Embecta Q2 2024 Earnings Call Transcript

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Provided by Quartr
May 9, 2024

There are 7 speakers on the call.

Operator

Welcome, ladies and gentlemen, to the Fiscal Second Quarter 2024 Ambecta Earnings Conference Call. At this time, all participants have been placed in a listen only mode. Please note that this conference call is being recorded and the recording will be available on the company's website for replay following the completion of this call. I would now like to hand the conference call over to your host today, Mr. Purvesh Khandewal, Vice President of Investor Relations.

Operator

Please go

Speaker 1

ahead. Thank you, operator. Good morning, everyone, and welcome to Ambekta's fiscal 2nd quarter 2024 earnings conference call. The press release and slides to accompany today's call and webcast replay details are available on the Investor Relations section of the company's website at www.mbeka.com. With me today are Dev Koudicar, Ambecta's President and Chief Executive Officer and Jake Elguis, our Chief Financial Officer.

Speaker 1

Before we begin, I would like to remind you that some of the matters discussed in the conference call will contain forward looking statements regarding future events as outlined in our slides. We wish to caution you that such statements are in fact forward looking in nature and are subject to risks and uncertainties and actual events or results may differ materially. The factors that could cause actual results or events to differ materially include, but are not limited to, factor referenced in our press release today as well as our filings with the SEC, which can be accessed on our website. In addition, we will discuss certain non GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non GAAP measures to the comparable GAAP measures is included in our press release and conference call presentation.

Speaker 1

Our agenda for today's call is as follows. Dev will begin by providing some remarks on the overall performance of our business during the fiscal Q2 of 2024 as well as an overview of our strategic priorities. Jake will then provide a more in-depth review of our Q2 financial results as well as our updated financial guidance for the year. We will then open the call for questions. With that said, I would now like to turn the call over to our CEO, Jeff Kudicker.

Speaker 1

Jeff? Good morning and thank you for taking the time to join us. Let's start with our strategic priorities on Slide 5. We remain committed to the same 3 of strategic priorities that have guided us since we established ourselves as an independent company. These priorities form the basis of our decisions and actions and they are remaining focused on strengthening our base business while maintaining our global leadership position in the category of insulin injection devices, separating ourselves from our former parent in a thoughtful manner to mitigate risk and position us for long term success as an independent company.

Speaker 1

And finally, investing in growth, most notably around our insulin patch pump program that has been developed for the Type 2 market as well as seeking M and A and additional partnership opportunities. During this past quarter, we made significant progress within each of these goals. Turning to some second quarter highlights. The Q2 was a strong quarter for Ambecta, one in which we generated approximately $287,000,000 in revenue, which represented an increase of 3.6% on an as reported basis and 4.5% on a constant currency basis. When normalizing for the transient contract manufacturing revenue that we generate based on sales of non diabetes products to our former parent, our constant currency revenue grew 4.9% as compared to the prior year period.

Speaker 1

This solid performance exceeded our expectations and occurred while simultaneously implementing our own ERP system, operationalizing our new distribution network including 7 new distribution centers and standing up shared service capability in markets comprising 25% of our revenue in over 100 countries and serving approximately 5,000 customers. We also implemented these systems and processes in our 3rd manufacturing plant. Thus, at the end of the second quarter, we have completed the implementation of our ERP system and operationalized our distribution network and shared service capability across approximately 85% of our revenue base, servicing customers in U. S, Canada, EMEA and parts of Asia and at all 3 of our manufacturing plants in the U. S, Ireland and China.

Speaker 1

Additionally, we successfully completed the remaining steps in the demerger process for our manufacturing entity in China and have transitioned its legal ownership from BD to IMVEKTA. We have also resumed manufacturing at this facility for products for supply to our customers in China. We have previously commented that this facility was producing goods for export to other markets. So now the plant is fully operational. All of these accomplishments were achieved in alignment with our projected timelines.

Speaker 1

The transfer of ownership of this important plant from BD to IMVEKTA and the restarting of domestic China production marks the completion of a significant separation project that our team has been meticulously working on since prior to our spin off date. Lastly, as it relates to separation activities to facilitate the phased implementation of our ERP solution, distribution network and shared services capabilities, we had requested an extension for certain TSAs and related agreements from BD. BD granted that limited extension, which has allowed us to implement our ERP system and associated distribution and shared services capabilities in a phased manner with the goal of completing these implementations in all markets except in certain limited deferred closing jurisdictions by early fiscal year 2025. It goes without saying that these implementations are highly intricate and I'm proud of our team for bringing these complex projects to near completion. Related to our objective of entering the infusion pump market, we sponsored the publication of a paper titled Opportunities to Overcome Underutilization of Enhanced Insulin Delivery Technologies with Type 2 Diabetes, a narrative review.

Speaker 1

This paper aims to inform healthcare providers, particularly primary care physicians and those less familiar with technology about the benefits of insulin pumps for people with Type 2 diabetes. It highlights the safety and effectiveness of innovative technologies like insulin delivery systems in improving glycemic outcomes. Despite the proven efficacy, these technologies are often overlooked in primary care settings. The review explores the clinical and economic advantages of tubeless insulin delivery devices and explains how this technology can address common challenges associated with traditional insulin delivery methods. And speaking of insulin patch pumps, we continue to make progress in terms of insulin patch pumps that are being developed.

Speaker 1

I'll share more about these accomplishments in the following slide. To summarize, during the Q2, strong operational execution led to results that exceeded our internal expectations. And based on these results, we are raising and tightening our guidance range for key financial metrics, which Jake will be discussing later. Turning to the advancements we made in terms of our insulin patch pump program. Our 510 application for the open loop version of our insulin patch pump continues to be under FDA review and we continue to have ongoing dialogue with the FDA.

Speaker 1

As a reminder, we submitted our 510 application to the FDA in late calendar year 2023. In parallel, during the Q2, we also continued the development of a closed loop insulin patch pump that is targeted towards those individuals who have type 2 diabetes including for the collaborating with Tidepool concerning the adaptation of their FDA approved Type 1 algorithm into a Type 2 algorithm that could be used in our closed loop insulin patch pump system. As we continue to progress throughout this year, we will continue to provide updates to the investment community regarding the status of FDA's review at the appropriate times, as well as progress we make regarding our closed loop Type 2 patch pump. Lastly, I would like to provide a review of our 2nd quarter revenue performance in a bit more detail. As I mentioned at the outset, during Q2, we generated revenue of $287,200,000 which represented an increase of 3.6% on an as reported basis and an increase of 4.5% on a constant currency basis or 4.9% when normalizing for the impact of year over year changes in the revenue of non diabetes products that we contact manufacture and sell to BD.

Speaker 1

Our Q2 revenue exceeded our previously communicated expectations, primarily due to the timing of customer orders in advance of our aforementioned EMEA and parts of Asia focused ERP system and associated capabilities implementations and in advance of a price increase in the U. S. Q2 revenue also benefited from a better than expected product and geographic mix. We estimate that the timing of customer orders impacted our 2nd quarter results positively by approximately $16,000,000 and we currently expect that the timing benefit will unwind during fiscal Q3. Within the U.

Speaker 1

S, during the quarter revenue totaled $147,600,000 which represented year over year growth of approximately 0.8% on a constant currency basis. When normalizing for year over year contract manufacturing revenues, our underlying Q2 constant currency revenue growth within the U. S. Was approximately 1.5%. Volume was the primary contributor of growth in the quarter aided by our contract wins with the top three Medicare Part D plans going into effect in January 2024.

Speaker 1

As we have previously noted, we are the preferred or dual preferred brand on the formularies for these plans. These additional Medicare Part D plan volumes were somewhat offset by the unwinding of certain customer orders that benefited us in our fiscal Q1 as was discussed on our Q1 earnings call. Pricing was flat in the quarter as compared to the year ago period, which was expected. During Q2, our international revenue totaled $139,600,000 which equated to year over year constant currency growth of approximately 8.7%. Growth in our international business was due to increased volumes and can be largely attributed to the timing of certain customer orders in advance of previously mentioned ERP and associated capabilities implementations that occurred within the quarter.

Speaker 1

Pricing within our international business remained relatively flat. That completes my prepared remarks. And with that, let me turn the call over to Jake to take you through our Q2 financial results as well as our updated full year financial guidance in more detail. Jake?

Speaker 2

Thank you, Deb, and good morning, everyone. Given the discussion that has already occurred regarding revenue, I will start my review of Emvecta's financial performance for the Q2 at the gross profit line. GAAP gross profit and margin for the Q2 of fiscal 2024 totaled $185,400,000 64.6 percent respectively. This compared to $189,800,000 68.5 percent in the prior year period. While on an adjusted basis, our Q2 2024 adjusted gross profit and margin totaled CAD185.8 million 64.7 percent.

Speaker 2

This compared to CAD190.1 million 68.6 percent in the prior year period. The year over year decrease in adjusted gross profit and margin was due to the impact of inflation on the cost of certain raw materials, direct labor, freight and overhead. The impact of negative year over year manufacturing variances primarily attributable to the planned temporary shutdown of our Suzhou, China facility as it relates to production for the domestic Chinese market for part of the quarter and the negative impact of foreign currency translation, primarily due to the strengthening of the U. S. Dollar.

Speaker 2

As compared to our prior outlook, our adjusted gross margin during the Q2 was better than we previously expected and this was due to the higher than anticipated revenue that Deb referred to earlier as well as favorable geographic and product mix. Turning to GAAP operating income and margin, during the Q2 they were $39,200,000 13.6 percent. This compared to $55,600,000 20.1 percent in the prior year period. While on an adjusted basis, our Q2 2024 adjusted operating income and margin totaled 74,900,000 dollars 26.1 percent. This compared to $84,900,000 30.6 percent in the prior year period.

Speaker 2

The year over year decrease in adjusted operating income and margin is primarily due to the adjusted gross profit changes I just discussed as well as an increase in SG and A costs associated with standing up the organization. These additional costs were somewhat offset by a reduction in year over year R and D expense, primarily due to an upfront payment made in the prior year period in connection with the Tidepool algorithm collaboration agreement as well as a reduction in TSA expenses. The adjusted operating income and margin performance during Q2 was better than we previously expected, primarily due to the over achievement at the gross margin line coupled with the timing of R and D spending within the quarter. Turning to the bottom line, GAAP net income and earnings per diluted share were $28,900,000 and $0.50 during the Q2 of fiscal 2024, which compared to $14,000,000 and $0.24 in the prior year period. While on an adjusted basis, net income and earnings per share were $38,900,000 $0.67 during the Q2 of fiscal 2024.

Speaker 2

This compared to $43,300,000 $0.75 in the prior year period. The decrease in year over year adjusted net income and diluted earnings per share is primarily due to the adjusted operating profit drivers I just discussed as well as an increase in year over year interest expense associated with the rise in sulfur and the impact that had on our variable interest rate debt. This was somewhat offset by a reduction in our adjusted tax rate from approximately 25% in Q2 of 2023 to approximately 17.9% in Q2 of 2024. The year over year reduction in our adjusted tax rate was expected and was due to certain discrete tax items that occurred during the quarter. For the 1st 6 months of 2024, our adjusted tax rate was approximately 22%, which is in line with our annual adjusted tax rate expectations.

Speaker 2

Lastly, from a P and L perspective, for the Q2 of 2024, our adjusted EBITDA and margin totaled approximately $90,800,000 31.6 percent. This compared to 96,700,000 dollars 34.9 percent in the prior year period. Turning to the balance sheet and cash flow. At the end of the Q2, our cash balance totaled $306,500,000 while our last 12 months net leverage as defined under our credit facility agreement stood at approximately 3.8 times. As a reminder, our net leverage covenant requires us to stay below 4.75 times.

Speaker 2

From a cash flow perspective, our cash balance as of March 31 is approximately $20,000,000 lower than the balance that existed as of September 30. And this is largely attributed to cash that has been used related to separation related activities, which include product registration and labeling costs, warehousing and distribution setup costs, legal costs associated with patents and trademark work, temporary headcount resources within accounting, tax, finance, human resources, regulatory and IT and one time business integration and IT related costs primarily associated with our global ERP implementations. We estimate that during the 1st 6 months of fiscal year 2024, we used approximately $90,000,000 of cash towards these separation activities. As we look forward, we currently estimate that we will end fiscal year 2024 with a cash balance roughly comparable to the balance that existed at the end of the second quarter. This includes an expectation that for the full year, we will use between approximately $180,000,000 $190,000,000 of cash towards separation activities.

Speaker 2

This compares to cash used for separation activities of approximately $145,000,000 during fiscal year 2023. Given that we expect to be complete with most separation projects by the end of this fiscal year, we would expect to see an improvement in our cash balances in fiscal year 2025 beyond, which would allow us additional flexibility in terms of capital allocation, including debt repayment. Additionally, we now show trade receivables globally on our balance sheet given our previously mentioned ERP implementations and the exit of our factoring agreements with BD. I'm pleased to report that following the implementation of our ERP system and shared service functionality in November of 2023 within North America that the cash collections associated with those receivables have continued to trend in a positive direction and that this has returned to a more typical levels of accounts receivable within North America. This is important as it will allow us to focus our attention on the newly generated accounts receivable that exists within EMEA and Asia and turning those receivables into cash following our March of 2024 ERP implementations and shared service capabilities in those regions.

Speaker 2

That completes my comments on our fiscal Q2 results. Next, I will provide an update on our full year 2024 financial guidance. Beginning with revenue, given our performance during the first half of the year, we are tightening our constant currency revenue guidance range as we are now calling for full year 2024 constant currency revenue to be flat to down 0.5% as compared to 2023. This compares to our prior guidance range, which called for full year constant currency revenue to be flat to down 2% as compared to the prior year or an increase of approximately 75 basis points at the midpoint. The low end of our updated constant currency revenue growth guidance range is driven entirely by year over year headwinds associated with reduced contract manufacturing revenue of non diabetes products.

Speaker 2

As we now expect our underlying core injection diabetes product revenues to be flat compared to a 1% decline assumed in our prior guidance. While the high end of our constant currency revenue range is unchanged as compared to our prior guidance. Turning to FX, we are reaffirming our previously provided guidance, which calls for a foreign currency to be a headwind of approximately 0.4% versus the prior year. These FX assumptions are based on foreign exchange rates that were in existence during the late April timeframe, including a euro to U. S.

Speaker 2

Dollar exchange rate of approximately 1.08. On a combined basis, our updated as reported guidance range calls for revenue to be down between 0.4% and 0.9% as compared to 2023, resulting in an updated revenue guide of between 1,111,000,000 dollars $1,116,000,000 Turning to margins, we are raising the midpoint of our adjusted gross, adjusted operating and adjusted EBITDA margin guidance by 125 basis points each, as we now expect adjusted gross margin of between 64.5% 65%, adjusted operating margin of between 25.25 percent 25.75 percent and adjusted EBITDA margin of between 31% 31.5%. Finally, due to a combination of improved revenue and margin outlook, we are increasing our adjusted earnings per share guidance from a range of between $1.95 $2.15 to a new range of between $2.20 $2.30 or an increase at the midpoint of $0.20 Our updated guidance range continues to assume that our annual net interest expense will be approximately 116,000,000 dollars that our annual adjusted tax rate will be approximately 22% and that our weighted average diluted shares outstanding will be approximately 58,100,000. This completes my prepared remarks. And at this time, I would like to turn the call over to the operator for questions.

Speaker 2

Operator?

Operator

Thank you. Our first question comes from the line of Travis Steed with Bank of America Securities. Your line is now open.

Speaker 3

Hi, good morning. This is Carolyn on for Travis. Thanks for taking the questions. I wanted to start out first with the full year guidance. It looks like you beat Street expectations by about $8,500,000 and then raised the full year guide by $22,000,000 So I'm wondering if you can speak to any one time impact in the quarter.

Speaker 3

I believe you said previously that about $16,000,000 was pulled forward and then contract manufacturing was a 40 bps headwind. So just wanted to confirm that I got that right and see if there's anything else that we should be taking into consideration for the full year guidance here. Thanks. And then I have one follow-up.

Speaker 2

Yes. Thanks, Caroline. I think you might have had the numbers just transpose. We did very well in the quarter. I'm not necessarily going to refer to consensus expectations, but I think we did beat our own internal expectations by about $22,000,000 in the quarter and we did refer to about $16,000,000 of that being attributed to timing.

Speaker 2

So simply in advance of the ERP implementations, we saw customers order some additional product in our international markets, probably by about $10,000,000 in the quarter. And then in the U. S. In advance of our normal April 1 price increase, we saw some additional volumes in the U. S.

Speaker 2

And we estimate that to be a timing benefit of about $6,000,000 in the quarter. So $16,000,000 we would expect to sort of reverse from Q2 into Q3. But then the underlying business did quite well, did about $6,000,000 better than what we had previously internally expected, largely due to the U. S. In relation to the full year, we're raising our midpoint of the guidance range on the top line by about CAD8.5 million at midpoint, about $6,000,000 of which we think occurred in the U.

Speaker 2

S. In the second quarter, but obviously we're affecting some additional favorability into the back half of the year in relation to prior guides. So a very strong quarter, I think, for us, particularly when you think about all the work that had to occur related to the ERP implementations.

Speaker 3

Thank you. Yes, I had that transposed. Appreciate that correction there. And then second question, can you provide an update on your plans for entering the GLP-one market with pen needles? I know recently it looks like Lilly got an approval for QuickPen.

Speaker 3

I'm not sure if there's anything more you can say there, just again on your outlook for entering the GLP-one market. Thank you.

Speaker 1

Yes, Carolyn. Hi, this is Dev. I'll take that. Yes, as you correctly pointed out, Lilly did get approval for the QuickPen. QuickPen, as you know, is the same pen that's used for insulin delivery and pens used for insulin delivery typically use our pen needles in most markets around the world.

Speaker 1

We do have leading share. Our expectation is as DLP presentation forms continue to evolve and more and more of them become available in pens, certainly our pen needles can be used with it. We continue to have discussions with other potential entrants into the GLP-one space, including generic now. Admittedly, they are years away. But our hypothesis is as more GLP-one players enter the market, it's likely that many of them will present their version of the GLP-one in a multi dose pen form and our pen needles will be applicable for it.

Speaker 1

Now certainly, as these manufacturers work to expand capacity, in some cases, they're also using vials. And with the regulatory approval, our syringes can be used as well. So as more and more GLPs enter the market, more pens will become available and certainly our pen needles can be used with those pens.

Speaker 3

Thank you.

Operator

Thank you. Our next question comes from the line of Marie Thibault with BTIG. Your line is now open.

Speaker 4

Hi, good morning. Thanks for taking the questions and congrats on a very nice quarter here. I'll leave the guidance questions to others, but I did want to ask a little bit more about accounts receivables. I know with Emvecta now responsible for collecting some of those receivables, the plan was to work some of this down in fiscal 2024. I know the ERP transition is still happening.

Speaker 4

Just wanted to try to understand why that receivables number ticked up a little bit and how we can expect that to look for the rest of the fiscal year?

Speaker 2

Yes. So Marie, the change in the receivable balance from, let's call it, fiscal year end ninethirtytwenty twenty three till where we are now entirely has to do with the fact that we went live with our ERP implementations and the factoring agreements that we had previously in place with BD where they would essentially factor those receivables on our behalf, went away. And now we're responsible, all those receivables now appear on our balance sheet. And at this point, all of the factoring agreements have now ceased. So the receivables that you see on our balance sheet are 100% representative of what the AR balances for IMVEKTA look like.

Speaker 2

There's no additional receivables that we would need to put on to our balance sheet. From the last quarter, from Q1 or fiscal Q1 to where we are right now, We did see an increase in the AR again entirely due to now our EMEA and Asia receivables coming onto our balance sheet as a result of those ERP implementations. And I think the way that you should sort of think about this moving forward, maybe just from like a total cash standpoint, I think we said in our prepared remarks that we would expect our overall ending cash balance for fiscal 2024 to be very close to where it is right now from a Q2 standpoint. So somewhere in or around that kind of $300,000,000 ish mark, that's down about $20,000,000 from where we were at year end. And again, that entirely has to do with cash used for separation and stand up activities.

Speaker 2

We estimate that we're going to use somewhere between $180,000,000 $190,000,000 of cash this year related to separation. That comes on top of using about $145,000,000 in the prior year. And I think that's really one of the things that is sort of into fiscal 2025 and beyond, now that we're almost past all of the separation work, you're really going to see the true free cash flow potential of this organization.

Speaker 4

Okay, Jake. That's helpful. And then wanted to ask a question a little bit about some of the market dynamics, competitive dynamics. I think near the end of your fiscal Q2, we saw a competitor sell off and transfer its pen needle and blood glucose meter business to another company. Wanted to hear if you've seen any disruption here now in the existing current quarter?

Speaker 4

And any thoughts on ability to maybe take some market share or make some efforts in those regions where that competitor was very active?

Speaker 1

So we haven't seen any disruption really from our perspective with respect to the transaction you were referring to. And thirdly, with respect to our sales force focus on ensuring that we present our products with as much vigor as possible and certainly continue to gain share. I mean, that will continue. We find that we certainly think that our products that compete with this competitor's products are very well positioned. We have demonstrated continuity of supply, notably even through the ERP transitions that we've referred to.

Speaker 1

And so we'll continue to make efforts in that area, but I'll leave it at that.

Operator

Our next question comes from the line of Calum Titchmarsh with Morgan Stanley. Your line is now open.

Speaker 5

Hey, good morning guys. Thanks for taking the question. On the patch pump program, I know we're still in the early stages here, but now you've had some more time to consider the implications. I'm wondering when you expect the costs to begin ramping to support the commercial infrastructure behind the project. It seems just eyeballing consensus that there's about flattish OpEx across the next few years.

Speaker 5

So just curious on how we should be thinking about midterm changes here? And then I have one follow-up. Thanks.

Speaker 1

Yes. Hi, Calum. So look, our focus right now is just undergoing completing the FDA review. We submitted our 510 in late calendar 2023, as you know. And so I certainly don't want to comment on either the outcome or the timing of when we would expect a decision from the FDA.

Speaker 1

And candidly, our focus right now is just completing that review and completing the remaining separation work and closing out FY 2024. So I'll refrain from talking about 25 expenses and beyond. But certainly, we are considering that as we get closer and we get more and more definitive decisions from the FDA, we are thinking about a potential Investor Day event or call to better provide our thoughts on FY 'twenty five and beyond, particularly as it relates to the patch pump.

Speaker 5

That's fair enough. Thanks. And then I know we got to keep our eyes on leverage, but any change in your appetite for M and A?

Speaker 1

I think leverage is front and center of our minds here. Jake referred to the fact that we certainly expect our free cash to improve in 2025 and beyond. And we are going to be thinking pretty strongly about debt and debt pay down as well. So again, this is something that we will update investment community on once we've closed out 2024 and finished up the rest of the separation projects. We certainly expect ARs to have normalized and we'll just have a better sense of the free cash that will be available to the company and talk about our capital allocation priorities going forward from there.

Speaker 2

And, Calum, I think on prior calls, we sort of referred to wanting to keep a larger cash balance on hand as we went through some of these ERP implementations in case something went wrong. Thankfully, everything has done very, very well. I think the team has done a tremendous job as far as all of that is concerned. And I think that as we go into the second half of the year and certainly into 2025, that's just going to provide us with a lot more flexibility in order to potentially pay down more material amounts of debt in addition to what we have been doing so far, which is really just paying off the 1% amortization each year for the term loan base.

Speaker 5

Great. Thanks, guys.

Operator

Thank you. Our next question comes from the line of Ryan Schiller with Wolfe Research LLC. Your line is now open.

Speaker 6

Hey, good morning. This is Ryan Schiller on for Mike Pollard. Thank you for taking the questions. I wanted to follow-up on the patch pump. It seems to be a product that if all goes according to plan could really drive revenue growth.

Speaker 6

So what changes need to be made to the type 1 algo to fit it to type 2? And can you give us your latest expectation on timing to get this to the FDA?

Speaker 1

Yes. So look, from a technical aspects, that Type 2 algorithm, Ryan, that you referred to obviously was approved for Type 1. We are evaluating how it needs to be adapted for Type 2. The way we are proceeding with this is our open loop, as you know, is under review with the FDA. We are concurrently working with Tidepool on adapting that algorithm for Type 2.

Speaker 1

And our anticipation is when we are ready, and again, this is something we can talk about after we get clearance, assuming we get clearance for FDA from FDA for open loop, We'll certainly talk a little more about the clinical trial that will be required here and the timing of the clinical trial because from our perspective, that's a very critical element of having the Type 2 algorithm adapted for Type 2 and really tested in patient use and taking all of data and then submitting that to the FDA for the eventual clearance of a Type 2 closed loop pump. So more on timing post after we finish FY 2024 and once we have clarity on FDA's decision on the open loop.

Speaker 6

That's helpful. Thank you. And then one follow-up. One of the major insulin companies have been looking to get approval and to launch weekly basal insulin. How are you guys thinking about this?

Speaker 6

And what gives you the confidence that IMVEXXO will be able to continue to grow and start to scale up in major geographies?

Speaker 1

Yes, Ryan. So certainly, weekly insulin is something we are watching very closely as well. I think one form of weekly insulin certainly folks are expecting will get approved in Europe in the coming months. From what we understand right now and clearly it's not widely available in most geographies, but it will be in a pen form. It won't be packaged with a pen needle or at least that's what indications seem to be.

Speaker 1

And as I mentioned before, if it's a pen, quite possibly our pen needles can be used with it. Some of the factors that need to be considered when you think about the adoption of weekly insulin is obviously cost, right? Insulin regular insulin costs have come down dramatically over the last few years. And so there is going to be a needing to be a trade off across cost and efficacy, if you will, is there increased efficacy with weekly insulin versus daily insulin. Promotional focus will matter where the pharma and biopharma companies decide to spend their selling dollars, will it be on GLP-1s or weekly insulin.

Speaker 1

A lot of the basal patients are seen by primary care physicians who may be reluctant to prescribe weekly insulin because obviously dosing of insulin is tricky. And so they'll be maybe potentially concerned with potentially higher hypoglycemia. I believe in type 1, there is the greater potential for hypoglycemia in type 2, but sort of the fear might remain. People that are using multiple daily injections of insulin, they might just want to stay because they take multiple daily injections every day anyway. So our thinking is that the extent that weekly insulin gets adopted, it might likely be with new basal patients rather than folks switching over.

Speaker 1

But look, I mean, these are all sort of hypothesis, right? I mean, we don't have enough data of real use in patients to be able to accurately or perhaps more precisely determine the impact of weekly insulin on us. And so it's going to take time to figure all of it out. But some of the factors that I laid out here, Ryan, are those that we are considering certainly as things to watch as weekly insulin gets introduced into the world.

Operator

Thank you. And I'm currently showing no further questions at this time. I'd like to hand the call back over to Dev Kutticker for closing remarks.

Speaker 1

Thank you, Shannon. As we wrap up the call, I want to extend my heartfelt appreciation to all of my colleagues at Ambeccta across the globe. In the last 2 years since our spin off, our team has worked nonstop on executing our strategic priorities, including major separation related programs, while never wavering from our mission of developing and providing solutions that make life better for people living with diabetes. Thank you all for attending the call and for your interest in our business.

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Key Takeaways

  • Q2 revenue of $287.2 million grew 3.6% year-over-year (4.5% constant currency; 4.9% normalized) and exceeded expectations while the company implemented its new ERP, distribution centers and shared services.
  • Completed core separation milestones by fully rolling out its ERP and distribution network across three manufacturing sites (U.S., Ireland, China) and transferring Chinese plant ownership to IMVEKTA with resumed domestic production.
  • Advanced its insulin patch pump program, with the FDA reviewing the open-loop version and ongoing collaboration with Tidepool to adapt Type 1 algorithms for a closed-loop Type 2 system.
  • Raised and narrowed FY 2024 guidance to flat to down 0.5% constant currency revenue, boosted margin targets and now expects adjusted EPS of $2.20–$2.30 per share.
  • Ended Q2 with $306.5 million in cash and net leverage of 3.8x, and anticipates fiscal-year cash to remain near Q2 levels despite planned separation spend of ~$180–$190 million.
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