Amphastar Pharmaceuticals Q4 2023 Earnings Call Transcript

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February 28, 2024

There are 9 speakers on the call.

Operator

Greetings, and welcome to the Amphastar Pharmaceuticals 4th Quarter Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. 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.

Operator

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 site and the SEC's Web site for a discussion of numerous factors that may impact our future performance. We will also discuss certain non GAAP measures. Important information on our use of these measures and reconciliations to U. S.

Operator

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. Dan Dischner, Senior Vice President of Corporate Communications and Mr.

Operator

Tony Marrs, Executive Vice President of Regulatory Affairs and Clinical Operations. I will now turn the conference over to your host, Mr. Dan Bichner, 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 the call with me will be Bill Peters, CFO and Executive Vice President of Finance and Tony Mars, Executive Vice President of Regulatory Affairs and Clinical Operations. Throughout 2023, our strategic focus remained on driving momentum across our core high margin offerings while bolstering our presence in the complex product segments of our portfolio. This includes our strategic acquisition of Vaccimi and recent advancements in our interchangeable biosimilar development with our first BLL filing for insulin aspart or AMP-four.

Speaker 1

Earlier today, we announced financial results for the 2023 fiscal year highlighted by our net revenues which have surged to an impressive 644,000,000 representing a substantial 29% increase annually. This remarkable growth is further seen by a notable 41% increase in gross profit and a 51% increase in net income compared to the previous year. Our growth is attributed to our high margin products notably within our diabetes portfolio featuring glucagon injection and our recent addition of Baximi alongside our other branded product Primatene Mist. Moreover, our hospital and clinic use products such as epinephrine, dextrose and sodium bicarbonate continue to experience heightened demand driven by shortages amongst other suppliers. Looking toward 2024, we expect our glucagon injection, Baximi and Primatene Mist products to continue to drive revenues and we anticipate a sustained demand for our hospital and clinical use products.

Speaker 1

We anticipate potentially 4 product launches this year. We are excited about our upcoming launch of Rexovy, our intranasal naloxone, which uses our proprietary device. For AMP-fifteen or teriparatide, our progress towards its GDUFA date remains on track for a second quarter. This filing is undergoing a pre approval inspection marking a step forward in the regulatory process. As for AMP002, ongoing dialogue with the agency in pursuit of a favorable determination indicates the agency's commitment despite a delay in its GDUFA date.

Speaker 1

The market demand for this product remains robust, presenting an opportunity as the 1st generic contender in a market exceeding $500,000,000 according to Aquivia. As for AMP-eight, our first insulation ANDA, which received priority review status, we have a GDUFA goal date in the Q2 of this year. And our AMP007 inhalation ANDA, which was filed in the Q4 of 2023, we have a GDUFA date in the Q4 of 2024. There is a Paragraph IV certification with this ANDA. As for updates on Baximy, the progress of the transition from Lilly continues as planned and sales totaled $28,700,000 in the 4th quarter, figure slightly impacted by anticipated seasonality factors.

Speaker 1

As expected, the transfer is going smoothly as we took over U. S. Marketing in October. We began shipping the 2 pack of Baximia in the United States at the beginning of February and we'll start shipping the 1 pack in March. Looking forward, we remain optimistic about the trajectory of this product as we continue to take over worldwide distribution from Lilly throughout 2024.

Speaker 1

Having discussed the main drivers of our revenue and the impact of market nuances on our quarterly performance, I want to pivot the discussion towards our pipeline and regulatory affairs concerning our proprietary biosimilar and complex generic products. Starting with our insulin aspart filings, We firmly believe our BLA application aimed at securing interchangeable status will not only mark a significant advancement for our diabetes portfolio, but will also demonstrate our commitment to leveraging our robust U. S.-based capabilities. This strategic move is poised to solidify our position as a front runner in being a proud U. S.

Speaker 1

Finished interchangeable biosimilar insulin manufacturer and supplier. This aspect sets us apart in an increasingly competitive landscape as the demand for more affordable options for diabetic patients continues to surge, we are poised to meet this need with our U. S. Manufacturing site. Furthermore, we believe this milestone will pave the way for success of our other insulin products currently in development, including AMP-four ms or insulin aspart M, AMP-five recumbent human insulin and AMP-twenty five insulin degludec, which development continues to advance.

Speaker 1

Additionally, while on the topic of our diabetes pipeline, our GLP-one ANDA in development known as AMP-eighteen remains on track for a filing this year. In reference to our proprietary product intranasal epinephrine or AMP-nineteen, this product continues to progress through the various development stages. Concluding my remarks and looking ahead, Amphastar has significant opportunities in front of us, supported by our sustained growth and strategic initiative. With the imminent launches of REKTOVI and promising candidates like teriparatide, AMP002 and AMP008, are optimistic about our trajectory. Our annualized performance underscores the resilience and diversity of our portfolio, signaling growth potential.

Speaker 1

Moving forward, our dedication to growth is evident through our R and D advancements, which is the engine of our company and our planned expansion efforts within our inhalation pipeline at our Armstrong facility, our continued API expansion at our A and P facility, which is anticipated to be completed this year and our capacity expansion at our headquarters to capitalize on our insulin and complex injectable opportunities. I would like to turn the call over to our CFO and Executive Vice President of Finance, Bill Peters to discuss the Q4 and year end financial results.

Speaker 2

Thank you, Dan. Sales for the Q4 of 2023 increased 32 percent to $178,100,000 from $135,000,000 in the Q4 of 2022. Vaccimi contributed $22,500,000 to net sales based on Eli Lilly's sales of $37,600,000 plus cost of revenues and transition service fees of $15,200,000 LUKAGON sales increased 70% growing to $31,200,000 from $18,300,000 as the discontinuation of Primatene Mist continued to show strong sales growth during the quarter with sales of $24,500,000 up 10% from $22,300,000 in the prior year period. Epinephrine showed strong sales in the Q4 amid continued shortages by our competitors, growing to $24,600,000 from $21,400,000 in the previous year's period. Lidocaine showed growth of 13% to $15,000,000 in the current quarter from $13,300,000 in the Q4 of 2022 as we were able to increase capacity and decrease our back order.

Speaker 2

Other finished pharmaceutical product sales increased 6% to $35,000,000 in the Q4 of 2023 compared to $33,100,000 from 20.22 as the company recorded stronger sales due to the launch of regadenosine earlier in 2023 and increased unit sales of atropine, calcium chloride, sodium bicarbonate and Ganorelix, which were partially offset by lower sales of medroxyprogesterone as the company was in the process of transferring the API production for that product to its facility in China. Gross margins increased to 54% of revenues in the Q4 of 2020 3 from 53% of revenues in the Q4 of 2022 due to Baximi sales, which are recorded net of Lilly's expenses and to strong sales of higher margin products like glucagon and Primatene Mist. These positives were partially offset by an inventory reserve of $3,600,000 for Insulin API due to our amended contract with MannKind, which delays required purchases. Selling, distribution and marketing expenses increased to $8,600,000 from $5,500,000 due to the expansion of our sales and marketing efforts for Abaximy, as we began detailing the product at the beginning of October. General and administrative expenses increased to $13,100,000 from $10,600,000 in the prior year due to backsemia related expenses and higher personnel costs.

Speaker 2

Research and development expenditures increased in the quarter $20,400,000 from $17,200,000 in the comparable quarter of 2023, primarily

Operator

due to spending

Speaker 2

on materials and supplies for our inhalation programs. Non operating expense in the Q4 of 2023 was $12,600,000 primarily related to interest expense on the debt used finance the Vaccimi acquisition, foreign currency fluctuations and mark to market adjustments on our interest rate swaps. This compares to non operating income of $3,400,000 in the Q4 of 2022 due to a remeasurement gain on foreign currency. The tax rate this quarter was lower than usual due to a mix of one time events combined with an updated review of our international tax structure. The company reported net income of $36,200,000 or $0.68 per share, which was up 7% and 3% respectively compared to the previous year's 4th quarter net income of $33,900,000 or $0.66 per share.

Speaker 2

The company reported an adjusted net income of $46,900,000 or $0.88 per share compared to an adjusted net income of approximately $37,600,000 or $0.73 per share in the Q4 of the previous year. Adjusted earnings exclude amortization, equity compensation, impairments of long lived assets and one time events. In the Q4, we had cash flow provided by operations of approximately $23,900,000 and for the full year cash flow from operations were $183,500,000 Let me review a few of the financial assumptions we are using as we look to 2024 and beyond. Baximi will drive sales growth in the coming year. We anticipate continued unit growth in the high single digit range.

Speaker 2

Average selling price will be impacted slightly due to the difference between the wholesaler fee structure for Amphastar compared to that of Eli Lilly. As for Primatene Mist, we are reiterating our forecast of hitting $100,000,000 in sales this year. We are forecasting up to 4 product launches this year, including REKTOVI, which we launched in the coming weeks. We are also expecting approvals in 2024 for AMP002, AMP008 and teriparatide. We expect gross margins to be slightly lower, primarily due to the shift in accounting for Baximi from net economic benefit in which sales are booked net of cost of goods sold to typical revenue recognition with cost of goods sold, thus increasing both the sales and the cost of goods line on the income statement.

Speaker 2

We've already begun this transition in the United States, where we began shipping the 2 pack of Baqsimi at the beginning of February, and we will begin shipping the 1 pack in March. Last week, we also started distributing Baqsimi in Italy, 1st country outside of the United States, with the remainder of foreign countries converting to our distribution network 1 by 1 throughout the remainder of 2024. Our selling and marketing expenses will increase due to efforts related to Baximi. We expect G and A spending to increase due to expenses associated with Baximi and legal expenses associated with Paragraph IV patent challenges. Turning to research and development, we plan to ramp up spending on clinical trials, purchases of materials and supplies and FDA filing fees this year as we increase spending on our insulin portfolio, 2 inhalation candidates and our intranasal epinephrine product.

Speaker 2

We also anticipate a significant increase in capital spending this year as we continue our project to double the capacity for our inhalation products at our Armstrong facility to align with our pipeline development. Additionally, we plan to finish our insulin API production capacity expansion at our A and P facility in China this year. At our Amphastar facility, we are in the process of an expansion project, which will significantly increase the capacity of our Rancho Cucamonga complex as we look to major insulin and complex injectable opportunities. Spending on this major project will begin this year, but will ramp up more significantly in 2025 reaching $40,000,000 a year for 3 years. We plan to finance this expansion with cash flows from operations.

Speaker 2

We will use a portion of our cash this year to make the $125,000,000 payment due to Lilly in June. At the same time, we plan to utilize our strong cash position to continue our stock buyback program. I'll now turn the call back over to the operator for questions.

Operator

Thank you. We will now be conducting a question and answer Our first question is from Jason Gerberry with Bank of America. Please proceed with your question.

Speaker 3

Hey, guys. This is Bhavan on for Jason. Two questions from us. First, can you provide some color as to the line of sight into competitor supply shortages, namely as it pertains to the tailwind we're seeing with generic epinephrine and a handful of products in the other finished pharmaceutical product segment. When can we expect that trend to reverse?

Speaker 3

And then second question on BEXIMI growth. Are you on track for the transition from in 1Q in the U. S? And do you expect any sort of headwind during this transition phase while your sales force gets more comfortable with getting out there and driving uptake with prescribers? Thank you.

Speaker 1

Yes. Thanks for the question. Yes. In regards to shortages, we always seem to come across this. There's always a shortage of some products more in this portfolio at one time or another.

Speaker 1

We don't have any additional insight or color on the status of whether or not they'll be back online or come back online. But what we can tell in the near future, at least for the next quarter or 2 that our the demand for the products that we were talking about are still necessary for us to provide.

Speaker 2

And some of those products are supposed to be back online according to the communications that we get from the FDA. But the reality is and I think what I was getting to is that we've had these shortage issues for over 10 years now. Every quarter there's been some product or another where there's been a shortage and we've been able to be there and be able to supply our customers for that. And our customers have appreciated that and supported us because of that. I think the second question was Baximia.

Speaker 2

Yes, as I said in my remarks, we started selling the 2 pack in the United States in February and we're going to start selling the 1 pack of Baximia in the United States in March. So those that's already taken care of in Italy already transferred in February as well. And the rest of the company countries in Europe are going to move on a 1 by 1 basis. And the marketing program is going as planned in the United States.

Speaker 3

Thank you.

Operator

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

Speaker 4

Hi, thanks. Bill, I had a question just on the net economic benefit figure for Baxsemi. Just going forward, I know you indicated you expect sales to be upward in the single digit growth? I mean, is that sort of the net economic benefit figure that we should be modeling single digit growth for going forward on a quarter to quarter basis?

Speaker 2

What I'm talking about is more of the backsemi sales that Eli Lilly had in the quarter of was it $37,000,000 So that's the level that we're looking at. And as I mentioned, in the United States, which makes up 80% of the sales of Vaccimi, we transitioned to the 2 pack in February and we're planning to transition to the one pack in March. So the Q1 is going to be a mix of both NEB and our regular sales for the U. S. And for Italy.

Speaker 2

The rest of the world will still remain on the NEB mostly until the Q3. And that's when we expect most of the transitions for most of the other countries to occur in the Q3.

Speaker 4

I see. And then you mentioned higher sales and marketing expenses going forward. Is it too early to sort of peg just sort of a ballpark increase rate for selling and marketing expenses this year?

Speaker 2

Yes. So what we've said is that the increased SG and A costs are going to be similar to what Lilly sent pharma, which is around 17 percent of revenue. So I think that you're taking a look at something that's in that neighborhood of vaccinee revenues is going to be the range of that increase.

Speaker 4

Okay. And maybe just one pipeline question, which is AMP-fifteen teriparatide, obviously, there are some other existing generic companies in that market. I mean, do you still think you'll have the ability to get meaningful share in that market once you get approval sometime in the Q2?

Speaker 1

Yes. What we've said is that we sort of expect it to be as what you would expect from a generic that has multiple candidates, 3 other generics in the market at the same time. So, it's a market opportunity for us. We still think that it's significant. But yes, there are we do recognize that there are other people that got approval.

Operator

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

Speaker 2

Hey, thanks.

Speaker 5

So, a few pipeline questions. AMP-two, what is underlying your confidence in getting it across the finish line? I know as the action date came and went and nothing has happened there. So I guess can you talk more about your interactions with the FDA or what just gives you confidence that

Operator

you can get

Speaker 5

there? And then on the inhalation product 8, just want to clarify that it is indeed a first to market opportunity and how you're thinking about that, and particularly to the extent it is a first to market opportunity, what are margins going to look like relative to the overall business? And then lastly on the GLP-one, I guess I'll just ask it straight up, is it liraglutide or is it something else? Thank you.

Speaker 6

Hey, David. Thanks for the question. For our AMP-two product, we continue to have discussion with the agency. We view it as positive movement. They have not asked us for any new information or any new data as of yesterday or today as of that.

Speaker 6

So we just continue to engage with them and have discussions with them. We're optimistic about it. We feel we understand what the issue is and just work with them as they try to overcome that issue. So from our perspective, we remain optimistic about it.

Speaker 2

And on the second one for MP808, we haven't decided whether or not it's a first to market. And for the third one, the GLP is, we haven't said what the molecule is, but it will be subject or likely to be subject to paragraph IV litigation. So after it's filed, it's likely to become known. And also as Dan had mentioned, our AMP-seven is also subject to paragraph 4 filing. So it's possible that that becomes known through that process at some point in the not too distant future as well.

Operator

Okay. If I may ask

Speaker 5

a follow-up on 2. So you characterize it as an exit quote issue, but there's no CRL here. So is that should we interpret that as a good thing or just this is just a complete one off that sort of confounds any attempt to comparison?

Speaker 6

Yes. I think maybe it's just a one off issue. We have what we believe is our we have an understanding that we think is the issue that they're trying to overcome. And we engage them on that and try to just keep pressure, keep discussion, keep engaging with them. But we think that it's just the one issue that when they're able to address that issue that that's the only thing that is holding up this application.

Speaker 6

And once it's relieved, then it should be very positive.

Operator

Thank you. Our next question is from Glenn Santangelo with Jefferies. Please proceed with your question.

Speaker 7

Yes. Thanks for taking my questions. Hey, Bill, I just want to follow-up on a couple of modeling questions. I mean, you gave some color on Baximi, but I was kind of curious if you could maybe help us frame out 2024 a little bit more clearly in terms of this TSA that's in place and how that's going to phase in over the different countries and because that's obviously going to have a pretty material impact on your revenue and your expenses at the same time. And I just any help you can sort of give us on a high level from a modeling perspective to think about that transition throughout 2024 would be helpful.

Speaker 7

Then I may be a follow-up.

Speaker 2

Sure. So it's actually a little bit confusing to us too. So here's what I'll say is that as I mentioned, 80 percent of the revenues from Vacciney come from the United States and part of the we're making that transition partway through the year. The way we're budgeting this internally is we're just assuming there is no NEB and we just go with the straight sales and the straight expenses because we know that the net income impact is going to be the same either way. So there's going to be the same amount of money spent or the same amount of sales at the very top line, that's and our revenues will be slightly adjusted, but we know that the income will be will end up being the same.

Speaker 2

So with 80% of the sales being transitioned in the Q1, the way I would look at it is that half of the quarter is going to be NEB and half if it's not for 80% of it. Then most of

Operator

the rest of

Speaker 2

the countries will come online in the Q3. But that's only about 20% of the sales worldwide. So and I don't know, I could feel free to answer some follow-up because we don't know exactly know what the exact date for most of these transitions either. Part of this has to do with inventory levels and winding down Lilly inventory labeling versus the Amphastar labeled products and making sure that we have sufficient inventory to get launched. So it's a little bit of a confusing process, so we don't have exact dates either.

Speaker 7

All right. Well, listen, we can maybe explore it a little bit more offline. But maybe as my follow-up, I wanted to ask about glucagon. Obviously, you've been posting some pretty sizable growth in 'twenty three as a couple of those players exited the market late in 'twenty two. Did the comps get much stiffer here now as you enter into the Q1?

Speaker 7

And as I think about maybe growth flowing in that product and the 4 new product launches and sort of Baximi sort of phasing in as we just discussed, you said we should expect gross margins to be trending down this year. Could you maybe just give us a little bit more color on the direction of glucagon and the impact of all these launches on gross margin?

Operator

Yes. So glucagon has a couple

Speaker 2

of things. The comps are tougher now. So now we've now posted the last big up quarter.

Speaker 4

So that's

Speaker 2

the end of that trend. So what we do have though is our expectation is that with for glucagon being having now gone to 1 third anti hypoglycemic market and 2 thirds of that is going to be for the diagnostic market. We see that anti hypoglycemic market continuing to shrink as products like Baximi, which we think are much better product for that and take more and more market share over the coming years. So we see that portion of the market declining. However, as we mentioned in our presentation, I think we mentioned briefly, we are launching the glucagon product in Canada now.

Speaker 2

So, some of the U. S. Decline that U. S. Decline should be offset by the pickup in Canadian business.

Speaker 2

And the way to think about it is that Canada is about 10% of the United States business. So we'll have that to offset from the decline. So we're not one of the reasons we didn't mention glucagon as a growth item is just because of that. We think a little bit of decline in the U. S.

Speaker 2

Offset by the Canada business. And then going back to the gross margins on a GAAP basis, we will have cost of goods for VAXIMI, which we didn't have last year. So that's the biggest impact. The second biggest impact is going back to GAAP again is, we'll have a full year of amortization of the intangible for Baximia. Now that gets pulled out for the adjusted cost of goods, but that's going to be in there for the GAAP cost of goods.

Speaker 2

And then overall, we're probably not seeing prices increase across our product line very much, whereas we do have some cost pressures. So there's going to be a slight decline for some of those products. Now once we can launch some of these newer products though, rextoV and AMP002, 8 and teriparatide, all of those should have gross margins that are above the corporate average. So those will all help out pull that gross margin back up again. So there's definitely different forces pulling both ways on that gross margin this year.

Operator

Thank you. Our next question is from Serge Belanger with Needham and Company. Please proceed with your question.

Speaker 8

Hi, good afternoon. First question, can you just talk about your outlook for shortage opportunities this year? I guess whether the ones you've been able to capture will remain and if you have the capacity to take on additional ones that may materialize. And then secondly on cariparatide, what's your level of confidence for approval at the 2nd quarter GDUFA? And how does that market opportunity look like now that there's been a couple of other approvals?

Speaker 8

Thanks.

Speaker 1

Yes. Back to the shortage opportunities. We anticipated these for a long time. It's one of the reasons we invested in expanding our issue. We're happy to pick it up.

Speaker 1

We're happy to take it on and provide when we need to be. We don't have yes, I think Bill mentioned that there is some that they may come back one of these products, but they will probably create a shortage in another product somehow. So we always look at it as probably about $20,000,000 is why is what we forecasted with the expansion of our capacity. We're definitely in that ballpark around that. And I think we'll still I think we're still going to see similar scenarios in the future.

Speaker 1

As for teriparatide?

Speaker 6

Yes, we remain confident in this CRL that we addressed, related mostly to a study which we performed and we performed studies of that nature before. So, we remain, optimistic about the approval for that.

Speaker 2

And as far as the market opportunity goes, there are 2 other participants in that now, 2 new generics. So the market is crowded and definitely the price has come down pretty significantly and will come down even further with ours. But that said, it's still a product that has a relatively high price and relatively high margins. So we still see this as a good opportunity, but not as big an opportunity as it seemed 6 months ago.

Operator

Thank you. There are no further questions at this time. I'd like to hand the floor back over to management for any closing comments.

Speaker 1

Yes. I want to thank you all for joining us on today's call. We're excited about the opportunities ahead with the upcoming launches like REXTOBI and other potential launches with teriparatide, AMP002 and AMP008. And we look forward to updating you all in the next call. Have a great day.

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Key Takeaways

  • Amphastar reported 2023 net revenues of $644 million, up 29% year-over-year, with gross profit increasing 41% and net income rising 51% compared to 2022.
  • Strong demand for high-margin diabetes products such as glucagon injection, Baximi and branded Primatene Mist, along with hospital-use drugs like epinephrine and sodium bicarbonate, drove much of the growth amid competitor shortages.
  • For 2024, the company plans up to four new product launches, including intranasal naloxone (Rexovy), teriparatide (AMP-15), AMP-002 and AMP-008, while expecting continued demand for core offerings.
  • Amphastar’s biosimilar pipeline advanced with its first interchangeable insulin aspart BLA filing and ongoing development of multiple insulin analogs and a GLP-1 generic (AMP-18) slated for filing this year.
  • Significant capacity expansions are underway at its Armstrong inhalation and A&P China API facilities, plus a Rancho Cucamonga upgrade, financed by operating cash flow to support its insulin and complex injectable opportunities.
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Earnings Conference Call
Amphastar Pharmaceuticals Q4 2023
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