Amphastar Pharmaceuticals, Inc. Q2 FY2023 Earnings Call

Thank you, Paul. Good afternoon and thanks for joining us for our second quarter earnings call of 2023. 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. To start, I'm pleased to highlight the successful completion of our acquisition of BAQSIMI, which has advanced our diabetes portfolio and added to Amphastar's strategy to focus on proprietary products, biosimilars, and complex products. We are excited about this acquisition's opportunities and have experienced a smooth transition to-date. In terms of sales, we ended the quarter with $145.7 million in revenue, representing an impressive 18% increase compared to the same period last year. This quarter's standout performer has been our glucagon injection product, which has achieved an exceptional sales milestone reaching $27.3 million. This remarkable achievement can be attributed to our expanded market share in this space, gaining market share in the diagnostic market, and our carefully planned capacity increase, resulting in an impressive 131% growth on an annualized basis. We anticipate the glucagon injection demand to remain durable. Concerning our other key high-margin products that have been usual contributors to our quarterly success, Primatene Mist and epinephrine, sales for the quarter reached $16.5 million and $16.7 million, respectively. We note that our retail in-store Primatene Mist weekly sales maintained a positive growth trend with a 5% increase from Q2 of last year. However, retailers have readjusted their inventory levels leading to a decline in sales at the factory level. As for epinephrine's total sales, we note that this shift was attributable to competitors returning to their normal distribution levels. Shifting our focus to our other finished pharmaceutical products, especially regarding our products in our portfolio benefiting from competitor shortages, we have seen a significant increase in sales, ending the quarter with a 47% increase. While we are aware of the recent natural disaster that affected a large sterile injectable facility, we anticipate that Amphastar will play a significant role in addressing the nationwide drug shortage, especially regarding products used in the hospital setting. We are pleased to announce that the FDA has recently approved the brand name Ruxovi for our intranasal naloxone product. After careful assessment, we plan to delay the launch of this product to the fourth quarter of this year because it utilizes the same manufacturing suite as products needed to supply the critical emergency products during this drug shortage. This will allow us to maximize our current capacity and augment our revenue opportunities with the impacted products. Having covered our revenue drivers for the quarter, I would like to turn our attention to our pipeline and regulatory activities concerning our proprietary biosimilar and complex products. In a recent development for AMP-002 the action date was not achieved due to unresolved regulatory matters. However, the FDA has assured us of their commitment to progress with this application swiftly and remain in positive dialogue and are hopeful of a successful response. This product continues to be without a generic with a plus $600 million market opportunity based on annualized IQVIA sales. For our teriparatide ANDA or AMP-015, we responded to the CRL and have a GDUFA date in the first quarter of 2024, with the standard subsequent quarter GDUFA date, if an inspection is needed. With regard to our AMP-008 inhalation ANDA, which is classified under priority review, the filing recently received a minor CRL. We plan to respond in the third quarter of this year, which we would expect to lead to a late 2023 action date. While our second inhalation ANDA AMP-007, we plan to file in the fourth quarter. As for our proprietary product, intranasal epinephrine, we continue working with the FDA and progressing with the clinical development. Turning to our biosimilars pipeline strategy. Our AMP-004 product or our insulin aspart is progressing according to plan, and we expect to submit our BLA with interchangeable status by the end of 2023. If nothing else, this quarter shows the strength of our portfolio of products and the flexibility we have to adapt and take advantage of presented opportunities. We remain focused on our strategies to invest for growth, improve margins and cash flow and stay committed to advancing our product pipeline. Research and development remain an integral part of our future that we believe will continue to drive growth. In summary, we see significant growth opportunities ahead, with new products emerging from our pipeline and we remain committed to delivering consistently strong performance. I would now like to turn the call to our CFO and Executive Vice President of Finance, Bill Peters, to discuss the second quarter's financial results.

Thank you, Dan. Sales for the quarter increased 18% to $145.7 million from $123.5 million in the previous year's period. Glucagon sales more than doubled to $27.3 million from $11.8 million in the prior year, primarily due to continuing strong market demand as some suppliers discontinued selling glucagon. Phytonadione sales increased to $17.9 million from $13.4 million in the second quarter of last year as a result of supplier shortages. Primatene MIST declined to $16.5 million from $19 million in the previous year due to inventory drawdown by retailers. Sales of Primatene MIST continued to grow at the retail level, increasing by 5% in the second quarter. Lidocaine and epinephrine saw sales declines as competitors returned to these markets. Our other finished pharmaceutical products category also had strong growth due to higher unit volume sales of dextrose, atropine, calcium chloride and sodium bicarbonate as well as sales of new products such as ganirelix, vasopressin and regadenoson. Since we closed our BAQSIMI acquisition on June 30, 2023, we do not have any sales of BAQSIMI in the quarter. However, Lilly recorded sales of $34.9 million, up 20% from the second quarter of 2022. While we usually don't talk about quarterly sales trends, there are a few items I would like to point out for our third and fourth quarters. First, in the third quarter, we will begin recording a net economic benefit of BAQSIMI, which will be Lilly's sales less the cost they incur on our behalf until we take over responsibility for BAQSIMI distribution. Once we have taken over distribution, we will begin recording sales and expenses as we would for any other product. We have estimated the impact of BAQSIMI on adjusted EPS will be $0.12 to $0.18 in 2023. Second, we plan to launch glucagon injection in Canada in the near future adding to this product's sales. Finally, we've had to temporarily stop selling our medroxyprogesterone, one of our larger products in the other finished pharmaceutical products category, because our API supplier has discontinued manufacturing the product. Our AMP subsidiary has developed this API and continues to pursue an approval of the DMS. We hope to obtain FDA approval in the first half of next year, at which time we would relaunch this product. Our insulin API business had sales of $2.8 million down from $3.3 million in the prior year primarily due to the timing of shipments. As we've discussed in the past, the products we've launched in the last few years including glucagon, vasopressin, ganirelix, and regadenoson have higher margins than our corporate average. While these trends continued this quarter, gross margins dropped slightly to 50% of sales in the second quarter of 2023 from 51% of sales in the same quarter last year, as we decided to impair all of our UK product rights intangible assets, which were purchased several years ago resulting in an impairment charge of $2.7 million. These products were to be made at our IMS facility, but given better market opportunities in the US, we've decided to focus on our US products there. Selling, distribution and marketing expenses increased to $6.7 million from $5.8 million, primarily due to increased advertising of Primatene Mist. General and administrative spending increased to $12.3 million from $10 million, primarily because of increased personnel-related costs and costs related to the BAQSIMI acquisition. Research and development expenditures decreased to $16.8 million in 2023 from $22.8 million last year, as spending in the prior year was elevated due to purchases of raw materials and components for our AMP-018 and insulin pipeline products. Nonoperating expenses increased to $4.1 million from $1.7 million due to onetime costs related to our credit agreement used to finance the BAQSIMI acquisition, currency fluctuations and mark-to-market adjustments related to our interest rate swaps. The company recorded net income of $26.1 million or $0.49 per share in the second quarter compared to net income of $17.3 million or $0.33 per share in the second quarter of 2022. The company reported a 68% increase in adjusted net income to $34.8 million or $0.65 per share compared to an adjusted net income of $20.7 million or $0.39 per share in the second quarter of last year. Adjusted earnings exclude amortization, equity compensation, impairments of long-lived assets and onetime events. In the second quarter, cash flows provided by operations was $54.9 million, bringing our year-to-date cash flow provided by operations to $95.3 million. I will now turn the call over to the operator to begin Q&A.

Thanks. Maybe just a few questions on the branded side. Obviously, BAQSIMI, you've just recently closed that product acquisition. Could you talk a little bit about the marketing strategy with that product? When is the switchover going to happen in the third quarter? And do you expect to benefit from the new school year with that product? And then on Primatene Mist, maybe just talk about do you expect a recovery in sales in the third quarter given demand trends?

Yes. Regarding BAQSIMI, this transition is occurring in phases. Currently, Lilly is handling all activities related to BAQSIMI, and this will continue until the end of September. After that, we will take over the marketing of BAQSIMI. We have already hired a contract sales force that will start training soon so they can begin effective marketing on October 1. BAQSIMI typically experiences seasonal trends during the back-to-school period, which usually leads to increased sales. While this is our first year, historically, August and September tend to show a sales boost, and the third quarter is generally the peak for this product. Regarding Primatene Mist, it's difficult to predict whether sales will be up, down, or flat transitioning from the second to the third quarter. Historically, sales have been flat or slightly down during this period. However, we've noticed increasing retail sales over the last two quarters, while factory sales have declined. We believe this trend cannot persist indefinitely, and at some point, retailer destocking will end, leading to a necessary alignment between factory sales and store sales. It's uncertain whether this alignment will happen in one or two quarters, but we do expect continued sales growth eventually.

Hi, thank you. Regarding glucagon, could you explain the distribution between retail and institutional sales? Also, how established are you in the institutional market? I want to understand the potential of this opportunity, specifically for the glucagon injection. Additionally, concerning the CRL for AMP-008, can you provide more details on the issues raised in that CRL and whether they are complex or straightforward? Any insights would be appreciated. Lastly, regarding shortage products, as we progress into the latter half of the year, how should we view the impact of the damage at the Pfizer facility in North Carolina and how it might benefit you? Should we anticipate a greater influence from shortage products in the second half of the year compared to what we've experienced in the first half of 2023? Thank you.

Let me address the glucagon question first. In our analysis, we found that about 60% of our market is retail. We believe we have made inroads into other markets. It's important to note that our product is somewhat higher priced than some alternatives. While we believe it offers a more convenient package, there may be consumers who are not willing to pay a little extra for that convenience. Now, regarding the CRL, I will pass that over to Tony.

Sure. Hey David for AMP-008, as Dan said it's a minor CRL. And I think the most notable item on that is we've said that our response is going to be in the third quarter this year. So from a complexity perspective and kind of the funnel analogy that I use, I think just the timeliness of our response should give an indication on the complexity of the CRL.

In regards to the shortage products David, yeah, we actually are anticipating having to pick up some of the work there. So we do think especially in the products in the hospital setting and the CCD products where we should see an increase there, and that's why we decided to postpone the launch of our intranasal naloxone product.

And while we are going to see an increase it won't be too material, because we were already running those suites pretty much full out on this. So there is a little bit of room and we are looking for ways to increase the capacity that we can push through there by doing some small steps to increase things here and there. But this isn't going to be something where we can boost sales by 20% out of that factory. It's going to be incremental, because we were already running effectively full shifts on the two lines at that IMS factory that produced product for that. And as Dan mentioned unfortunately we were planning to start manufacturing the intranasal naloxone Ruxovi this quarter. But we postponed that because of the shortages that are out there. And so we've had to stop that process.

Can you share any details or estimates on the opportunity in the institutional segment of the glucagon business?

I think a significant portion of the pickup that we've had there has been on the institutional side.

Hey. Thanks. I think you mentioned on AMP-02 there's a slight regulatory question that the FDA had asked. Is it still possible that you could respond and then get that product on to the market at the end of this year?

Yes Tim it's not that the FDA is waiting for us to respond to anything. We haven't had a response that we provided to them in some time for this. So it's not that the FDA is waiting for us to do anything. The way we have had our conversation with the agency is they're assuring us that they're working diligently on the application and we view that as seeing a path forward with this. And we do see this as something that we're very optimistic that we will have a path forward for this. I mean we do anticipate having positive news for this. And it's just based upon just dialogue that we're having with the agency and we are hopeful of that.

I see. Okay. And then I guess just back on BAQSIMI. I mean, obviously, you're inheriting a lot of the formulary access that Lilly has already established for the product. I mean is there anything else you think you will need to do once the handover occurs around what October?

Yes. We are essentially following their strategy and adopting the actions they took. We plan to continue our marketing efforts in a similar fashion. Additionally, we are collaborating with various organizations across the country, such as the Juvenile Diabetes Foundation and other groups that support diabetes patients. We believe they have established an effective approach, and we are learning from their experience to apply it here. Therefore, we do not anticipate any major changes from what they implemented.

I want to thank everyone for joining us today. The second half of 2023 remains to be a highly anticipated period in terms of our filings our progression of our recent acquisition of BAQSIMI, our role in helping address the nationwide drug shortage in addition to our upcoming launch of Ruxovi in the fourth quarter. We look forward to updating you all again. And again thank you. Have a great day.

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