Amphastar Pharmaceuticals Q3 2023 Earnings Call Transcript

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November 8, 2023

There are 6 speakers on the call.

Operator

Greetings, and welcome to the Amphastar Pharmaceuticals Third Quarter Earnings Conference 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 These statements are based solely on information that is now available to us. We encourage you to review the section entitled Forward Looking Statements in the press release issued today and the presentation on the company's website. Also, please refer to our SEC filings, which can be found On our website and the SEC's website for a discussion of numerous factors that may impact our future performance. We will also discuss certain non Important information on our use of these measures and reconciliations to U.

Operator

S. GAAP may be found in our earnings release. Please note this conference call is being recorded. Our speakers today are Mr. Bill Peters, CFO Mr.

Operator

Dan Dischner, Senior Vice President of Corporate Communications and Mr. Tony Morris, Executive Vice President of Regulatory Affairs and Clinical Operations. I will now turn the conference over to your host, Mr. Dan Dischner, Senior Vice President of Corporate Communications. Dan, you may begin.

Speaker 1

Thank you, Paul. Good afternoon and thank you all for joining us today on our Q3 earnings call of 2023. Joining me today will be Bill Peters, CFO and Executive Vice President of Finance and Tony Marrs, Executive Vice President of Regulatory Affairs and Clinical Operations. 2023 has been characterized by maintaining the momentum of our key high margin products by fulfilling our commitment by advancing our portfolio's proprietary, Biosimilar and Complex Products segments. In terms of sales, the 3rd quarter ended with $180,500,000 in revenue, Representing a 50% increase on an annualized basis with the added net sales of our recently acquired proprietary product, Baximi, And the continued strength of our core products, specifically Glucagon, Primatene Mist and Epinephrine.

Speaker 1

Since we closed the Vaccimi acquisition on June 30, We've been working hard transferring operations in 27 countries worldwide. On October 1, we began marketing the product in the United States using a contract sales force combined with our internal sales team. Around the world, we have signed agreements with 3rd party logistics and local companies To help us set up the needed distribution networks, we have already transferred the NDA in the United States to Amphastar, And we are working on transferring the marketing authorizations in other countries as quickly as possible. We plan to transfer distribution in the United States Vaccimi recorded its highest sales ever this quarter, Continuing a growth trend we expected. Due to the seasonality of the product, the 3rd quarter represents approximately 31% of the annual sales.

Speaker 1

In addition to the commentary on our glucagon and primatene mist offerings, the sustained performance of these products from the previous financial quarters $4,800,000 in sales in the 3rd quarter. This represents a noteworthy 35% increase compared to the corresponding period in the previous year, primarily due to restocking by retailers. We continue to see unit retail growth in the 5% to 6% range And still project that Primacy Mist will reach the milestone of $100,000,000 in sales by the end of 2024. Regarding our epinephrine and other finished pharmaceutical products, once again, we have been able to capitalize on competitor supply shortages, Specifically epinephrine, which achieved a notable 19% increase in sales over the prior quarter and a 4% increase annually, Amounting to $20,200,000 in sales. Our lidocaine product also saw sales growth within our injectable products and shortage, Registering a 10% increase over the last quarter.

Speaker 1

This performance reflects our agile response to market dynamics And the strategic positioning of our products to serve unmet market needs effectively. Our commitment to providing continuity of supply during periods of competitor shortage exemplifies our role as a reliable provider in the pharmaceutical landscape And supports our projection for sustained performance. As we address our adaptive response to evolving market conditions, The launch of Rexgovy, our proprietary naloxone nasal spray is now scheduled for release in the Q1 of 2024 Due to production needs for shortages projects products. Furthermore, due to the API supplier For our MPA injection, having discontinued manufacturing this API, we will have minimal FDA approval for qualification of the new API, which will be reduced at our A and P facility. The FDA authorization will enable us to leverage our in house production capabilities, ensuring a steady supply to meet market demand.

Speaker 1

I would now like to shift our dialogue on the progress within our pipeline and the regulatory endeavors related to our proprietary biosimilar and complex generic products. Regarding the regulatory progress of AMP002, we acknowledge the delay beyond its initial GDUFA goal date. We are currently engaged in discussions with the agency. The agency remains committed to moving the application forward in the regulatory review process as quickly as possible. There remains a significant market demand for this product, which would represent itself as the 1st generic in the market niche exceeding 600,000,000 Recognizing the need for generic options, we are dedicated to advancing our dialogue with the FDA.

Speaker 1

For our teriparatide ANDA referenced as AMP-fifteen, as previously stated, we have responded to the CRL. We have a goal date in the Q1 of 2024. This date adheres to the conventional schedule, allowing for an additional quarter's Extension should a preapproval inspection be necessary. In reference to our AMP-eight inhalation NDA, Which received priority review status, we believe we have addressed the issues identified in the minor CRL. As a result, we have a GDUFA goal date Set for the Q4 of this year.

Speaker 1

Concurrently, our AMP-seven application is progressing as planned and is Scheduled for submission by the end of this year. Regarding our proprietary product intranasal epinephrine identified as AMP-nineteen, We are diligently advancing through the clinical development phases in collaboration with the FDA. In alignment with our strategic objectives for our biosimilars, I am pleased to report today steady progress with AMP-four, Our insulin aspart biosimilar candidate. We are on track to submit the BLA for this product by the end of this year with the intent of securing interchangeable status. In summary, the solid performance and strategic advancements detailed today underscore the strength and adaptability of our product portfolio in response to the competitive and regulatory environments we operate within.

Speaker 1

Our strong sales growth, Strategic pipeline advancements and regulatory foresight align with our company's sustained growth and value creation vision. We remain dedicated to advancing unmet medical needs as we continue to invest in our high margin products and innovate in proprietary biosimilar and We are confident in our ability to capitalize on market opportunities and navigate industry challenges strategically. I would now like to turn the call over to our CFO and Executive Vice President of Finance, Bill Peters, to discuss the 3rd quarter's financial results.

Speaker 2

Thank you, Dan. Revenues for the 3rd quarter increased 50 percent to $180,600,000 $120,100,000 in the previous year's period. GluKagon sales increased 107 percent to $29,500,000 from $14,200,000 as 2 suppliers left the market and we experienced seasonally strong back to school sales. Primatene Mist sales grew to a new record of $24,800,000 in the 3rd quarter, which represents a sales growth of 35% from sales of $18,400,000 in the Q3 of last year as retailers replenished their inventories. Lidocaine sales increased to $15,500,000 from $12,600,000 due to higher unit volumes as a result of continued supplier Other finished pharmaceutical product sales increased $14,100,000 to $37,700,000 on increased sales of legacy products Such as dextrose, atropine, calcium chloride and sodium bicarbonate and on sales of newer launches including regadenosine, Ganarellix This marks the Q1 revenues from Baximi.

Speaker 2

We recorded net revenues of $28,700,000 which corresponds to Amphastar's net economic benefit from Vaccimi. This net economic benefit This was calculated based on Eli Lilly's sales of $48,700,000 less their expenses of $20,000,000 which included cost of goods, selling expenses and research and development expenses. We will continue to book revenues on a net basis until we begin distributing Vaximy in 2024. This change will occur on a country by country basis. Our Insulin API business had sales of $4,200,000 Up from $1,200,000 last year, primarily due to the timing of orders.

Speaker 2

Cost of revenues increased to 72 point $2,000,000 from $61,600,000 Gross margins improved to 60% of revenues from 49% on increased sales of higher margin products Additionally, revenues from Vaccinia reported net of related expenses. Selling, distribution and marketing expenses increased 34 percent to $6,400,000 from $4,800,000 in the previous year's period Due to sales force expansion expenses related to Baximi and increased advertising expenses for Primatene Mist, General and administrative spending increased 6% to $12,700,000 from $12,000,000 due to increased compensation and Expenses related to Baximi, which were partially offset by lower legal expenses. Research and development expenditures decreased 10% to $16,700,000 from $18,500,000 due to the timing of clinical trials and material expenses related to our insulin and inhalation pipeline products. Our non operating expense of $9,000,000 compared to a non operating expense last year of $600,000 primarily due to interest expense and costs incurred for the term loan we entered into to complete the Vaccimi acquisition and convertible debt issued this quarter. These expenses were partially offset by mark to market adjustments related to our interest rate swaps.

Speaker 2

Net income increased over 200 percent to $49,200,000 or $0.91 per share in the 3rd quarter From $15,900,000 or $0.30 per share in the Q3 of 2022. Adjusted net income also increased significantly to $61,900,000 or $1.15 per share compared to an adjusted net income of $20,200,000 or $0.38 per share in the Q3 of last year. Adjusted earnings excludes amortization, equity compensation, Impairment of long lived assets and one time events. In the quarter, we had cash flow from operations of approximately $64,300,000 We issued $345,000,000 of convertible notes in September and used $200,000,000 of the proceeds to concurrently pay down our term loan And $50,000,000 to buy back approximately 1,100,000 shares of our common stock. Subsequent to the end of the quarter, We paid down an additional $50,000,000 of our term loan.

Speaker 2

When we entered into the term loan, we hedged $250,000,000 is a loan by swapping into a fixed rate for 5 years. At this point, we do not have any more floating rate debt, which will enable us to lower our interest expense in the coming years.

Speaker 1

I'll now turn the call back over to Dan. Thank you, Bill, for the updates. With that, we'll now take your questions. Operator, please open the line for Q and A.

Operator

Thank you. We will now be conducting a question and answer session. A confirmation tone will indicate your line is in the question Thank you. Our first question is from Glenn Santangelo with Jefferies. Please proceed with your question.

Speaker 3

Oh, Yes. Thanks, guys. Thanks for taking my question. Hey, Bill, I want to start out talking about Baximi, because obviously, I think this is a bigger result than most of all of us were When you look at the sales generated by Lilly $48,000,000 $49,000,000 I mean, I thought At least in your most recent sort of marketing deck, we were talking about closing out this year at $145,000,000 to $155,000,000 annualized With the potential to get the peak sales of $250,000,000 to $275,000,000 I mean, how do you think about those targets that you had previously laid out relative The fact that Lilly almost did $49,000,000 in res this quarter.

Speaker 2

Well, two things. 1, first of all, thanks Noticing the projections and seeing the updated slide deck because we did update the projections from previous Number to increase that slightly. And the big thing about this is that this is a back to school quarter. So the 3rd quarter has Historically, been the high point of the year. So, we expect sales will drop going into the Q4 and that's just been the trend.

Speaker 2

If you take a look at the graph The script, the Akuvius script data, you see it really does have a big peak in the August, September timeframe. So So we expect it to decrease. But that said, the $250,000,000 to 2.75 1,000,000 is still just a forecast that we have at this point and we think we have a very good plan to get to that. Could we Beat that forecast, I think we possibly could. So, it's just right now, certainly something that we could do and we didn't want to set a forecast that was Something that we'd ever have to lower.

Speaker 2

So I'm glad to say that we did increase it once already.

Speaker 3

All right. That's helpful. I appreciate that. Maybe I should ask one other quick question, maybe a high level question. The quarter, it always benefits to some extent from shortages in one product or another, and it's always hard sitting in our seats to sort of forecast which ones.

Speaker 3

Is there anything specifically you'd call out going on in the market this quarter? Like, obviously, lidocaine benefited again, epinephrine benefited, Cytantinibina obviously was the opposite. And we know that Pfizer had some manufacturing issues, So unfortunate issues, but is there anything specifically this quarter that you may call out that may have a little bit A more sustained impact or something to the opposite might have a little bit of a shorter duration to it?

Speaker 2

Yes. So, you did mention, the Lidocaine, one of our Lidocaine SKUs is on shortage and we're producing as much as that as possible. But There's 3 right now where we're the only one in the country making them and that's dextrose sodium bicarbonate and also the epi syringe, pre filled syringe So those three things are, we're just making as much of those things as we can. And we don't know when our competition will be back on the market, but it looks like that's going to at least go into at least the Quarter of next year from what we understand for those products. So that's what we can current or out of that.

Speaker 2

And as I think we mentioned and also is in the presentation, because of our attempt to Take care of the market for these shortages. We've had to delay once again the launch of our intranasal naloxone because it runs on the same equipment at our IMS facility. So, we had an At our IMS facility. So, we had an opportunity to launch that or satisfy some of The demand for these shortage products, we decided it was more prudent to make more of the shortage products to try to help the market out of The situation that it's in right now.

Speaker 3

Perfect. Thanks for the update. Appreciate it.

Operator

Thank you. Our next question is from Tim Chiang with Capital One. Please proceed with your question. Hi. Thanks, Bill.

Operator

Good quarter.

Speaker 4

Maybe you could talk just a little bit about the rebound in Primatene Mist sales, how that Might have contributed to your higher gross margins this quarter as well?

Speaker 2

Yes. So, two things. 1, Really the biggest thing to the gross margin is the fact that Vaccimi is on a net basis. So it's 100% margin product right now. All the expenses are taken out before we book that revenue because of the accounting guidance that we have to follow.

Speaker 2

So that's really the big driver to get to that 60%. But as far as Primatene Mist goes, It's basically what we've been saying in the last two quarters is, it was growing at the retail level in the Q1, but our sales were It was growing at the retail level in the 2nd quarter, but our sales were down. That indicated to us that there was a contraction in the level of inventory at retailers. It reversed this quarter. The growth has actually been relatively steady at about 5% or 6% a quarter this year, 5% or 6% every quarter this year.

Speaker 2

And but you've seen this big fluctuation in our volumes and that just really has to do with the inventory. So this is, we believe, an inventory stocking ahead What's usually the biggest two quarters of the year for Primacy and Mistra usually the Q4 and the Q1. So I think we got a little bit of that Carryover into the Q1 because the retailers had lowered their inventory levels going into this quarter.

Speaker 4

Got it. And I guess with Baximy, you're still going to report net economic benefit From Baximia in the 4th quarter, but obviously that number probably will be less, right? Because the Q3 obviously was the strongest quarter for the year. Is that right?

Speaker 2

That's correct. The other thing well, there's going to be a couple of forces that kind of go in different directions for that because Starting in the Q4, we are doing our own marketing, our own selling for that. So that's going the expense for that will now be on our selling line And they will not be borne by Lilly, so they will have a lower expense that's used to deduct that. So there, As we saw, the Lilly sales were close to $49,000,000 So we expect that their top line number to decrease. And as Dan had mentioned, it's Historically been about 31% of the annual sales in the Q3, so it's definitely higher than the other quarters.

Speaker 2

But The deductions will be a little bit lower as well. So the selling expense that they deduct will not be as high. So we'll still have their cost of goods, Their distribution expenses and a little bit of R and D work that as they continue out a couple of the R and D studies that were ongoing. So, those expenses will still be borne in that gross to the number. And I know it's a little bit confusing, but it's Moving piece and as we've mentioned, we're going to we plan to take over distribution in the United States in the Q1 of next year.

Speaker 2

So, and then the rest of the world will follow depending on the timing of signing of certain contracts and also The transfer of the marketing authorizations in various locales.

Speaker 4

Okay. Just one last question then, Mel. Is the 60% gross margin, is that sort of your new going forward Type of run rate, now that you have Vaccimi?

Speaker 2

No, because remember because Vaccimi that We had our net economic benefit was at 100% margin. So the net economic benefit that we get next quarter will also be at 100% margin. But As we move forward, we will have to we'll start incurring the revenues and the cost of goods. So in the future, our revenue number goes up, but our cost of goods number goes up as well. So instead of Vaximy being 100% margin product, It's going to be something that's well above our corporate average, but it will still have a cost associated with it once we begin distributing in locales around the world.

Speaker 2

And I know that's a little bit complicated and a little bit it's going to be country by country basis. So it's not all it doesn't all happen at once.

Speaker 4

Right. Got it. I think historically what U. S. Vaximy sales had made up about what 80% of the total Vaximy pie?

Operator

Thank you. Our next question is from David Amsellem with Piper Sandler. Please proceed with your question.

Speaker 5

Hey, this is Tim on for David. Thanks for taking the questions. A few from us and apologies if there's a little overlap here. So on Baximi, I I guess stepping back, what's your overall view on the glucagon rescue market growth, both near term and longer term? And with respect to your sales force, what are you thinking in terms of sizing?

Speaker 5

Is that going to be a contract sales organization or it will be internal? And when do you expect for them to hit the field? And then second, on the glucagon injection generic, could you speak to how penetrated you are in the institutional setting And the extent to which you've been able to leverage your expanded manufacturing capacity and over time, how big do you think the opportunity is in that setting? And then last on the shortage products, can you talk to the extent to which you'll continue to benefit from shortages in 2024? I know you called out those three That the competitors aren't making right now, but beyond that, what is the impact of the shortages going to look like next year relative to this year?

Speaker 5

Thanks.

Speaker 2

Okay. So the first one I got was overall glucagon growth. And so as we've said, we think that Baxtime is going to grow For us, it's going to be somewhere in the $250,000,000 to $275,000,000 revenue range product for us at peak. So that's a really strong growth from where we are today, but just some are annualizing around $150,000,000 in revenues. We do think that some of that market share comes out of the traditional glucagon, the generic glucagon that we're selling today.

Speaker 2

However, Our current glucagon generic is also used as a diagnostic aid. And because it uses that diagnostic aid, that doesn't go away with The conversion to vaccine because it's the vaccine is not indicated for that. On the sales force, we haven't said how many sales People we have, but we do have said that we have a contract sales force that we did engage. They began selling on October 1. So they're out there right now marketing the product.

Speaker 2

So that we'll have that expense in our P and L and the selling expense line From now on, we've also repurposed some of our internal sales force to be backsemi Sales people as well, so they're also on the job, but they're already doing this. They trained All of these people were trained during the Q3 and ready to hit the ground running at the beginning of the Q4. So that's Definitely something that's ongoing.

Speaker 1

On the glucagon injection, the segmented, I think, the Glucon injector sales is about 31% in the retail space and about 69% in the non retail space. So that's the different break up there. And then what was the last question, the shortage on The shortage products, we see shortage products every single quarter for as long as we've been Reporting our sales. So somewhere, some product Somehow is always in need currently because of certain issues, We have a little more shortage products and we're just happy that we planned accordingly and are able to meet those needs at this time. Yes.

Speaker 2

And then just going back to elaborate on what Dan said, I've been in the company now 9.5 years and every quarter we've had some benefit From other competitors having shortage problems. And it's frequently the dextrous and the sodium bicarbonate, Sometimes it's epinephrine, sometimes it's phytonodion, sometimes it's phleodecane, sometimes it's atropine or calcium chloride, but there's always something that's going on in the market. And because we've built that extra capacity about 3, 4 years ago, we've been able to capitalize it on it over the last Several years and it's something that we did as a strategic decision and it's working out well for us.

Speaker 5

Great. Thanks for taking the questions.

Operator

Thank you. There are no further questions at this time. I would like to hand the floor back over to Mr. Dan Dischner for any closing comments. I

Speaker 1

want to thank everyone for joining us today. We would like to characterize 2023 as a year of execution amongst our key high margin products And the further enhancement of our company portfolio within the proprietary product segments, especially with Baximi. We look forward to updating you all again. Have a great day.

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Earnings Conference Call
Amphastar Pharmaceuticals Q3 2023
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