards an increasingly complex differentiated portfolio of over 250 molecules that is driving sustainable growth. One of the key product launches in 2022 is Ritonavir, which is co-administered with PAXLOVID. We are excited to be one of the main U.S. suppliers for this key COVID-19 treatment. Ritonavir is an already approved ANDA that our team has been working hard to fulfill substantial demand.

In addition, we improved supply chain for a generic or epinephrine auto-injector and expect more revenue in '22. As we look to the rest of '22 and into '23, we see significant launches on the horizon that will start to materialize later this year and drive growth in '23 and beyond.

We don't disclose many launches for competitive reasons. But let me share a few key upcoming ones, among many others, including in ophthalmics and otics, generic Pred Forte and generic Ciprodex; in oral solids, Carvedilol ER and mesalamines; in injectable, vasopressin, leuprolide, multidose methylprednisolone acetate and exenatide; in LVP bags, dexmedetomidine, ropivacaine and magnesium sulfate.

In retail generics, we expect the best of our pipeline and leading commercial presence to drive consistent financial performance. In ophthalmics and otics, we have 8 ANDA spending and 11 products in the pipeline in inhalation nasal there are 4 ANDAs spending and 7 more products under development.

In injectable, we expect substantial growth as we expand our portfolio and add new capacity and capabilities. As a reminder, in January, we acquired the Saol baclofen franchise, which added live Saol to our institutional bag and additional commercial capabilities. In last November, we acquired Puniska Healthcare, which added state-of-the-art manufacturing capabilities and doubled our capacity to 16 production lines in total. The integration is going very well, and we are preparing for commercial production in 2023.

This acquisition and expansion of other site has enhanced Amneal's ability to do more R&D and supply commercial products from multiple sites. In terms of innovation in injectables, we expect 5 to 10 new launches in '22 with 4 already this year. We have 28 ANDAs pending and another 61 pipeline products. They're in a variety of complex areas, including drug device combination, peptides, long-acting injectables, liposomals, LVP bag and 505(b)(2) products.

Overall, we are on track for over [14] injectable launches from '22 through '25. As we have shared in the past, we believe the combination of our robust quality track record, increasing supply capacity and continued innovation positions us very well to scale our injectables business and be a sustainable long-term supplier globally.

We are very excited about the large and growing biosimilars market and how Amneal is well positioned for near and long-term growth. The recent approvals of our first 2 U.S. biosimilars and one more approval expected later this month is a watershed mark for Amneal. We are planning for Q3 launch of Releuko and Alymsys. We expect to be one of a few companies with 3 U.S. biosimilars on the market in the oncology space.

We were pleased that Alymsys received a first cycle approval. This is a tremendous accomplishment by the team and demonstrates our core competencies in this space. Combined with our partners, we have substantial science, regulatory, manufacturing and commercial capabilities needed in biosimilars. We believe the key to success are having the right development path, manufacturing capabilities and being vertically integrated over time from development to commercialization.

We are actively working to enhance our key capabilities and expand our portfolio to drive growth organically and inorganically as we target to add new biosimilar launches in the years ahead. We are very enthusiastic about our future in biopharmaceuticals, particularly biosimilars as the opportunity is coming to fruition now for us.

In international, we are advancing our strategies in China and India and the rest of the world. We see global expansion as another vector for long-term sustainable growth. In China, we currently have 5 products filed with 10 to 15 expected by the end of '22 and 20 to 30 over time. In March, we were pleased to be one of the companies to receive a sub license to manufacture and commercialize PAXLOVID in 95 low and middle-income countries. We are evaluating distribution strategies to drive access to this COVID-19 treatment.

In specialty, we are expanding our branded portfolio, and we see a number of growth drivers. Our current specialty pipeline represents U.S. $500 million to U.S. $1 billion pixels. First, we expect to launch LYVISPAH for specifically in June. Next, we look to launch our DHE auto-injector for migraine and cluster headaches later this year upon approval. For IPX-203, we completed our pre-ANDA meeting with FDA. At the American Academy of Neurology meeting in April, we presented 2 abstracts sharing top line clinical efficacy results and post-hoc analysis showing 1.55 hours more good on time per dose.

We expect to submit our ANDA in Q3 and pending FDA approval remain on track for launch in mid-2023. We see $300 million to $500 million in U.S. peak sales for IPX-203. On K-127 for Myasthenia Gravis, we expect to file our ANDA by end of '22, and are pursuing other indications. Also our other pipeline programs, K-114 and K-128, are progressing well.

We look to share more on our expanding specialty pipeline. We are adding new 505(b)(2) programs that look to repurpose existing molecules, utilizing our drug-delivery technology platforms, GRANDE and KRONOTEC. We believe these technologies differentiates us in specialty. Overall, we are very excited about our specialty growth prospects and expect at least one new launch per year going forward.

To summarize, our strategy for accelerated growth is built upon our strong foundation of innovation, super quality and operational excellence. Across the business, we remain laser-focused on execution this year.

I will now hand it over to Tasos.

Thank you, Chintu. Our first quarter financial performance was in line with our expectations, and thanks to the good work by all our colleagues, we are pleased to reaffirm our full year 2022 guidance for continued top and bottom line growth.

For the first quarter, we reported total net revenue of $498 million, adjusted EBITDA over $100 million and adjusted diluted EPS of $0.12. Our results include $5 million of R&D milestone expenses, which we no longer exclude from our non-GAAP results.

The annual run rate of these expenses is $15 million to $20 million and represents external collaborations to advance our R&D pipeline. This balancing change has no economic or cash impact to our business.

Q1 generics net revenue of $318 million grew $5 million or 2%. Products launched in 2021 and 2022 contributed $14 million of growth, offsetting the typical declines in the remaining portfolio. As we have said in the past, our focus in innovation and strong commercial execution is a key differentiating factor that enables a sustainable top line growth.

Consequently, product [plans] prior to 2019 now account for about 65% of generic net revenue and declining fast. This reduced reliance on older, more prone to competition products bodes well for continued growth and profitability.

In specialty, Q1 net revenue of $85 million declined $11 million or 11% and represents the low point of quarterly revenue for the year. This performance reflects Zomig's loss of exclusivity, as well as, higher than typical quarterly reimbursement costs related to RYTARY.

We continue to be excited by the total prescription growth of RYTARY and Unithroid up 6% and 13%, respectively, as well as, the upcoming launches of LYVISPAH and DHE auto-injector. Our AvKARE net revenue of $95 million grew $10 million or 12% with very strong customer acquisition success in the non-federal distribution channel.

Q1, 2022 adjusted gross margin of 43.5% was in line with prior quarter and reflects the dynamics. First, generics gross margin of 42%, a 300 basis points improvement from prior quarter. Second, AvKARE gross margin of 15% to 500 basis points decline from prior quarter due to mix of business. And finally, $15 million of costs related to timing of our manufacturing production schedule. The last item is a timing issue and will improve in future quarters, providing substantial additional gross margin and profitability.

Q1 adjusted EBITDA of $100 million was actually a few million higher than the expectations we shared with you during our February earnings call. As I mentioned earlier, it also includes $5 million related to our reporting policy change and $15 million of manufacturing overhead allocation.

From an operating cash flow perspective, we generated $120 million of cash, which we continue to redeploy in driving sustainable long-term growth. Consequently, in the first quarter, we invested $131 million to fully fund the previously announced acquisitions of Saol, Kashiv and Puniska Healthcare.

Looking ahead and consistent with our discussion in our February earnings call, we expect substantial acceleration of top and bottom line growth over the course of this year. This growth will be driven by 4 factors: first, multiple new product introductions such as Ritonavir, LYVISPAH, Lioresal and our new biosimilars; second, strong underlying demand of key growth brands such as, Adrenaclick, (inaudible), RYTARY and Unithroid; third, favorable fixed overhead manufacturing [absorption], and finally, stability in our operating expenses. (inaudible) well understood and within our control is this confidence in delivering the 2022 financial guidance.

Let me hand the call back to Chirag now.

Thank you, Tasos. In summary, we are on track for another great year in 2022. We see momentum across our business, including our first U.S. biosimilar approvals. We see these growth drivers building and accelerating our company performance this year, next year and beyond.

I'll now open the call to questions.

(Operator Instructions). Our first question for today comes from Gary Nachman of BMO Capital Markets. (Operator Instructions). Our next question comes from Mikaela Franceschina from Barclays.

I'm Mikaela on from Barclays on for Balaji Prasad. Just wondering, when can you realize your U.S. peak sales guidance of $200 million plus for your 3 biosimilars? And when thinking about your biosimilars, how do you plan to get vertically integrated and over what time frame?

So the peak sales, as you know, we are working with getting our reimbursement in place, which would be -- should be in place by January 1, 2023. Commercial infrastructure is in place. So we expect contributions this year, adding up to more contribution in '23 and peak sales, I would say, somewhere between '23-'24, we should be able to achieve that.

And you had a second question on vertical integration. So as we are committed in a biosimilar for long term as we have previously stated that our strategy is dual, one is to in-license from key partners -- trusted partners and build our own capabilities. So we are exploring different options and should be able to be vertically integrated by end of this year or beginning of next year.

Our next question comes from David Amsellem from Piper Sandler.

I joined late, so I apologize if I missed this. But on the margins, I know you talked about AvKARE being a bigger part of the mix. I just had a bigger picture question about the role of AvKARE in the organization. And to the extent that you have period where it's a bigger part of the mix and there's some margin compression. Do you see that as problematic. I'm just trying to get a better sense of where AvKARE fits and the margin profile, given where you're taking the business, I guess, acceptable. So that's number one.

Number two is on biosimilars, I think you laid out some assumptions about peak sales. So I wanted to get your thoughts on just your view on share -- volume share and ultimately, how you're seeing overall penetration in the filgrastim pegfilgrastim and bevacizumab markets playing out of biosimilars and what your underlying assumptions are regarding pricing erosion share and your penetration that would be really helpful?

So I'll start with the big picture on AvKARE. AvKARE is an excellent cash flow business for us and also allows us to put more products in federal health care market, which is VA/DoD. As you know, we are one of the top 2 there. So margin could fluctuate and fluctuate in that business. There are 3 businesses within AvKARE. One is the Federal government, which is steady and margins. And then they have a unit dose business, which is growing. And the third business is pure distribution business for City of Philadelphia, and they have added few more cities. So it's a great business. It will fluctuate between 15% to 20% of gross margin, and we keep adding the top line. So we should be focused on top line as well. Anything else on AvKARE, Tasos?

No, you were Spot on. It's a sustainable business. It is growing both top line and bottom line. David is correct. The overall margin of that business is less so than the rest of our business, but we're really focused on total absolute dollars return there.

And whether or not one quarter AvKARE in this situation, 15% gross margin versus 18%. That's where it's going to fluctuate and doesn't really move the middle that much from a total company perspective. So the key driver there is specialty, which continues to be almost 18% and our generics, which, as you know, over the last 3 years, we've grown it from mid-30s to substantially more than 40%. So that will be there.

And our second question, thank you, Tasos, on biosimilars, the -- excellent part is the commercial team is in place, led by Harsher Singh and excellent team with a couple of other people added from ABC and Pfizer and the Saol team, which added 21 people in institutional sales plus contracting sales force. As we have always done a great job in commercialization, we will do a great job in commercialization here as well. And we are -- we have understood the market. So the -- as you know, it's a quasi-branded products, we get the reimbursement code in place will do so. Bevacizumab we are competing with Amgen and Pfizer and obviously, the innovator, and we would try and maximize our market share to about 15% to 20%. We're more focusing on oncologic clinics, integrated regional systems. So many avenues to get there as well, we will have the 340B pass-through status, which is always helpful.

And then for the GCSF, we have the pass-through status as well, filgrastim. And it's a little bit more competitive with 3 active players, but we'll try to -- with our 340B unique position, we may be able to get, again, 15% to 20% market share or more. And for pegfilgrastim would be a little bit more competitive since there are 5 active players. So we will try to penetrate different channels and it should be very helpful to have Bevacizumab with pegfilgrastim. So that would be a nice launch as well. So all 3 very excited and the future of biosimilars, we are very excited as well.

And just if I may follow up, just to be clear on the shared economics, you just remind me that the margin profile of the biosims, mean that's not going to be net margins that are going to be higher than your corporate operating margins, right? Is that a fair way to think about it?

Yes, bevacizumab would be higher because it's a bigger market, and [Peg and G] would be in line with corporate margins.

Our final question for today comes from Gary Nachman from BMO Capital Markets.

Sorry, I missed you guys before just jumping around a couple of calls. I don't know if you touched on this, I obviously jumped on late. But could you talk about how you expect gross margins to trend for the remainder of this year? And sort of what additional initiatives you're taking to improve the gross margin further beyond this year? Just what sort of levers do you think you have at this point? And how much more there is to do on that front?

And then with respect to the specialty, just one more -- with respect to the specialty business, just how comfortable you are with the commercial infrastructure? And how much more you want to leverage that in terms of bringing new products in? And is that going to become a much bigger part of your business, do you think, over the next few years, or will it be relatively modest when you think of the overall company?

Gary, I'll take the first one. So as you know, our Q1 gross margin was 43%. We're looking to increase for the rest of the year. My gut feel is who finished the full year probably about 45%, which is in line where we were last year. That's number one.

Now if you think about the growth drivers, how do we go from Q1 of 43% to, let's say, rest of the year of about 45%, there are a couple of things. Number one is the first piece is just our internal manufacturing production plan. So better fixed overhead absorption and we're in control of that, it just reflects the demand and our manufacturing operations. So high confidence on getting that benefit. Second is NPLs, new product launches. So as we had shared with you a few months ago, this year, we expect our new product launches to be more in the back end of the year and the prone. And as you know, by nature of the complexity of those products, they have substantial greater gross margin than the rest of the portfolio.

And then the third is when you look at our specialty business, as I said, in Q1, that's a low point in terms of revenue, Rytary and Unithroid are expected to accelerate the growth in those products higher gross margins. So those are the 3 levers.

Thank you, Tasos. And Gary, on specialty, as you know, we had committed, we acquired Impax back in 2018 that formed our specialty platform. So excellent commercial capabilities already in place for Parkinson for moment disorders as well as endocrinology. So very excited to have a great team in place, relationship for market access in place. Marketing teams are in place. And penetration, as you can see, we continue to grow Rytary by 6% to 8% every year, Unithroid by 10% to 12%. And we have excellent organic pipeline.

We got LYVISPAH being launched on June 1. We have DHE auto-injector based on the outcome at our partners site from the FDA should be launched this year. IPX-203 next year with a much higher peak sales because of the product profile and results what we have seen. K-127, Myasthenia Gravis product, which we're filing this year. We also have government programs for that as well. And that is also expected to launch in '24. And then we have 2 additional -- and these we acquired from Kashiv Specialty, K-114, K-128, along with K-127. And we are adding a couple more pipeline assets in specialty. We have a separate team focusing on specialty R&D. We have 2 technology platforms and which have been well tested over last 10 years.

So with that, today, our business is about $400 million in specialty -- this organic pipeline will add substantial revenue to it, and we are open for certain tuck-in deals for adding within these 2 specialties. And we are constantly evaluating those opportunities. And I think more are being available with this biotech pool in the market and other conditions, which are driving companies like us in a bit of a driver seat because of the constant cash flow from our generics business, injectable business, specialty business allows us to sustain our growth and keep adding these assets. So very excited. If you ask me a goal on numbers. Yes, we like to get to $1 billion in specialty sales. How long it will take? Maybe a few more years, but excellent growth drivers, you are absolutely right that part of the business is becoming very significant and much higher contribution than the generics.

We have no further questions for today. So I'll hand back to Chirag Patel for any closing remarks.

Well, thank you, everyone, I know it was a busy morning. So many people could not join, but everybody who joined. Thank you very much, and have a great day.

Thank you for joining today's call. You may now disconnect.