Amphastar Pharmaceuticals, Inc. Q1 FY2021 Earnings Call

Welcome to the Amphastar Pharmaceuticals Inc. First Quarter Earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. All statements on this conference call that are not historical are forward-looking statements, including, among other things, statements relating to our expectations regarding future financial performance, backlog, sales and marketing of our products, market size and growth, product development, the timing of FDA filings or approvals, including the DMF of AMP, the timing of product launches, acquisitions and other matters related to our pipeline of product candidates, our share buyback program and other future events, such as the impact of the COVID-19 pandemic and related responses of business and governments to the pandemic on our operations and personnel, and on commercial activity and demand across our business operations, and results of operations. These statements are not facts, but rather are based on Amphastar's historical performance and our current expectations, estimates, and projections regarding our business, operations and other similar or related factors. Words such as may, might, will, could, would, should, anticipate, predict, potential, continue, expect, intend, plan, project and believe, estimate, and other similar or related expressions are used to identify these forward-looking statements, although not all forward-looking statements contain these words. You should not place undue reliance on forward-looking statements, because they involve known and unknown risks, uncertainties and assumptions that are difficult or impossible to predict, and in some cases, beyond Amphastar's control. Actual results may differ materially from those in the forward-looking statements, as a result of a number of factors, including those described in Amphastar's filings with the Securities and Exchange Commission, including in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 15, 2021. In particular, the extent of COVID-19's impact on our business will depend on several factors, including the severity, duration and extent of the pandemic, as well as actions taken by governments, businesses, and consumers, in response to the pandemic, all of which continue to evolve and remain uncertain at this time. You can locate these reports through our website at ir.amphastar.com, and on the SEC's website, at www.sec.gov. Forward-looking statements in this release speak only as of the date of the release. Amphastar undertakes no obligation to revise or update information or any forward-looking statements in the conference call referenced above, to reflect events or circumstances in the future, even if new information becomes available, or if subsequent events cause our expectations to change. Please note, this conference is being recorded. Our speakers are Bill Peters, CFO; Dan Dischner, VP Corporate Communications; and Tony Marrs, Senior VP of Regulatory Affairs and Clinical Operations. I will now turn the conference over to your host, Dan Dischner, VP of Corporate Communications. You may begin.

Thank you, operator, and good afternoon everyone. Earlier this afternoon Amphastar reported a very strong start to the year, executing our growth strategy, with another quarter of solid revenue growth. We look forward to sharing details behind the quarter's growth and providing an update regarding our pipeline. Following my prepared remarks, Bill Peters, CFO, will provide an update on the company's financials, and we'll open up for Q&A, with Tony Marrs, Senior Vice President of Regulatory Affairs and Clinical Operations, Bill, and myself. To begin, we've ended the first quarter with the continuing trend of our diverse portfolio materializing to drive top line and bottom line growth, with the first quarter seeing $103 million in top line net revenue and our bottom line increasing substantially to $5 million. This represents a back-to-back period of record net revenues. Against the backdrop of a 7% increase in revenues versus the fourth quarter, we saw the successful execution of glucagon's launch, growth with Primatene MIST sales, and our epinephrine products continuing to gain momentum. Regarding glucagon, while the product saw its launch in mid-February, we've seen tremendous progress with its intake in the retail pharmacy space, as we've executed on the same launch platforms as our enoxaparin and medroxyprogesterone products, and expect this trend to be durable into the year. Likewise, the same trend can be observed with our epinephrine products, as growth in this area was driven organically by higher unit volumes, prompted by a competitor shortage. Seeing a 52% increase in total sales compared to the previous quarter. Though competitor shortages tend to resolve themselves, we can consistently supply the product when our competitors cannot. Turning back to glucagon, while its launch and its initial loading can be seen to offset a mid-quarter launch, we're keeping an eye on important factors such as a 70% share in the retail market according to IQVIA data as of March 2021. Nonetheless, we continue to believe the fundamentals are strong for glucagon, epinephrine, and Primatene. Our vertically integrated business and planning efforts afford a reasonable resiliency to support the product's growth and demand around potential supply chain bottlenecks seen among suppliers. Turning to Primatene MIST, the product reached $65 million in annualized sales this year, seeing a strong increase of 27% compared to the fourth quarter, as week-over-week retail sales have continued to trend strongly as observed in the updated slide in our company presentation. Recall that Primatene in the first quarter of last year was driven by significant COVID pantry loading. We've closely reached those levels organically through our updated nationwide TV, radio, and digital advertising campaigns before launching into Target's retail stores. Adding another layer to our marketing strategy, we will be re-launching a physician sampling program this month to increase awareness of the product, as we continue with our digital media campaign to add to our consumer awareness strategy among asthmatics in the 18 to 34-year-old demographic. Turning to products in the pipeline; we received a minor complete response letter for AMP-006 in late April and we have already responded to it. While this product has a $50 million opportunity based on annualized IQVIA sales, we are still confident to anticipate a GDUFA date in the third quarter of this year, pending the agency's usual response after minor complete response letters, roughly within 90 days. We believe we are in the closing stage of this product's development. AMP-002, a $300 million opportunity based on annualized IQVIA data continues to have no generic for this product. We announced earlier in April that the FDA has reclassified our CRL status to minor. Therefore, we now have a second quarter GDUFA date. We have no reason to believe that this product will not meet the newly established action date. However, given that this is a complex product, there could be additional questions about the development of AMP-002. As for the AMP-015 product, we announced in mid-April that our Paragraph IV filing saw no legal challenges as the 45-day window expired in the same month. Again, this product remains a $500 million opportunity with no generics on the market. At the same time, we have a GDUFA date in the fourth quarter of this year or the first quarter of next year if a preapproval inspection is needed. Likewise, this is another complex product, and we can't anticipate further review given the product's complexity. Concerning our proprietary product in development, intranasal epinephrine continues to progress well as our second clinical study has started after a positive response from the FDA was received regarding its safety and efficacy profile. Therefore, the product remains on track for filing in 2022 as planned. Finally, with updates in intranasal naloxone and AMP-008, we still anticipate our intranasal naloxone to be refiled in the fourth quarter as we are closer to completing our stability studies. Regarding AMP 008, the product is still on track to be filed in the coming months as this is another Paragraph IV filing where we believe we have a strong non-infringement position as stated last quarter. However, notwithstanding the usual possibility of a 30-month stay could be triggered regardless of our IP strength. Regarding previously discussed business items, our insulin program update is still anticipated to occur in the second half of the year. And our IMS UK products launch is now anticipated to occur in the third quarter of this year as MHRA has afforded more flexibility following COVID restrictions being subsided in the UK. Lastly, I'd like to conclude by noting that our pipeline continues with a clear path forward. AMP-002's reclassification, the recent news on the legal clearing for AMP-015, the continued progression of our intranasal epinephrine product through its clinical process, an update on our insulin programs soon to be announced, and a filing expected for intranasal naloxone sets an ambitious yet achievable schedule. Meanwhile, our already launched growth drivers have time to mature in gaining market share. We've seen tremendous execution on Primatene Mist, epinephrine, and glucagon and anticipate this trend to be durable while aligning their success with the progression of our pipeline, which in turn ultimately strengthens our growth driver portfolio. I will now turn the call to our CFO, Bill Peters to discuss the first quarter's financial results.

Thank you, Dan. Sales for the first quarter increased 22% to $103 million compared to $84.7 million in the previous year's period. The launch of glucagon in February was the biggest driver of this increase with sales of $8 million, including an inventory buildup by most major retailers. Primatene MIST once again showed strong growth with sales up 43% to $18.4 million from $12.9 million in the prior year. Epinephrine sales nearly quadrupled to $15.6 million from $4 million in the prior year as we increased the market penetration of multi-dose vials and had strong demand for our prefilled syringe product as it was in a shortage situation with competitors unable to fill orders. Enoxaparin saw sales increase to $10.7 million from $9.2 million in the prior year, primarily due to a pickup of a new customer after Teva left the market in 2020. Naloxone sales declined to $6.3 million from $8.9 million on increased competitive pressures while lidocaine products in phytonadione saw sales declines due to weaker market demand. Our insulin API business had sales of $5.1 million, up from $3.4 million in the prior year primarily due to the timing of shipments. Gross margins increased to 44% of sales from 43% as increased sales from high-margin products such as glucagon, Primatene MIST, and epinephrine more than offset lower prices and higher costs related to enoxaparin. Selling, distribution, and marketing expenses increased to $4.5 million from $3.3 million primarily due to marketing costs as we implemented a second commercial campaign for Primatene MIST. General and administrative spending increased to $15.3 million from $10.7 million due to increased legal costs for Paragraph IV cases and employment-related lawsuits. Subsequent to the quarter, we settled various employment lawsuits and arbitrations for $1.3 million, which was booked to G&A expense. On a related note, we booked a $4.4 million charge to other expenses for an additional reserve for our litigation with Aventis after the court order increased the fees, interest, and costs. We intend to appeal this case. Research and development expenditures increased to $14.8 million from $15.3 million due to the timing of clinical trials. We anticipate that these expenditures will increase in the upcoming quarters. The company reported net income attributable to Amphastar shareholders of $5 million or $0.10 per share in the first quarter compared to a net income of $3.9 million or $0.08 per share in the first quarter of 2020. The company reported an adjusted net income of $13.6 million or $0.27 per share compared to an adjusted net income of $8.4 million or $0.17 per share in the first quarter of last year. Adjusted earnings exclude amortization, equity compensation, impairment of long-lived assets, and one-time events. In the first quarter, cash flow from operations was $22.8 million. We used a portion of this cash flow to repurchase $3.8 million of treasury stock during the quarter, leaving $13.6 million remaining on our buyback authorization. I will now turn the call back over to the operator to begin Q&A.

We will take our first question from Gary Nachman from BMO Capital Markets. Your line is open.

Hi. This is Evan Hua filling in for Gary. Thanks for the update and thanks for taking my question. So first for Primatene, how much stocking was there in the quarter for the Target launch in March? And do you expect any sort of step down in Q2 or Q3? And secondly, is there any seasonality component with asthma or allergy? And should we be considering that for the next few quarters as well? Thanks.

So for the first question, there was some stocking for Target because they had to load the product into all of their stores across the country. And we would say that this is between $0.5 million and $1 million of impact for the quarter.

I think the next question was around seasonality. Is that correct?

Yes.

It's still hard to say. On seasonality, we do see a little bit of seasonality, but nothing definitive.

One thing I'll point to is that we've updated the presentation on our corporate website. You can see that the Primatene uptrend has been very strong right now, so I advise you all to take a look at that.

Yes. And I also have another follow-up. Can you provide some more color on the strength of epinephrine and where exactly that revenue came from? Was it more volume or price? And were you able to take more share?

Yes. The growth was entirely due to volume rather than price. There were two main factors. Firstly, we have reached what we consider a good volume for the multi-dose vials. However, the prefilled syringes were in short supply, which meant some of our competitors did not ship this quarter. This trend has now changed since the quarter ended, but we had a very strong quarter as a result of these factors.

Thanks for taking my question.

Sure.

We will take our next question from Elliot Wilbur from Raymond James. Your line is open.

Hi, good afternoon. This is Lucas Lee on for Elliot and thanks for taking the questions. The first question I have is regarding glucagon. Are there any news on competitive entries or response from Lilly? And where do you expect your share to ultimately settle? And I have a follow-up.

Right now, we haven't seen any other entries. As we've talked about many times, this is a very complex product. It was off-patent for over 20 years and there has been no other generic, and we haven't seen any other generic at this time. We think that the market share that we're seeing right now is sustainable and doing really well for us.

Thank you. That's very helpful. Next question is regarding AMP-015. Is this a 505 (j) or 505(b)(2) filing? And are there any other filers ahead of you with potentially blocking exclusivity? Thank you.

Yes, this is an ANDA product, not a 505(b)(2). It is a generic product. When there was an opportunity for the Paragraph IV, we did not experience any litigation. We did not receive notice, and that timeframe has passed. We are aware that another product has submitted an application, but it has been pending for a considerable duration, which indicates potential competition.

We will take our next question from David Amsellem from Piper Sandler. Your line is open.

Thank you. I have a few questions regarding the pipeline. First, could you remind us about the expected pace of filings for the inhalation pipeline, not only for this year but also for next year? Secondly, regarding the epinephrine program, can you discuss how you envision the clinical development? Is it strictly a pharmacokinetics path, or is there something else? Also, could you provide an update on the filing timeline for that? Thank you.

Yes. For the inhalation pipeline, we expect to file one to two this year, followed by two to three, and three or more in the following years. This is a key focus for us. Regarding the intranasal epinephrine, it's primarily a pharmacokinetic clinical program, and we're not directly measuring efficacy. Most trials involve special populations and circumstances related to product use. We have a clinical plan approved by the agency, and we've had multiple discussions with them about our strategy, which they are aware of. We believe we have a solid understanding of it. We maintain strong relationships with the sites and physicians in this area and are consulting with highly knowledgeable experts, which gives us confidence in our clinical plan.

We'll take our next question from David Steinberg from Jefferies. Your line is open.

Thanks, and good afternoon. I have a couple of questions. First is on Primatene MIST. Even when adjusting for the $0.5 million to $1 million in stocking through Target, it seems to be annualizing at around $70 million or slightly more, while your expectations for the year are about $65 million. Given this, what sales do you think could be achieved this year? Are there any other major chains besides Target that you're planning to enter this year, or have the big chain entries largely concluded? Regarding AMP-002, you've navigated three cycle reviews for Primatene and glucagon successfully; there are definitely fewer cycles with this product. How confident are you that you'll get approval on the GDUFA date? Also, since you would be the first generic, can you remind us what the current peak sales of that product are and how many years it has actually been generic or off patent? Thank you.

Yes, in the first quarter, our sales for Primatene MIST were very strong, helping us start the year on a positive note. Our target for the year remains at $65 million, although we're unsure how much of the first-quarter results may be influenced by seasonality. We believe there is potential for growth due to three main factors: the current price point is higher than it was previously, there are more people with asthma, and the canister contains fewer doses than before. Therefore, we see room for further growth.

The next question, can you remind me of the several questions you asked?

Dan, we now have all the major chains including Target, and we also have access to smaller retailers through our program with the major wholesalers. I believe there is still potential for online sales to increase somewhat.

For the question on AMP-002, we remain confident. This is a complex product that has been off patent for a long time. I don’t know exactly when, but it has been some time. To gauge our level of confidence, if we only had this one complete response letter to achieve approval, we would be extremely satisfied and very happy at this point. It was categorized as a minor response, indicating what that means. To us, this reflects positively on how the agency views this product.

And just one follow-up. On glucagon, it looks seems like you did about $8 million in its first quarter. Was that all demand based, or was there some pipeline fill in that glucagon number?

I'll say there is definitely a pipeline still involved in that number. But remember, we didn't launch until about halfway through the quarter. So, even though there was a pipeline launch, there's probably a month's worth of the pipeline stock in that.

Our next question comes from Tim Chiang from Northland Securities. Your line is open.

Hi, thanks. Regarding Primatene MIST, are there any other distribution channels you might consider for that product? You've covered the major retailers and are available on Amazon. Have you thought about any other options where Primatene MIST isn't currently available?

I mean we've hit the major ones, as you know. And Amazon hasn't been very long. I think the biggest point of growth for the product is expanding the demographics as we're changing focus. Initially, it was just to kind of reintroduce the product. Our initial marketing strategy was to introduce the product to recapture the demographic that knew the product well. And then now, expand into other demographics, using different mediums such as media and even the TV. The TV ads have been really working, so we added another TV ad, but really kind of branching into different demographic groups. We think that's where the growth will be most.

And then maybe just a financial question, Bill. I mean I think your gross margins this quarter were around 44%. How do you sort of think of gross margins through the course of the rest of this year? I mean, is the 44% gross profit margin? Is that sort of going to stay at that level, or do you think it has some opportunity to increase later this year?

Yes, there is potential for an increase. With enoxaparin, whenever we purchase inventory, we have to take a write-down because we are selling it at a lower cost. This process can be inconsistent since we do not buy it at the exact same rate that we sell it. This quarter, there is likely a bit more reserve involved than in an average quarter, indicating some opportunity there. Additionally, we anticipate that as glucagon sales increase throughout the year, we will benefit from that margin since it is a high-margin product. If we obtain FDA approval for any of our other products, all of which have higher margins than our corporate average, there is further potential for growth. Furthermore, we expect Primatene MIST to continue growing from its current position, and it is also a higher than average margin product.

Just one last question. Just on this facility you guys have in China. I mean obviously, you have a number of DMFs filed there. I mean, when do you guys expect to actually start to generate some meaningful revenue out of the Chinese market?

Yes. So last year we had – first of all, the biggest customer of that facility is our Amphastar US and we buy some APIs from them and also we contract them to do some R&D work for us mostly around the R&D of APIs. But last year we had over $3 million in sales, which was up significantly from the prior year. And I think what we said this year was that we expect that number to double this year. And so we should have more revenues this year. It wasn't reported in the press release but we had a little over $1 million in third-party sales from that facility in the first quarter of this year. So it's already on a trend higher than the quarterly run rate from last year and we do expect continued growth out of that facility.

Okay. Great. Thanks.

We will take our last question from Serge Belanger from Needham & Company. Your line is open.

Hi, good afternoon. Thanks for squeezing in. So Bill, you received the approval for a grandfather product earlier this week. Any more of these grandfathered products in front of the FDA right now? And then in terms of the rest of the pipeline, you talked extensively about AMP-002, 015, 006 and some of the Q4 products. Maybe just give us an idea of which ones you expect could receive approval in 2021?

Well since you addressed that first question to me, I'll take that. So we do have one more grandfathered product out there but it is the EpiNova prefilled syringe, which is a very important product to us. However, we have filed that as an NDA, not an ANDA. So that application is pending. And then I'll turn it over to Tony for the rest of that question.

Yes. You had mentioned AMP-015 and that one has a goal date in the fourth quarter of this year. We have a couple of other products AMP-006, which is the third quarter anticipated or action date. We have another AMP-009, which we have an action date later this year as well. And then AMP-013 that has an action date later this year. The last two of those are filings that are Paragraph IV filings, and so there'll be some issues surrounding those. But from an approval perspective, those are what we are anticipating.

We also have a GDUFA date for 002. So that one is also – Q3 I think. No it's Q2. Sorry, you're right. A mistake.

And then just on the biosimilar insulin program. Any new developments or FDA interactions regarding the development path for that program?

I'm sorry, can you repeat the question?

Yes. Regarding the biosimilar insulin program, any new developments or FDA interactions regarding the development pathway?

We're planning on providing more color on that insulin program in the second half of this year. We want to roll out the entire program and kind of give a more complete update at that time.

All right. Thanks.

We have no further questions at this time.

Okay. Thank you Jamie and thanks everybody for joining us today on our Q1 call. It was a good year – or it was a good quarter for us. We hope to continue that success into the next quarter and look forward to sharing it with you at that time. Have a great day.