Amneal Pharmaceuticals, Inc. Q2 FY2020 Earnings Call

Good morning, and welcome to Amneal Pharmaceuticals' Second Quarter 2020 Earnings Conference Call. I will now hand it over to Amneal's Chief Financial Officer, Mr. Tasos Konidaris.

Good morning. Thank you for joining us for Amneal's Second Quarter 2020 Earnings Call. Earlier this morning, we issued a press release reporting our quarterly results. The press release, as well as the slides that will be presented on the call, are available on our website at www.amneal.com. We're conducting a live webcast of this call, and a replay will also be available on our website after its conclusion. Please note that today's call is copyrighted material of Amneal and cannot be rebroadcast without the company's expressed written consent. I'd like to remind you that statements made during this call, stating 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 titled Cautionary Statement on Forward-looking Statements in our press release and presentation, which applies to this call. Our future performance may differ due to numerous factors, many of which are listed on our most recent annual report on Form 10-K and are revised and updated on our quarterly reports on Form 10-Q and current reports on Form 8-K, which you can also find on our website or on the SEC's website at sec.gov. We also discuss certain non-GAAP measures. You will find important information on our use of these measures and other reconciliations to U.S. GAAP in our earnings release. Included in the appendix of today's presentation, you will find U.S. GAAP financial statements that correspond to some of our non-U.S. GAAP measures we reference throughout the presentation. On the call this morning are Chirag and Chintu Patel, our Co-CEOs; Andy Boyer and Joe Todisco, our Chief Commercial Officers of our Generics and Specialty segments, respectively; as well as Steve Manzano, our General Counsel and Corporate Secretary. I would now like to turn the call over to Chirag.

Thank you, Tasos, and good morning, everyone. I hope everyone is safe and healthy. Thank you for joining us to review Amneal's second quarter results. I'm pleased to report solid top and bottom line results with net revenue of $465 million, up 15% versus Q2 2019; adjusted EBITDA of $101 million, up 9%; and adjusted EPS of $0.13, up 44%. Overall, our business performed in line with our expectations and reflects our organizational focus and resilience in meeting the needs of our patients against headwinds related to the COVID-19 pandemic. The solid performance reflects the strong foundation of the company and the growth vision that Chintu and I laid out a year ago when we returned as the Co-CEOs. As we said then, we plan to reinvigorate the Generics business in the United States, build out our Specialty franchise, enhance our operational execution, and diversify our distribution channels. We have a strong base for growth with three core businesses: retail generics, the hospital market for injectable drugs, and the specialty pharmaceuticals where we already had a growing presence in neurology and endocrinology. In the past 12 months, we, along with 5,500 employees, have been executing on three strategic priorities: we have reignited the company's Generics R&D engine; advanced differentiated Specialty R&D assets, like IPX203 and K127; successfully launched numerous new products; and improved our efficiency and cost structure. In addition, we expanded our distribution with the acquisition of AvKARE, which gave us a new avenue of growth with the U.S. federal agency sector. Consequently, Amneal now has a well-diversified portfolio of more than 250 approved products; a best-in-class manufacturing organization in the United States, India, and Ireland; and a pipeline of new, complex generics and innovative brands. We are moving forward with our strategy to develop a more high-value Generics portfolio and a larger Specialty business. Let me provide an update on our progress. We are strengthening our Generics portfolio with new products. So far, we have launched seven out of our target of 15 new complex generic products by 2021. Our generic versions of NuvaRing and Carafate continue to perform strongly, and we recently launched generic Fluphenazine, which we also expect to perform well. Within the Specialty segment, sales of our top products remained robust. For the quarter, Rytary and Unithroid total prescriptions grew 8% over Q2 2019. Successful execution of marketing strategies has driven top line growth as well as improved gross to net, leading to a strong quarter for the segment. Over time, we expect to devote a larger share of our R&D spending to the Specialty segment as we seek attractive business development opportunities that leverage our existing platform in CNS and endocrinology. Moving on to our distribution strategy. We're very pleased with our AvKARE acquisition, which is providing us with an attractive differentiated asset. We are expanding the higher-margin unit dose business at AvKARE and see potential for additional opportunities as well. The integration has gone very well, and over time, we would expect to further accelerate AvKARE's growth. Let me provide some highlights on the second quarter results. Starting with our Generics business, as we expected, COVID-19 had a temporary negative effect. Demand for some products dipped as patients delayed procedures and physician's office visits. We also temporarily experienced larger-than-usual back-orders due to supply chain disruptions. For example, we experienced manufacturing and packaging delays at our New York and New Jersey facilities, as those states were hit hard by the initial wave of coronavirus. However, I'm pleased to report that the situation improved as the quarter progressed, and we are now in a better position on back-orders and rebuilding our preferred levels of finished goods inventory. In the Specialty business, we were pleased by the strong performance of Rytary and Unithroid, which offset weakness of some other brands due to COVID-19. This is the result of the successful transition of marketing programs from in-person to virtual, physician comfort with prescribing Rytary and Unithroid through telemedicine, and the resilience of refills for those brands. Revenue from Rytary and Unithroid increased 25% compared to Q2 2019, highlighting our successful commercial strategy and execution. Turning to AvKARE. This business continued to perform well, though COVID caused some temporary delays in the launch of new products by other providers. In sum, we are moving forward strongly and continue to focus on operational excellence. In this effort, Chintu and I leveraged a welcome experience, having grown Amneal from a modest start-up to more than $1 billion in revenue by 2017. Our performance through the first half of the year, despite the impact from COVID, gives us confidence as we continue to position Amneal for long-term success. With that, let me turn it over to Chintu.

Thank you, Chirag. Good morning, everyone. It has been an eventful year since we returned as Co-CEOs, and we are enthusiastic about the progress we have made thus far and the significant opportunities ahead. The COVID-19 pandemic caused a temporary disruption but hasn't changed our long-term vision. Let me start with an update on our key initiatives and our response to the public health crisis. We have made significant strides in growing our portfolio and pipeline while focusing on operational excellence. Over the course of the past year, we have significantly strengthened our supply chain and improved our operations. Our progress in reducing our back-order was temporarily interrupted by the COVID pandemic, but the situation improved in June. We are well positioned to meet volume demand across our manufacturing sites and see the potential for further improvement in these measures in the second half of the year. We have been extremely impressed and proud of our organization's ability to adapt to the difficult circumstances caused by COVID-19. After some initial disruption, our operations recovered swiftly. By the end of June, more than 90% of employees were back to work at our U.S. manufacturing facilities. Although the pandemic spread later in India, we are also seeing attendance back to about 80% of our facilities in India and Ireland. We have initiated multiple protocols at our facilities for the safety of our employees, including social distancing and thermal screening. We have also launched innovative information technology tools to enable our team to maintain productivity and to allow us to support and remain engaged with our employees. We appreciate their hard work and commitment to our vision and expect to achieve our full-year plant utilization targets, as originally stated. I would also like to highlight that while we continue to make operational improvements and get our operations back to full staffing, we have maintained our record for high quality, with no FDA issues. We believe that our organizational structure also helped our ability to weather the COVID disruption. First, we have a diversified supply chain with six manufacturing plants in India, four across the USA, and one in Ireland. There is a substantial amount of redundancy between those plants as well as substantial incremental capacity. In addition, our API supply chain is fairly diversified without being overly reliant on any one supplier. I would also like to spend the rest of my time talking about our R&D engine because it is truly the force that drives our company forward. As you know, we are a mission-oriented company, and that mission has always been simple: providing access to affordable, safe, and effective medicines to as many patients as possible. The way we built our company and our path to growth has and will always center around value-added, science-driven innovation. I will start with Generics where we have a robust R&D department with over 750 scientists globally. Our goal of transitioning our product portfolio to complex generics is progressing nicely. We expect to file 20 to 25 generic products in 2020, which consists mainly of first-to-market and high-value generics, and we have 91 products in the pipeline awaiting FDA approval. We continue to focus on more complex products, including sterile injectable, ophthalmic, transdermal, topical, and inhalation formulation, which offer less intense competition, higher margins, and higher return on investment. In addition, we have 132 products actively in development, mainly in non-oral solid dosage forms. Amneal has a solid track record of filing, getting approval, and launching high-value generics. For instance, we recently announced approvals for the Buprenorphine transdermal system and Fluphenazine Hydrochloride tablets. Both launches speak to our team's ability to formulate complex molecules, navigate the regulatory landscape, and ultimately launch very valuable products. Furthermore, we continue to improve the efficiency of our development process. These gains not only improve our cost on a per-product basis but also allow us to file products at a faster pace than we were before. As a result, we are seeing more launches each year but with more modest spending. I will now turn to our Specialty segment. As you know, we have a growing commercial presence in neurology and endocrinology, led by Unithroid and Rytary. In addition, we are also investing significant time and resources in Specialty product development, which will become a bigger driver of future growth. For instance, our Phase III clinical trial for IPX203, which is our next-generation carbidopa-levodopa product for the treatment of Parkinson's, has resumed enrollment following a brief COVID-related interruption. At this time, 70% to 75% of sites are open and screening patients. We expect to have top-line data in the second half of 2021, file for approval in 2022, and begin commercialization in late 2023. We are also continuing development work on K127, an extended-release tablet of pyridostigmine for the treatment of Myasthenia Gravis, which may be eligible for orphan designation. This program is very exciting and may be ready for filing with the FDA as early as the first quarter of 2022. We are enthusiastic about the prospects for our Specialty business and plan to direct more of our R&D spending to this segment over time. We expect to grow the Specialty business both organically and inorganically through selective in-licensing of products and acquisitions. Our focus, as always, is on therapeutic areas that will leverage our strong infrastructure and capabilities. Next, I will provide a brief update on biosimilars where we have in-licensed three oncology products from external partners. Our Neupogen biosimilar program is currently filed, and we await further comments from the FDA. We are very excited to announce our recent filing of our Neulasta biosimilar, and our Avastin program is making good progress towards BLA submission. Lastly, I would like to acknowledge our suppliers, customers, and employees for their efforts during the COVID pandemic and thank them for their hard work and dedication during these challenging times. I will turn the call over now to Tasos.

Thank you, Chintu. Net revenue in the current quarter was $465 million, up $60 million or 15% compared to Q2 2019. AvKARE and Specialty were up $64 million and $24 million, respectively, while Generics were down $28 million. These results reflect the resiliency of our portfolio, which offset temporary softness in demand due to COVID-19, approximately $20 million of unfulfilled customer orders as our supply chain was stretched, and a negative $6 million adjustment for the Metformin recall. Adjusted gross profit of $191 million was up $19 million or 9% compared to Q2 2019, reflecting solid performance despite the higher level of back-orders and Metformin costs. Adjusted gross margin of 41% was 150 bps lower than Q2 2019 and in line with our expectations. AvKARE diluted our margins by 320 basis points, while the rest of the business margins grew by about 170 basis points. On a sequential basis, adjusted gross margin was also down due to an expected level of price erosion, lower manufacturing absorption, and the Metformin recall. Adjusted EBITDA of $101 million was up $9 million or 9% compared to Q2 2019 as AvKARE and the rest of the business contributed to growth. Adjusted diluted EPS of $0.13 were favorable to the $0.09 we reported in Q2 of 2019 as higher adjusted EBITDA and lower interest expense offset higher minority interest due to AvKARE. From an operating cash flow perspective, we are pleased to report a significant increase, generating $179 million for the second quarter of 2020 compared with the $21 million in Q2 2019. This performance reflects our top line growth and favorable timing of collections and working capital. Finally, our performance has improved our financial flexibility. Consequently, at the end of the second quarter, we had $268 million in cash and cash equivalents, an additional $414 million available through our ABL facility, and we also reduced our net debt-to-EBITDA ratio to 6x versus 7x at the end of 2019. In summary, we continue to deliver solid financial results and reduce our leverage ratios despite the challenging pandemic environment. Let me now move to our segment results, starting with Generics where net revenue of $307 million was down $28 million from Q2 2019 and down $46 million sequentially. This performance reflects the following four factors: first, compared to the prior year, $20 million of the $28 million reduction reflects the shift of oxymorphone to the Specialty segment, the Metformin recall, and the divestment of our international operations. Second, as I mentioned earlier, about $20 million of customer orders were foregone as COVID-19 adversely impacted our manufacturing operations. We believe this is mostly behind us as back-orders have declined substantially. Third, it is well known that COVID-19 has led to generally softer prescription trends in elective surgeries. Some of the demand softness may also relate to early fills of prescriptions in Q1 due to customer supply concerns, which we discussed in our prior May earnings call. Finally, our newer products, such as EluRyng and Sucralfate, continue to perform well, and our ability to resolve a number of epinephrine supply issues were positive contributors in the quarter. Adjusted gross margin for the Generic segment was largely in line with our expectations of 35% compared to 34% in Q2 2019 and 42% in the prior quarter. The sequential decline reflects price erosion slightly better than our expectations, lower manufacturing absorption due to COVID-19, and the Metformin recall. We expect that over the course of the year, Generics adjusted gross margin should improve as our supply chain recovers and will further benefit from new product introductions. Let me now turn to our Specialty segment, which performed ahead of our expectations with net revenues of $94 million, up $24 million from Q2 2019. Adjusting for the reclass of oxymorphone, net revenues were up 14% versus the prior year driven by Rytary and Unithroid. As expected, COVID-19 was a headwind, but solid commercial execution mitigated some of the negative impact. On a sequential basis, Specialty net revenues were up $6 million or 7%, demonstrating broad growth. Adjusted gross margin for the Specialty segment was in line with expectations at 74% compared to 82% in Q2 of 2019 and 75% in the prior quarter due to product mix and the reclass of oxymorphone, which carries a lower margin than our other Specialty products. Let me now turn to AvKARE, which reported net revenues of $64 million and adjusted gross margin of 21%. This performance was in line with our expectations and reflects the durability and strong customer relations of this business. From a balance sheet perspective, as I mentioned earlier, we ended the quarter with $268 million in cash and cash equivalents and no near-term debt maturities. In addition, we fully repaid the $300 million drawn from our ABL facility last quarter as markets destabilized due to COVID-19. Looking to the second half of 2020, we feel confident in our ability to meet our financial commitments and annual guidance we issued earlier this year. As I did last quarter, let me provide some context. First, we have a growth portfolio and expect normalization of our manufacturing operations and, over time, normalization of patient demand as well. Second, we expect improvements in our Generics adjusted gross margin as we improve our ability to fulfill all customer orders and launch new products. Third, we expect an increase in operating expenses as clinical sites begin to open up and economic activity rebounds. Finally, from a cash flow perspective, we expect some reversal of working capital and that being offset by the $110 million cash tax refund we discussed last quarter. With that, I will turn the call back to Chirag.

Thank you, Tasos. We are proud of how well the company responded during the COVID pandemic. We continue to work on building the pipeline and operational excellence to execute the long-term vision we have for the business. I would like to now turn the call over to the operator to take your questions. Thank you.

First question comes from Greg Gilbert of SunTrust.

It's Greg Gilbert with Truist Securities. I have a question about NuvaRing on the Generic side. It seems some of your competitors are not in the same position, but I expected you to be able to increase supply. Can you update us on your ability to gain market share and any issues that might be hindering that? How long do you think this opportunity will last given the competitive landscape? Also, could Joe discuss the growth of Rytary and Unithroid revenue in relation to prescriptions and explain the disconnect? Is it just a matter of quarterly fluctuations, or is there something else at play?

Greg, this is Chirag. I'll take the first one, and I'll pass it to Joe for the second question. So NuvaRing production has been ramped up. We have doubled our capacity, and we will be seeking additional market share starting this month. Competition, you know as much as we know. Whenever that comes, that comes, but our market share would be in line to 20%, 25%. So even if competition comes, we do not see our volume dropping because it’s two players today with authorized generics, one of which is us. So if a third player comes in, we should be able to maintain our capacity. Joe, you want to take the...

Sure. Thanks, Chirag. On Rytary growth, the dollar growth did outpace the script growth a little bit, which is attributable to two factors, both price and volume. From a price standpoint, we implemented some strategies at the end of last year to target more profitable patient segments. And we've seen over the last two quarters, that's had a positive impact on gross to net. From a volume standpoint, we saw a bolus of scripts in March, and the inventory that kind of replenished the trade shipped out in April. So we had a little bit higher April than what would have been expected because of restocking in the trade, and we saw that for both Rytary and for Unithroid.

Okay. And if I could sneak in one follow-up for Chirag and Chintu. On the biosimilar side, I can certainly understand your desire to be in that market long term. I am a little concerned and curious about your thoughts on sort of the return potential for products like Avastin and Neulasta. If you're not first or second or third in, are you confident you can still get a good financial return if you're not among the first?

Great question, Greg. As we have mentioned before, biosimilars represent a long-term strategy focused on providing affordable medicine and adding value to the healthcare system. Fortunately for Amneal, our investment in biosimilars has been relatively low. This means that, although our return expectations may be lower as we enter the market later than others, the smaller investment balances those expectations. We are concentrating on oncology biosimilars. You are correct that it can be challenging to be the fourth, fifth, or sixth player in this market. We are preparing for a more competitive landscape, which we anticipate will develop as biosimilars continue to advance. The FDA is becoming more accommodating of new approaches and methods, which aims to reduce the costs of biosimilar development. Once this shift occurs, we can expect more biosimilar competitors to emerge, making it similar to the generics market. Currently, the space operates with a specialty pharma sales and marketing model that doesn't align well with generics margins and brand marketing. Hence, we need to address this issue. As I mentioned, this is a long-term initiative. We expect increasing competition in biosimilars and believe there will be opportunities to combine these products with generics. Some of our competitors are already pursuing this strategy. That's our approach as we manage our investments smartly and opportunistically while expanding our pipeline. Chintu, do you want to share your insights on the FDA's perspective on the development cycle?

Sure. Greg, biosimilars are an evolving space. There's a lot more understanding from a regulatory perspective than it was before, and the FDA is willing to sit down with companies and explore new ideas that can speed up the approval and reduce costs. You are absolutely right that it's no fun to be fourth, fifth, or sixth, so we are looking at the portfolio where we could be potentially first, second, or third. There are a lot of other tools than just full-blown clinical studies that can be utilized to speed up the development of biosimilars in a very cost-effective way, and that's what Amneal would be focusing on.

Our next question comes from Randall Stanicky, RBC Capital.

This is Dan Busby on for Randall. A couple of questions. First, with respect to high-value generic launches, it sounds like you've got at least eight left over the next 12 months or so from your targeted 15. How should we think about the cadence of those launches? And specifically, how many of those could we see over the remainder of 2020? And second, the midpoint of EBITDA guidance implies a sequential decline from the Q2 level during the second half. Is that the right way to think about it? Can you talk a little bit more about the puts and takes that go into that? Is that driven largely by the step-up in spend? Or are there other factors at play?

I'll take the first one. And sorry, I didn't catch your name.

It's Randall Stanicky.

No. It’s not Randall; it's somebody else.

Yes. Dan Busby.

Dan, I apologize for the confusion. Yes, we are fully confident in launching the remaining eight or ten high-value products. The important aspect to note is that we have revitalized our research and development efforts and our generics division. We have added 16 new projects, including injectables and IV bags. We are currently a smaller player in the injectables market, but we aim to establish ourselves as a significant player in the coming years. Our pipeline now consists of 132 products, and we are definitely on track to meet our goal of launching 15 to 20 high-value products this year. While I don't have the specifics on how many more will launch this year, things are looking positive for new launches. Regarding your question about guidance, I’ll hand it over to Tasos. Tasos, could you address that?

Sure. Dan, you are correct with the figures. Year-to-date, our EBITDA stands at approximately $235 million. For the full year, we project to remain within our guidance of $400 million to $450 million. This suggests that we anticipate performance in the second half to be roughly on par with that of the first half, potentially slightly lower. We believe that our business will continue to grow in the latter part of the year; specifically, our Generics segment will address our manufacturing back-order issues, we will be launching new products, and our healthcare segment will continue to perform well. In the Specialty division, we expect Q3 and Q4 to decline slightly compared to Q2 as the inventory buildup we saw in Q2 normalizes. However, we anticipate an increase in operating expenses in the second half. We expect higher R&D expenses as we continue to invest in this area, with a growing portion allocated to Specialty. Moreover, we foresee increased SG&A expenses as the economy reopens, allowing us to ramp up our sales and marketing efforts. Overall, we expect both revenue and operating expenses to accelerate. It's important to note that we are still navigating the impacts of the pandemic. This context informs our year-to-date performance and our outlook, leading us to maintain our guidance while remaining confident in our ability to meet it. I hope this provides you with further clarity, Dan.

The next question comes from Ami Fadia of Leerink.

I've got a couple. With regard to Levothyroxine, can you talk about the sustainability of this product with the changing competitive landscape? And can you give us an update on some of the pipeline products that you had mentioned in the past, approval timeline for Copaxone? And I believe you had mentioned something about an inhaler product that could potentially get approved next year. And then just lastly, we saw Kodak receive a loan from the government. Can you talk about Amneal as a company that may be positioned to leverage some of its manufacturing footprint in this domestication effort? And then can you talk to some of the opportunities there?

Thank you, Ami. I will address the three questions you raised. First, regarding generic Levothyroxine, competition has been present since last year, but switching products is challenging. Our large customers prefer to continue with their current product, allowing us to manage or maintain our volume. We have experienced a price decline due to new entrants in the market late last year and early this year, but we are comfortable with our current position. I will address your third question first and leave the pipeline question for my brother, Chintu. Concerning Kodak, we are fully aware of the government's initiatives. We are in discussions with the U.S. government and legislators. We believe in the importance of manufacturing essential products in the United States, as even friendly countries can face challenges in shipping products. Therefore, it is vital to produce a portion of our essential drugs in the United States using key starting materials and finished products. Amneal is well positioned, as we are a U.S.-based company solely serving the U.S. market, and we are committed to doing the right thing. While we need to consider costs when manufacturing in the United States, we have been producing many generic products here, maintaining one of the largest portfolios among manufacturers in the country. Bringing in active pharmaceutical ingredients presents challenges with regulatory bodies, and while utilizing green technologies can take time, it is achievable. Producing finished products is significantly easier, and we believe that certain critical antibiotics and emergency drugs should be manufactured domestically. We will monitor how executive orders progress; however, long-term sustainability of the industry in the U.S. will require legislative action. Based on discussions with both Democratic and Republican representatives, there is a strong interest in ensuring we have a secure supply chain for specific drugs in the U.S. That concludes my update on the government aspect, and I will now pass the call to Chintu for the pipeline update.

Ami, so we are very excited about our pipeline and diversification, what we have done. So a very strong pipeline and every dosage form, we have capabilities from development to commercialization in-house. Your question on Copaxone, Copaxone is moving forward. We expect to launch that in the second half of 2021. An inhalation product is also moving well with the FDA. Don’t have a firm date yet, but it most likely would be a 2021 launch also. We are very excited about many other first-to-market and high-value launches coming up over the next 12 to 18 months.

Chintu, may I follow up briefly? There has been a significant increase in the number of pipeline assets you are developing. Can you provide some insight into when we should anticipate these products entering the market? Perhaps you could give us an idea of when we might start seeing approvals over the next 2 to 3 years?

We have added more products, particularly in the sterile injectable area, and have revitalized our research and development to make it highly efficient. I am very passionate about R&D and we are careful with our product selections to avoid commodity projects. This year, we plan to file 20 to 25 products, most of which are first-to-market and high-value. We are very excited about this. Depending on the product's complexity, it could take 12 to 18 months to reach the market, but we will be filing new products each year. Some of these will be commercialized in 2021, 2022, and 2023, and we have a robust pipeline that fuels our enthusiasm for growth potential.

Yes. And Ami, just to add on, the FDA is very efficient as well, as you know, on approving especially first-to-market products and different dosage form products. Our new development pipeline on Slide 9 of our presentation, you can see 132 projects. Again, we added 60 projects. We are well-known for years, since 2007, about our pipeline and execution. We have been number one in bringing new products to the market, refreshing our pipeline. It's like the generics business is running on a treadmill, and we've been running on a treadmill really well, getting used to it. We feel very confident where we stand in terms of the generics business because our size is such that we can still grow. Yes, we do expect every year competition, but we have enough to offset that and grow and also look at the injectables, the IV bags we added now. We are good in execution and manufacturing and quality. We have done it for years and continue to do so. So we expect good launches every year. It's not just an 18-to-24-month phenomenon.

The next question comes from David Amsellem with Piper Jaffray.

So on NuvaRing, I guess this is one of those markets that even if Teva were to get an entry, it would not be all that crowded over time. So with that in mind, what can you do to increase your capacity here, and by doing so, grow your share, maybe talk to that? And then secondly, a question on Rytary and just the brand business in general. I mean if you don't add additional assets focused on neurology and you look at other therapeutic areas, would Rytary and the next-gen product be something you would look at divesting? And just, I guess, philosophically, how do you think about that in terms of either building the brand business or jettisoning an asset like Rytary that may not be an overall fit?

Thank you, David. Regarding NuvaRing, we've doubled our manufacturing capacity, producing extensively with our automated lines and pouching. We'll continue to enhance our manufacturing capabilities. We have a small share in a two-player market, and I'm confident that Andy Boyer will capture more market share as we progress. It’s a complex product that requires a long-term strategy, but we've significantly improved our manufacturing expertise. It's a valuable and robust asset for us, and we aim to keep expanding our manufacturing. In terms of Specialty, we have a solid foundation on the Generics side, which now includes injectables, bags, inhalation products, and ophthalmic products. These areas represent our growth opportunities. Currently, 19% of our portfolio is in oral solids, while 81% covers various dosage forms. We have the potential to grow our $1.3 billion to $1.4 billion generics base in the U.S. Our Specialty pipeline includes Rytary, which Joe is managing effectively, and we’re receiving positive feedback from KOLs and patients. We’re excited to continue expanding Rytary and preparing for the launch of IPX203, which nearly doubles administration time. We’ve gained valuable insights into marketing, and we’re planning our launch for 2023. We are fully dedicated to the Specialty area and intend to acquire more assets, including K127. We're aware of our leverage and are focused on aiming for a 5x EBITDA multiple, while managing expenses and growing the business. Our commitment is particularly strong in the movement disorder and endocrinology sectors. We're open to exploring other areas as we move forward. Thank you, David.

Our next question comes from Gary Nachman, BMO Capital.

This is Eli on for Gary. I was wondering if you could provide an update on your partnership with Fosun to expand your international presence, and if you've filed your first product. If you did, can you disclose what it is and if there are any more products expected to be filed for the remainder of the year?

The Fosun partnership is progressing well. We have identified several IDL products and have been filing, with more to come. However, we cannot disclose those products at this time. These products are FDA-approved and will be shipped from our facilities in the United States, India, and potentially Ireland. We are also expanding the partnership and exploring additional products. We view China as a promising market that is evolving, and we are adapting to the new business landscape set forth by the Chinese FDA and government. It's an exciting opportunity in a large market, and we have a solid partner in Fosun, which we plan to strengthen further.

Great. And just a follow-up on that. You guys have talked about the shift of focus on your Specialty franchise. So long term, is there a directional target for mix there for Specialty versus Generics?

You're referring, I think, around the R&D spend. So if I may, I can take this. When we look at the R&D spend right now, it's 2/3 Generics, 1/3 Specialty, maybe even more so skewed towards Generics. Over time, we'd love to be in that 50-50 split between the two. We think we can do this without any impact to the strength of the pipeline of the Generics. So does that address your question?

Yes. That's helpful.

We have reached the end of our Q&A session. Thank you for joining. You may now disconnect.