Amphastar Pharmaceuticals, Inc. Q3 FY2022 Earnings Call

Greetings, and welcome to the Amphastar Pharmaceuticals, Inc. Third 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. 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 website, for a discussion of numerous factors that may impact our future performance. We will also discuss certain non-GAAP measures. Important information on the use of these measures and reconciliations to U.S. GAAP may be found in our earnings release. Please note that this conference call is being recorded. Our speakers today are Mr. Bill Peters, CFO; Mr. Dan Dischner, Vice President of Corporate Communications; and Mr. Tony Marrs, Senior Vice President of Regulatory Affairs and Clinical Operations. I will now turn the conference over to your host, Mr. Dan Dischner, Vice President of Corporate Communications. Dan, you may begin.

Thank you, Paul. And I'd like to thank everyone for joining us today. On the call with me will be Bill Peters, CFO and Executive Vice President of Finance; and Tony Marrs, Senior Vice President of Regulatory Affairs and Clinical Operations. Following my remarks and Bill's financial update, we'll open up for Q&A with the management team. I want to start by highlighting our third quarter's financials at a high level and then provide some remarks regarding our products and our pipeline with further discussion on glucagon's evolving market dynamics. We remain encouraged by our progress with net revenues of $120.1 million, up 7% from the same period last year. Our balance sheet is stronger than ever and provides us the flexibility to continue investing in our robust pipeline. Therefore, R&D investments, as seen in the third quarter, continue to be a priority for us as we remain committed to advancing our pipeline toward the approval and launch, especially regarding our inhalation, intranasal, and insulin products. As stated in previous calls, our existing products, Primatene Mist, glucagon, and epinephrine, have once again provided a solid baseline of support. Primatene Mist continues to perform as projected with some seasonality in demand. Glucagon and epinephrine have grown at 21% and 8%, respectively, compared to the previous quarter. Likewise, we remain confident that the demand for these products will remain robust for the remainder of the year and into 2023. Regarding our pipeline and regulatory activities, I'd like to bring our discussion towards our AMP-008 inhalation filing, which received a CRL last month during its first cycle review. We believe the issues raised are relatively simple and addressable and are within the scope of our pipeline's focus on developing complex products with innovative delivery systems. As such, we intend to respond to that CRL in the fourth quarter of this year. Likewise, with our teriparatide application, we believe the issues are clear and we plan to refile in the first quarter of 2023. Turning to our generic pipeline product, AMP-002. The CRL we received in July has been fully responded to with the new GDUFA action date scheduled in the second quarter of 2023. I want to note that our AMP-002 and teriparatide ANDA filings are for products that remain without a generic due to the product's complexity. As stated previously, if a preapproval inspection is needed for any of our filings, the goal date is typically extended to the following quarter. Our second inhalation generic pipeline product disclosed on our last call, AMP-007, remains on track for filing in the first quarter of 2023. As for AMP-004, our interchangeable generic insulin aspart product in development, we continue to maintain a positive dialogue with the agency as we finalize the details of our application and remain on track for a filing in 2023. As we turn to our proprietary pipeline products, our intranasal naloxone refiling in September has been issued a goal date in the first quarter of 2023. Our intranasal epinephrine product remains on track for filing in 2023, and we anticipate further discussion with the agency on this product in the fourth quarter of this year. Before I turn the call over to Bill, I want to speak in more detail about glucagon. As you may be well aware, the glucagon market dynamics have increasingly evolved towards a strong position for the Company due to Eli Lilly's planned discontinuation of their product by the end of this year and Novo Nordisk or Boehringer Ingelheim's planned discontinuation of their glucagon product. These changing market dynamics in the retail and diagnostic spaces equate to significant potential growth for our glucagon product. With this evolving glucagon market, we are working closely with the FDA to increase our production capacity for glucagon and remain in fruitful dialogue with the agency to provide a reliable supply to accommodate this changing market. We are committed to maximizing our opportunity to supply glucagon's projected increase in demand. I would like to turn the call over to our CFO and Executive Vice President of Finance, Bill Peters, to discuss the third quarter's financial results.

Thank you, Dan. Sales for the third quarter increased 7% to $120.1 million from $112.2 million in the previous year's period. Primatene Mist saw sales growth of 11% to $18.4 million from $16.6 million in the third quarter of last year with strong sales on all of our current customers. Glucagon sales increased 17% to $14.2 million from $12.2 million on strong back-to-school sales. Phytonadione saw stronger demand this quarter as sales increased 21% to $14 million from $11.6 million. Epinephrine sales increased to $19.5 million from $13.9 million on strong sales of both the multi-dose file and the prefilled syringe, the latter of which saw strong demand due to competitor shortages. Other finished pharmaceutical products saw a sales decrease of $3.4 million to $23.6 million as lower sales of atropine and calcium chloride were partially offset by increased sales of dextrose and the recent launches of ganirelix and vasopressin. Our insulin API business had sales of $3 million, down from $3.2 million last year, primarily due to the timing of orders. Cost of revenues increased slightly to $61.6 million from $61 million. Gross margins improved to 49% of revenues from 46% as increased sales of higher-margin products such as glucagon, Primatene Mist, phytonadione, and epinephrine, as well as sales of newly launched ganirelix and vasopressin, more than offset higher labor costs. Selling, distribution, and marketing expenses were relatively unchanged at $4.8 million. General and administrative spending increased 10% to $12 million from $10.9 million due to increased legal and compensation expenses. Research and development expenditures increased 72% to $18.5 million from $10.8 million as we had significant clinical trial and material expenses related to our insulin and inhalation products. Our non-operating expense of $400,000 compares to a non-operating income last year of $12.9 million, as the 2021 amount included a one-time gain on the divestiture of 80% of AMP's subsidiary, Hansen. The Company reported net income attributable to Amphastar shareholders of $15.9 million or $0.30 per share in the third quarter, a decrease from the $29.5 million or $0.59 per share in the third quarter of 2021, which benefited from the one-time gain on the divestiture of Hansen. The Company reported an adjusted net income of $20.2 million or $0.38 per share compared to adjusted net income of $23 million or $0.46 per share in the third quarter of last year, primarily due to increased R&D spending. Adjusted earnings exclude amortization, equity compensation, impairment of long-lived assets, and one-time events, including the gain on the divestiture of 80% of our interest in Hansen in 2021. In the third quarter, we had cash flow from operations of approximately $20.4 million, and we used a portion of our cash to buy back approximately $14.5 million of stock. We also announced today that our Board has authorized an additional buyback program of $50 million. I will now turn the call back over to Dan.

Thanks, Bill, for the update. With that, we will now take any questions you will have. Paul, please open the line for Q&A.

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

I wanted to revisit your comments on the glucagon market dynamics. Wouldn't the discontinuation of the kits by Lilly and Novo ultimately benefit the ready-to-use formulations like Xeris' Gvoke or the intranasal product more than the generics of the kits? I'm trying to understand your thought process on this. Additionally, regarding 002 and the complete response, can you clarify if there’s any human factor work that needs to be addressed? With a quick turnaround in mind, do you expect an FDA decision sooner rather than later in 2023? Please help us understand the potential issues related to 008.

Sure. Let me start with the glucagon question. And you're right. We think that some of that market will very likely shift to some of the newer entrants. However, right now, we're in a position where our price is lower than those other entrants and that we believe that some people will have a more cost-conscious effort. It's hard for us to say exactly what percentage will move over to our product and what percentage of the new scripts will go to the other products, but we believe that this provides a significant opportunity for the Company to potentially increase sales next year. As for the second question, I'd like to turn that over to Tony Marrs to answer that one.

Regarding AMP-002, it is not connected to a human factor study or any device-related issue. It is more about a label-type issue. As for the FDA's timeline for their decision, we find it challenging to predict. Naturally, we hope for a quick response, but I cannot foresee what their timeline might be.

Okay. That's helpful. Viatris disclosed that they have a glucagon product that's in the queue at the FDA. So let's suppose there is competition there. How does that play into your long-term thinking about your glucagon opportunity?

Well, I think we're in a good position because we're there now, and we have an opportunity as these competitors discontinue their products. We have an opportunity to gather market share. Any other companies may get approval and we can't control what happens in the market, but as far as taking advantage of the opportunities we have, we're expanding our capacity to meet what we think the demand might be and take advantage of the opportunity we have now.

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

A couple of questions. First on Primatene. Can you just talk about recent trends? I think you mentioned there was some seasonality in the third quarter. Does that mean we should expect a significant rebound in the fourth quarter? And then secondly, maybe just talk about the recent launches for ganirelix and vasopressin and what kind of competitive outlook you're seeing for both these products now that you're on the market.

So with Primatene, looking at the seasonal trend, it's been sort of difficult since we launched it, particularly due to the COVID-19 situation. So we were trying to read some indicators as we progress through that situation. But now we are seeing a little more seasonality with that product or more clearly seeing seasonality with that product. And as we move into the fourth quarter, the fourth quarter has always tended to be pretty good for Primatene. So, I think we're sort of expecting a little bit of a rebound there.

Yes, just to comment. If you take a look at the seasonality of Primatene last year, the third quarter was the lowest quarter and the fourth quarter was the highest. And so we're expecting something that will probably follow that trend again. And as far as the recent launches go, we've launched both those products into competitive markets, and we haven't gained as much market share as we thought, but we do see some opportunity for growth in both of those products going forward.

Our next question is from Elliot Wilbur with Raymond James. Please proceed with your question.

Just want to go back to your earlier commentary around glucagon. It looks like the Company currently has around 65% share of injectable units. So as you think about the balance not being able to be supplied or chosen not to be supplied by some of your competitors, what are some of the supply chain limitations that would prohibit you from capturing a significant portion of that balance? Is it API or finished capabilities? Or do you not really see any limitations? And then on a couple of the products where you had overperformance at least versus external estimates, some of it seems to be primarily due to price, epinephrine and phytonadione. Just wondering if you think that with the recent price increases or pricing levels on those products that run rate in the quarter for both is relatively sustainable going forward.

Let me address the glucagon question first. We have ample API available, but currently, our capacity is an issue. To manage increased volume, we need to enhance our capacity, which we've been planning for since earlier this year. We expect to have the ability to capture a significant share of that market by the end of the first quarter. Therefore, while we won’t see this expansion in the fourth quarter or the first quarter, we anticipate a substantial capacity increase afterwards. Regarding the overperformance of phytonadione, it is generally not seasonal, and I don't foresee any further price increases for that product. There have been some price adjustments in the past. On the other hand, epinephrine has faced shortages from our competitors, and we expect these shortages to persist well into 2023.

One additional question on 008. Can you just talk about regulatory hurdles there with respect to potential facility inspection, if there are any?

Tony, do you want to handle that one?

Yes, certainly. Regarding the regulatory challenge, it's just a Complete Response Letter, the first one we've received for the product. We consider it relatively straightforward and part of the product's complexity, and we don't expect it to take much time to address. We plan to resubmit our response to that letter in this quarter. As for inspections, we do not expect any additional ones. We have already undergone several inspections related to our clinical trials at the respective sites, and we recently had a Good Manufacturing Practices inspection at our manufacturing facility. They decided not to conduct another inspection there, so we do not foresee any further inspections.

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

Again, I want to thank everybody for joining us today. We have an exciting end of the year and 2023 ahead of us with the glucagon market development in addition to our upcoming GDUFA dates. We look forward to updating you all on the next call.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.