Amphastar Pharmaceuticals Q2 2024 Earnings Call Transcript

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August 7, 2024

There are 9 speakers on the call.

Operator

Greetings, and welcome to the Amphastar Pharmaceuticals Second Quarter Earnings Call. At this time, all participants are in a listen only mode. 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 website and the SEC's website 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 is being recorded. Our speakers today are Mr. Bill Peters, CFO Mr. Dan Bissner, Senior Vice President of Corporate Communications and Mr.

Operator

Tony Marce, Executive Vice President of Regulatory Affairs and Clinical Operations. I'll now turn the call 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 thanks for joining us for our Q2 earnings call of 2024. 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. It has now been over a year since the successful acquisition of Baximi, underscoring Amphastar's strategic focus on expanding our portfolio with proprietary products, biosimilars and complex products. This quarter, Vaximy has emerged as a key driver, achieving impressive worldwide sales of $38,500,000 for the quarter, representing a 10% increase compared to the same period last year and highlighting this product's growth.

Speaker 1

Overall, the quarter concluded with solid sales growth, driving total revenues to $182,400,000 representing an impressive 25% increase year over year. This revenue growth is strengthened by significant increases in sales of Primatene Mist and Epinephrine, which have risen by 38% and 67% on an annualized basis respectively. Specifically, in store sales of Primatene Mist have continued to show a growth trend, experiencing a 14% increase from Q2 of 2023. We remain confident in Primatene Mist's trajectory that it is on track to meet the $100,000,000 sales target by the end of 2024. At our IMS facility, we have focused on enhancing efficiencies in the production of our epinephrine and other products, leading to increased capacity.

Speaker 1

These improvements have strategically positioned us to meet current and future market demand. Our ongoing efficiency enhancements have significantly boosted our manufacturing capabilities without the need of additional square footage. Furthermore, we believe that the recent approval of our albuterol product will improve our efficiencies at our Massachusetts manufacturing facility, where currently Primatene Mist is manufactured, optimizing our capacity utilization with another product and a third one AMP-seven on the horizon. Our glucagon injection sales have remained strong. However, we anticipate a decline from the peak levels due to increased availability of competitor products in the diagnostic market.

Speaker 1

This trend aligns with our strategic focus on the diabetes sector, particularly with the emphasis of Baximy. We are dedicated to advancing our branded product strategy with Baximi, which presents significant opportunities in the retail market. The current underutilization of glucagon amongst diabetics combined with Baximy's advantages as an intranasal product positions us well for growth. We want to briefly address the lawsuit filed by Teva on July 25. The lawsuit was filed with respect Armstrong's approval or approved ANDA for generic albuterol.

Speaker 1

At the time of Teva's filing of this lawsuit, Armstrong had already received FDA approval for its ANDA and we have launched the product. While we cannot comment further about the pending litigation, we are confident about our likelihood of prevailing against Teva. We will vigorously defend ourselves in this matter since we recognize the importance of providing patients with more access to affordable generic versions of albuterol inhalers. Having now covered our key revenue drivers and significant events for the quarter, I would like to turn our attention to our pipeline and regulatory activities. On the topic of our filed ANDAs, we are engaged in positive and ongoing discussions with the FDA for AMP002 with anticipated progress in the near future.

Speaker 1

For AMP015, our teriparatide ANDA, we have submitted our response to address the minor CRL and the FDA has assigned the GDUFA goal date in the Q4. Additionally, our second inhalation ANDA AMP-seven remains on track for our 4th quarter GDUFA goal date. With regards to our diabetes products, I'm pleased to announce that we have filed our ANDA for AMP-eighteen, which is a generic GLP-one product And the FDA has accepted review of the with the GDUFA goal date in the Q2 of 2025. As for our BLA for insulin aspart or AMP-four, the product is expected to be refiled in the Q3 of 2024. In closing, I'd like to note that Amphastar is well positioned for a promising second half of twenty twenty four with the potential for 3 significant product approvals teriparatide AMP-fifteen, AMP-seven and AMP-two.

Speaker 1

These anticipated approvals are expected to substantially contribute to our revenue growth and enhance our market presence. Our efforts to further strengthen our operational efficiencies and manufacturing capabilities will improve the foundation for transitioning from generics to higher value products including branded offerings, biosimilars and complex products with significant barriers to entry. By continuing to optimize our resources while strategically advancing our product pipeline, along with our commitment to grow our current branded product offerings, turn the call over to our CFO and Executive Vice President of Finance, Bill Peters to discuss the 2nd quarter's financial results.

Speaker 2

Thank you, Dan. Revenues for the 2nd quarter increased 25 percent to $182,400,000 from $145,700,000 in the previous year's period. Primatene Mist sales grew 38 percent to $22,900,000 in the 2nd quarter from $16,500,000 in the Q2 of last year. Remember that in the Q2 of last year, we experienced a one time inventory drawdown retailers, which held back sales of Primatene Mist in that period. Epinephrine sales increased 67% to $27,900,000 from $16,700,000 due to other supplier shortages in the quarter.

Speaker 2

To $10,300,000 from $17,900,000 due to increased competition. Enoxaparin and naloxone sales also saw declines due to increased competition. Gluugan injection sales were flat as sales in Canada offset the decline in the United States during the quarter. Other finished pharmaceutical product sales decreased to $34,700,000 from $37,500,000 primarily due to a decrease in medroxyprogesterone sales of $4,600,000 due to the discontinuation of the API by our previous supplier, which has caused us to temporarily stop selling the finished product. This was partially offset by increased sales in other products such as dextrose and sodium bicarbonate.

Speaker 2

Vaccimi revenues fall into 2 categories as we begin shipping the product in the United States and a few European countries in the Q1 of this year. The first category relates to products we ship directly to our customers for which we recorded net revenues of $30,900,000 These revenues are recorded in our product revenues net line on the income statement. The second category relates to products sold by Lilly on our behalf under totaling $7,600,000 which had a cost of sales and expenses of $4,600,000 This resulted in net revenues of $3,000,000 in our other revenues category, which corresponds to Amphastar's net economic benefit for Vaccimi. Total worldwide Vaccimi sales were $38,500,000 for the quarter, up 10% from $34,900,000 in sales reported by Lilly in the Q2 of 2023. We will continue to book revenues on a net revenue basis for those countries where Lilly continues to distribute the product on our behalf.

Speaker 2

For our own distribution of Vaximy will increase throughout 2024 on a country by country basis based on local regulations Lilly has wound down their inventory and we have Amphastar label inventory available. This will result in an increase in product sales and a decline in the net economic benefit recognized in our other revenues. We would like to note that we just completed the 1st contract year of the 5 contract year period for potential milestone payments to Lilly. The 4 potential milestone payments are based on annual and cumulative 5 year sales of VAXIMI. Cumulative VAXIMI sales in quarter or the 1st year totaled $163,200,000 so none of these milestone payments were triggered.

Speaker 2

Our insulin API business had sales of $3,500,000 up from $2,800,000 last year as we have shipped RHI API to mankind for the last time until they have qualified our updated material. Cost of revenues increased to $87,200,000 from $73,000,000 and gross margins improved to 52.2% from 49.9% in the previous year. The benefit of increased sales of higher margin products such as Baximi, Primatene Mist and Epinephrine were partially offset by increased depreciation and amortization related to Baximi and increases in labor and certain component costs. Selling, distribution and marketing expenses increased 34 percent to $9,000,000 from $6,700,000 in the previous year's period due to sales force expansion and marketing expenses related to Baximy. General and administrative spending increased 8% to $13,300,000 from $12,300,000 primarily due to increased expenses related to Baximi.

Speaker 2

Research and development expenditures increased 5% to $17,700,000 from $16,800,000 due to an increase in salary and personnel related expenses as well as the ANDA filing fee for AMP-eighteen. These increases were partially offset by decreases in clinical trial expenses due to the timing of clinical trials. Non operating expenses increased to $5,000,000 from $4,100,000 primarily driven by increased interest expense on loans associated with the acquisition of Baximi. Net income increased 45% to $37,900,000 or $0.73 per share in the 2nd quarter from $26,100,000 or $0.49 per share in the Q2 of 20 23. Adjusted net income increased to $48,700,000 or $0.94 per share compared to an adjusted net income of $34,800,000 or $0.65 per share in the Q2 of last year.

Speaker 2

Adjusted earnings exclude amortization, equity compensation, impairments of loan with assets and one time events. In the Q2, we had cash flow from operations of approximately $69,100,000 During the quarter, we made the required and $29,000,000 payment to Lilly for the Vaccimi acquisition. In addition, we used a portion of our cash to buy back $8,500,000 worth of shares and to pay down a mortgage for $8,000,000 I will now turn the call back over to Dan.

Speaker 1

Thank you, Bill for the update. With that, we will now take your questions. Operator, please open the line for Q and A.

Operator

Thank you. We'll now be conducting a question and answer session. Our first question is from Ekaterina Zyakova with JPMorgan. Please proceed with your question.

Speaker 3

Hi. Thank you so much. Just 2 from me, if I may. So first, just on epinephrine seems like another very strong quarter for the product. Can you just maybe talk about expectations for that franchise over time, both from a competitor supply shortage standpoint, if you're seeing any changes there, as well as with potentially other players either entering or filing an application in that market?

Speaker 3

And then just second question is generic ProAir. Can you just help us frame how you're thinking about the size of that opportunity and how quickly you can launch as soon as you decide to do so and how quickly you can, I guess, get uptake for that product? Thank you so much.

Speaker 2

So for the epi, we do have we have 2 different presentations for that product. Of all, there's a multi dose vial and a prefilled syringe. And the prefilled syringe has been on the drug shortage supply list for almost a year now or about a year now based on a hurricane that hit one of our competitors. So that portion of the business has remained relatively robust. However, as Dan had mentioned in his comments, what we've done is we've taken some steps to increase the capacity of that plant by increasing some of the efficiency of some of the labor and the different packaging steps.

Speaker 2

So we've been able to increase the production of that product and pump out more sales as we showed this quarter. So we do expect that shortage for that product will be we're seeing the competitors that they're going to start returning to the market in the Q4 now. I think last quarter they said the Q3. This quarter they're saying the Q4. So but returning to a regular supply sometime next year.

Speaker 2

So, it's hard to say exactly, but right now we're just preparing ourselves to make sure that we can take advantage of this and we can supply as much as needed to the industry. As far as the multi dose file, there is a new competitor to that one out there. So we do expect that the sales of that presentation will drop somewhat as the market has gone from 2 to 3 suppliers.

Speaker 1

Yes. On the generic ProAir, as we mentioned in the call, we have launched the product. So we've already got it out there. Where we're going with that, obviously there are other competitors in the market and we're still working on securing business there. So right now, I don't know that we really have a good idea, but we it's been received well so far.

Speaker 1

So hopefully, we'll be able to give an update a better update later. And one

Speaker 2

of the things with that one is that we're increasing the capacity of the packaging over time. So we might be off to, I don't want to say a more moderate start, but then we expect to increase that the ability to meet the demand for that product over the course of the next few quarters.

Speaker 3

Thank you. Appreciate it.

Operator

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

Speaker 4

So got a couple of pipeline questions. So I know, 2 has kind of been beaten over the head, but is there anything new that you could add regarding your interactions with the FDA or more specifically what they're hung up on? That's number 1. Number 2, on the GLP-one, just remind us, is that P4 or a P3? Is that a litigated filing?

Speaker 4

And is there already generic competition? Or do you anticipate that there will be others when you're in a position to launch? So that's number 2. And then number 3 on 17, similar kind of question. Is that a P4?

Speaker 4

Is that going to be a litigated filing? And talk about the nature of competition in that market? Thanks.

Speaker 5

Yes. For AMP002, we continue to have routine conversations with the agency. The last conversations we've had have been and I guess maybe stepping back, the idea is just to kind of get a sense of what they're doing and the progress that they're making for the issue. We think we understand what their issue is. And based on those conversations, we feel that they're coming to an end to be able to resolve their issue.

Speaker 5

And so based on those calls that we routinely have with them is why we feel that we believe it will be a near future that they'll take action on the application. For the AMP018, the GLP, it is a paragraph IV filing on that product.

Speaker 2

And we're still within the period of time where we have not been sued to date, but we still could be and that we do expect competition on this one when we're in a position to launch the product.

Speaker 5

And AMP-seven, that is a paragraph for filing as well.

Speaker 4

And do you expect competition?

Speaker 2

It's hard to say at this point. We'd rather not say at this point.

Speaker 4

All right, fair enough. Thanks.

Speaker 2

Thanks.

Operator

Thank you. Our next question is from Jason Gerberry with Bank of America. Please proceed with your question.

Speaker 6

Question. Hey guys, thank you for taking my questions. 2 for me. First with Baximy, as long as presumably it's going to grow in the second half, overall company gross margins, second half versus first half, we saw a little bit of margin degradation in 2Q versus 1Q. So just wondering how we think about the impact of mix and more back semi in the revenues dropping to the gross profit line?

Speaker 6

And then on business development, wondering how you're thinking about that as something that might kick start your goal of getting to pipeline 50% proprietary programs by next year versus using BD more as a tool to maybe add a complementary market ready asset like Vicimi? Thanks.

Speaker 2

Yes. So first one on the Vicimi and the market trends there. Yes, Q3 is always the biggest quarter. So we're expecting it to certainly ramp up from the Q2 on that basis. And the other thing is that on the accounting, remember that when Eli Lilly books the sale, when they're the distributor and we get the net economic benefit, that's at 100% gross margin.

Speaker 2

There's no cost of goods associated with that. So we're getting that net. So when we move from having them sell a majority of Vaccimi to having us sell a majority of Vaccimi, that we start incurring significantly more cost of goods for those revenues. Therefore, the gross margin trend has dropped. And so one of the things I want to make sure people realize is that, that trend will continue on into the next quarter as we start picking up more countries in the quarter.

Speaker 2

As far as the business development goes, yes, so we're actively looking for things and we are we've actually looked at things that are both in development and more like vaccine already on the market. So we've actually been in discussions with both of those things. There's nothing to announce at this time and I don't want to say we're close on anything, but we remain diligent and also want to make sure that we're paying the right price for these assets. So a couple of the processes that we've looked at this year have been competitive processes where we're not necessarily the highest bidder. So but we're okay with that because we want to remain disciplined.

Speaker 2

We have a strong faith in our R and D pipeline. So we really want to make sure that that's our first number one focus. And if we do any business development on top of that, that's really just the icing on the cake.

Operator

Got it. Okay, thanks guys. Thanks. Thank you. Our next question is from Tim Chiang with Capital One.

Operator

Please proceed with your question. Hi, thanks. Just a couple. Could you just comment on how you think REXTOVY will do for you guys? I know you launched that in the second quarter.

Operator

And then secondly, just sort of comment on how you expect selling and marketing costs to shape up in the back half of the year versus the first half as you fully take over back semi in the U. S. And some of these other countries well, not just in the U. S.

Speaker 1

Yes. Thanks, Tim. Rexovy, as you know, is a crowded field. And one thing, our focus is on more of the government first responders, or municipalities and first responders. And as we've discussed before, our product is also is different.

Speaker 1

We're using our proprietary device. So it's still too early to really say how we're going to do there. It takes time to secure those contracts. But we don't really anticipate it being a big product for us just because of the competitive nature of that environment there.

Speaker 2

And then on the sales and marketing trend, two things there. One is that for most of the foreign entities, we don't really have a significant sales and marketing trend. It's mostly a distribution agreement. So we will have distribution expense that's going to fall into the cost of goods category there. However, as we look at the United States and we ramp up, we are planning to add some people to the sales force.

Speaker 2

So the sales force is slated to grow in the Q3. And I'll say that's an incremental growth as we make sure that we cover some more territories that were not as well covered in the past. So we are growing that and one way to think about it is that we're probably going to spend a similar percentage of sales as we did for Baximi a year ago. So the sales are up about 10%. And so the sales and marketing expense should grow about 10% as well.

Operator

Okay, got it. Thanks. Thanks, Tim. Thank you. Our next question is from Serge Belanger with Needham and Company.

Operator

Please proceed with your question.

Speaker 7

Hey, good afternoon. Couple of questions. First on Baximy, I think you mentioned sales were up about 10% year over year this quarter. Just curious if that was volume and market share driven or there was a price increase involved in that growth? And then secondly, on the pipeline, you highlighted 3 ANDA approvals that you're expecting over the second half.

Speaker 7

Maybe just talk about the market opportunity for each and how they compare to the generic ProAir opportunity in terms of being impactful to Amphastar's top line? Thanks.

Speaker 2

Sure. So I'll take the first thing. The units were, remember the main thing in the United States is not a word we're selling there is that we actually had a net pricing decrease in the United States because we have higher fees that we have to pay to the wholesalers. So that's a gross to net item. So we actually a price reduction in the United States this year for the Q2.

Speaker 2

So all of that and more is unit growth and the pricing outside of the U. S. Really hasn't changed much at all, other than maybe there's only one country that had a material change and because it moved from a government pay to a non government pay over some price negotiations. So the price went up but the units went down. And as far as the ANDAs for the market share, so teriparatide, as you know, it's already a multiplayer market.

Speaker 2

So I think our expectations are that we'll get a reasonable market share of that product, but it's not going to be as big as we had thought at one point. AMP002, I think what we've said in the past is that it's a relatively large market, but we're going to be somewhat capacity constrained for that market. So we're going to probably get a lower market share than what you would consider to normally have in a 2 player market, but we still see it as being a good market and a large market for us. And then AMP007, we haven't said because we don't we've been somewhat consciously, clouding the issue there because we don't want to let people know what the product is, for competitive reasons. So I will say that we see this as a very good market opportunity for us though.

Speaker 1

Thanks, Serge.

Operator

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

Speaker 8

Yes. Thanks for taking my question. Hey, Bill, I also wanted to unpack Baximia a little bit because what's interesting is the results were probably better than I think we were expecting. Looking at some of the script data, it looked like the numbers were trending in negative territory for the Q1. Based on your response to the previous question, the economy made it sound like it was more volume driven than price driven.

Speaker 8

So could you maybe reconcile those data points and what drove the strength in the quarter? And then maybe related to that, as we look for the back half of the year, can you maybe give us a little more color on the country by country transition and when you think the transition to Amphastar will be fully complete?

Speaker 2

Sure. So yes, so the units in the quarter, yes, I will say that we had a couple hiccups as we transitioned from Lilly supply numbers to ours, NDC numbers in drugstore chains and certain government programs. So we did have a hiccup and there was a little bit of a time during the Q2 where we weren't getting every script we should have been getting. But I think all of those problems were resolved by the end of the quarter. And so I think we're expecting the Q3 to tick back up the way it should be.

Speaker 2

To a certain extent, some of the units sold later in the quarter where I think more of some of wholesalers trying to gear up to make sure they had enough inventory in the channel because they want to make sure that they had enough for the large back to school surge that's usually happening in August. So I think that's part of it. And ex U. S, we still had some nice trends there. So that's been going well as well.

Speaker 2

As far as the country by country basis, our goal is to get a majority of other countries that are not distributed by AFSAR over to our distribution by the end of this quarter. So we have a lot of countries planned for cutover in August September. So this is going to be another one of those quarters that's a little bit mixed and that there is going to be multiple countries that are cutting over throughout this. So our expectation is that by the Q4, there will only be 3 countries that are still being distributed by Lilly. Our goal is probably on those final three.

Speaker 2

They might not we might not take over distribution of them until January 1. So we're still we're looking at either a December transition for those final three countries or maybe January 1. So but most countries should be our distribution by the end of Q3, which means that the Q4 will be a little cleaner from that standpoint. It will be a little truer.

Speaker 8

Perfect. I appreciate all those details. Maybe I can just ask one quick follow-up. On some of the other product categories, like when we think about like lidocaine and phytomidine, we see the supply issues ebbing and flowing in the market and that creates sort of these big swings in the results. And so as you look to the back half, without maybe giving specific guidance, are there any sort of product areas you'd call out where you're seeing either shortages or competitors sort of coming back online that may influence some of those product categories in the back half?

Speaker 8

And I'll stop there. Thanks.

Speaker 2

Yes. So as I mentioned, the competitor that had the supply problems over the last year has said that they will begin distribution of some of these supply constrained products in the Q4. So we do expect that some of they will be able to do that further disclosures. So any of those things could drop off in the Q4. We're not seeing that in the Q3 yet.

Speaker 2

So the Q3 is kind of holding steady. But, and as Dan had mentioned, I'll just point it out again, we have increased the capacity of the facility that makes all of those products so that we could better take advantage of those. And that was one of the reasons that drove the epinephrine sales in this quarter. We think it probably should drive higher sodium bicarbonate and dextrose sales in the 3rd quarter. So with that, we can make more product out of that facility, hopefully, taking advantage of these things as they come up.

Speaker 2

And so that we want to be in a position so that if there is a supply shortage by another competitor on these products that we're able to supply the entire market. So we're kind of gearing up to be able to do

Operator

that. Perfect. Thanks.

Speaker 1

Thanks, Glenn.

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

I want to thank everyone for joining us today. The second half of twenty twenty four remains to be a highly anticipated period with 3 potential launches. We look forward to updating you all again. And again, thank you and have a great day.

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Amphastar Pharmaceuticals Q2 2024
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