Amneal Pharmaceuticals, Inc. Q3 FY2020 Earnings Call

Thank you, Andrew. Good morning and thank you for joining us for Amneal's third 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, a replay of which 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 would 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 a reconciliation 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, as well as Steve Manzano, our General Counsel and Corporate Secretary. I will turn the call over to Chirag.

Good morning. And thank you for joining us in the review of Amneal’s third quarter results. We are pleased with the strong performance this quarter versus prior year, with net revenue of $519 million, up 37%, adjusted EBITDA of $114 million, up 60% and adjusted EPS of $0.16, up substantially versus foresight. Our strong and consistent financial performance over the course of 2020 reflects the successful execution of our Amneal 2.0 strategy. This could not have been possible without the resiliency and excellent work of our global team. We know their dedication and commitment to providing affordable and innovative medicines to patients is an integral part of navigating the COVID-19 pandemic this year. We all know how difficult the last few months have been due to COVID-19. And unfortunately, we are clearly not out of the woods yet. From our perspective, in Q3, we saw sequential pickup in demand and lower supply chain disruption compared to the second quarter. Having said that, we continue to be vigilant and actively preparing for the next wave of COVID-19, to ensure we meet the demands of our customers and avoid any material disruptions over the coming months. As we discussed in our first quarter 2020 call, this pandemic raised the issue of domestic preparedness and the need to fortify production of critical medicines based in the United States. Amneal is the largest U.S. generics company domiciled in the United States. And we believe our operational expertise and excellent quality track record uniquely positions us to be part of an expanded domestic drug manufacturing strategy. Over the course of the last few months, we have spent a substantial amount of energy and resources to respond to this bipartisan effort and we look forward to working with legislators from both parties, as well as the industry to help protect the health and safety of our citizens. Ever since we rejoined as co-CEOs last summer, we shared with you our intent to reinvigorate the R&D pipeline, successfully launched new products, bolstered our base business, diversified our distribution channels, and focused on operational excellence to improve profitability. In Q3, we executed on all these objectives. Let me start with our generic segment where net revenue increased 17% compared to Q3 of 2019. The double-digit net revenue growth reflects the successful launch of 8 of the 15 complex new products we target launching by August 2021, as well as the continued strong performance by EluRyng and Sucralfate. We are building on our strong presence with a steady flow of new product launches, including Fluphenazine Hydrochloride tablets for treatment of schizophrenia and a generic Butrans Transdermal System for pain management, and a generic Lidocaine Patch. As we mentioned in the past, continuing to shift our mix of products to more complex or differentiated products is a strategic priority of ours. This is reflected by the substantial increase in our R&D pipeline focused on non-oral solid products. In addition to new product growth, we were pleased by the strength in our base business. This growth reflects the relevancy of our broad commercial portfolio and customer focus by our commercial and supply chain organizations. Finally, we're constantly looking for ways to leverage our generic product portfolio and manufacturing capability in new channels such as over the counter. An example of such incentives is the recent launch of the store brand equivalent of Voltaren Arthritis Pain Gel, which we introduced in partnership with PLD. Top line growth, as well as keeping a close eye on operating efficiencies, led to a substantial increase in generics adjusted gross margin to 37.4% compared to 29.8% in Q3 of 2019. As co-CEOs along with our broader team, we are acutely focused on operational excellence, continuing to find ways to improve efficiency and optimize our expense base as a key component of our Amneal 2.0 strategy. We have a robust list of company-wide activities from gross to net deductions to purchasing to manufacturing and SG&A expenses, which will help drive generics adjusted gross margin above 40% over the course of time. Let me now turn over to our specialty segment where our business was stable compared with the prior year. We feel good about this performance considering the fact we came out of a very strong second quarter, and the headwind of COVID-19 is having on physician office visits and new patient starts. Both Rytary and Unithroid continue to show strong growth, which serves approximately 12% and 29%, respectively, and combined prescriptions volume up 6%. Moving on to healthcare which continues to generate strong top-line growth, revenues increased to $89.5 million from $64 million in the prior quarter. The healthcare team has done a nice job growing the top-line business despite a slowdown in new product introductions from third-party suppliers due to COVID-19, and usually such new products carry higher margins. We continue to be excited about the long-term opportunities in the growing government segment. With that, let me turn the call over to Chintu now.

Good morning, everyone. Thank you, Chirag. Let me first start with our COVID-19 response, and I echo my brother's sentiment. I'm truly proud of how our team members have responded and are working with our customers and suppliers to mitigate interruptions. Last quarter, we discussed that approximately $20 million of customers' orders were not filled due to COVID-19 disruptions. In the third quarter, unfulfilled orders declined to approximately $10 million. And I'm pleased to report that overall, our manufacturing facilities are operating close to pre-COVID-19 levels. We are building our inventory on hand and strengthening our global supply chain. As Chirag mentioned, since we rejoined last August, we have led a number of strategic initiatives to improve performance in a sustainable way, including rebuilding the R&D pipeline and operational excellence to improve efficiency across our supply chain. Let me spend a few minutes highlighting our Generics segment and R&D pipeline. Every action we take is aligned to our quality-first mindset, and we will continue our strong quality track record, as demonstrated by successful inspections in 2020 and all prior years. Our generic business continues to improve with strong sales and increasing margins. Our results reflect strong volume gains and increased manufacturing for EluRyng, which enabled our commercial team to increase its market share to 23% compared to 15% in the second quarter. In addition, we are on track to deliver 15 high-value complex generic products by next August and plan to file close to 30 ANDAs this year, up from our prior expectations of 20 to 25. Our portfolio transition to complex Generics continues, and over 60% of these 30 ANDAs are non-oral solid dose. Also, our current pipeline of over 100 products is about 80% non-oral solids and includes many complex products through our focused R&D efforts, which are made possible by our in-house development and manufacturing capabilities. We will be constantly refreshing and expanding our Generics pipeline for many years to come. In particular, we are very focused on generating meaningful growth in our injectable product line over the next 18 to 24 months to better meet the demands of our hospital business. Turning to our Specialty pipeline, we have a number of attractive product candidates that we plan to bring to market over the next few years. We are excited about the potential opportunities as they leverage both our R&D team and our commercial infrastructure. Let's start with IPX203, which is our next-generation product for treatment of Parkinson's disease, which we expect will be a material improvement over Rytary and existing therapies. PD is a degenerative disorder that affects dopamine-producing neurons in the brain that affect movement. Unfortunately, PD can lead to motor fluctuations and dyskinesia. There are roughly one million Parkinson's patients in the U.S. and approximately 60,000 new patients are diagnosed each year. 60% of PD patients in the U.S. are on some form of levodopa therapy, and immediate-release carbidopa-levodopa is a first-line therapy in PD. We currently market Rytary, an extended-release product that is targeted to more moderate to severe patients compared to generic immediate-release. We see IPX203 as addressing the same patient population as Rytary with improvement in terms of application and patient convenience. Based on our Phase II clinical results, we expect that our Phase III clinical trial will demonstrate IPX203 to have a superior profile in terms of good on time, which is the time in which a patient has symptomatic relief without troublesome dyskinesia. Such benefit may translate to one to two hours per day improvement in good on time while decreasing the daily dosing to three times versus the current four to six times per day. Such outcomes would be a material improvement in quality of life for PD patients and expand the addressable market for our product accordingly. There are currently two Phase III clinical trials ongoing, and we expect to see topline data in the second half of next year with commercial launch planned for 2023. A second near-term pipeline opportunity in specialty is K127, which is a 505(b)(2) program for treatment of Myasthenia Gravis that we in-licensed from Kashiv Biosciences last year. MG is a rare autoimmune disease that causes extreme muscle weakness, double vision, droopy eyelids, and difficulties with speech and swallowing. K127, developed through a proprietary drug delivery technology platform, is an improved formulation of pyridostigmine, which is the most commonly prescribed first-line therapy for MG. If successful, K127 could offer improved tolerability, once-daily dosing with rapid onset and 24-hour symptomatic coverage. This product profile would be a significant improvement over the current generic formulation, which is given three to four times a day. As a point of reference, MG is a rare disease affecting 36,000 to 60,000 patients in the United States. We see these as attractive commercial opportunities based on the concentrated prescriber base and synergistic deployment with our neurology field team. We will be starting the Phase III trial for K127 soon, and assuming successful results of the trial, we plan to file this product with the FDA in 2022. Beyond these exciting candidates, we are actively monitoring opportunities to make specialty a larger part of Amneal's business in the coming years. This includes external partnerships as well as M&A targeting specific platforms that leverage our expertise and have a reasonable probability of success. In addition, we expect to increase the share of our internal R&D budget directed to branded product development in a measured way. At last, 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.

Adjusted gross profit of $206 million was up $55 million or 36% compared to Q3 2019 reflecting strong Generic sales, AvKARE and stable performance by specialty. Adjusted gross margin of 39.7% was in line with our expectations and essentially flat to the 40% in Q3 2019. Excluding the AvKARE acquisition, adjusted gross margin in the current quarter would have been 45%, so approximately 500 basis points higher than prior year, driven by the strength of Generics. Adjusted EBITDA of $114 million was up $43 million or 60%, compared to Q3 2019, reflecting strong Generic growth, tight expense management and a $6 million contribution by AvKARE. Adjusted diluted EPS of $0.16 were well ahead of the $0.04 we reported in Q3 2019, mainly driven by the adjusted EBITDA growth, lower interest expense offsetting higher AvKARE minority interest and taxes. The improvement in business trends and our financial management efforts have resulted in strong operating cash flow. By nature, operating cash flow fluctuates substantially at any given quarter. And in this third quarter, we generated $45 million or $273 million year-to-date. Our year-to-date performance is substantially ahead of the $53 million we generated in the first nine months of 2019. A strong financial performance is strengthening our balance sheet and improves our financial flexibility. As of September 30th, we had $284 million in cash and cash equivalents as well as an additional $498 million available through our ABL facility. As importantly, our net debt-to-EBITDA ratio continued to improve to 5.6 times versus seven times at the end of 2019. Let me now turn to the segment of Generics, which reported net revenue of $342 million, a $51 million increase or 17% from the prior year quarter. I would highlight that this performance reflects three factors: first, the benefit of our strategy in delivering stronger product introductions. Consequently, alumina and sucralfate, both of which late last year, more than offset the declines in Levothyroxine and the diclofenac gel. Second, the resiliency of our base business due to the effectiveness of our commercial initiatives and the relevancy of our broad portfolio of products. Third, less of a headwind than the prior quarter in terms of COVID-19 related back orders and lingering negative effects of prescription trends in elective surgeries. Moving on to adjusted gross margin for the Generics segment, which was 37.4%, substantially higher than the 29.8% in Q3 2019 and 35.3% in the second quarter of 2020. The year-to-year gain reflects new product launches, a number of operational improvements, and favorable product mix offsetting pricing pressures. Let me now turn to our Specialty segment, and we're pleased with the resiliency of our commercial execution, considering the negative impact of COVID-19. Net revenues of $88 million were in line with Q3 2019 as solid demand growth for Rytary and Unithroid were offset by declines in our non-promoted products. Similarly, adjusted gross margin for the Specialty segment was in line with Q3 at approximately 74%. Turning over to AvKARE, which reported net revenues of $90 million and adjusted gross margin of about 15%. While top-line growth has been ahead of our expectations, COVID-19 and channel mix is a temporary headwind through AvKARE's profitability. Furthermore, the fact that AvKARE has substantial revenue at lower margin creates a mathematical headwind to our overall gross margin percentage. This is clearly demonstrated in the third quarter, where as I mentioned earlier, AvKARE diluted our company gross margin by approximately 500 basis points. This adverse mix will moderate or even disappear next year as AvKARE will be in our base period results. Considering our performance over the course of the year, we believe it is prudent to update our full-year 2020 guidance. Specifically, the new revenue range is $1.95 billion to $2.0 billion, up from the prior guidance of $1.875 billion to $1.975 billion. Gross margin, 41% to 42% compared to 44% to 46%, mostly driven by AvKARE. Absolute adjusted EBITDA, $430 million to $460 million, up from $400 million to $450 million. Adjusted EPS, $0.55 to $0.65, up from $0.45 to $0.60. Operating cash flow, $170 million to $220 million, up from $150 million to $200 million. And finally, CapEx of $60 million to $70 million, no change from prior guidance. Let me now provide a little bit more color around our guidance. First, we need to be mindful we're in the middle of a pandemic, and it's impossible to predict all the potential outcomes. Having said that, we have a growth portfolio and our manufacturing operations continue to improve. Second, we expect patient volumes will gradually move towards more normal levels. Third, while R&D and G&A expenses were somewhat tempered this year due to COVID-19, we expect an increase in operating expenses as clinical sites are reopening. With that, I'll turn the call to Chirag.

Thank you, Tasos. We are pleased to have made significant gains this year in executing our Amneal 2.0 strategy, despite the pressures of the COVID-19 pandemic. We look forward to continuing to drive operational excellence and reinvigorate our pipeline. I would like to now turn the call over to the operator to take your questions. Thank you.

We will now begin the question-and-answer session. The first question comes from David Amsellem of Piper Sandler. Please go ahead.

Hi, thanks. So, just a couple. So first, I wanted to get your thoughts on your biosimilar business. And there's a couple of questions there. One is, how are you thinking about Pegfilgrastim and Avastin biosimilars in the context of an increasingly competitive marketplace? And specifically, what you think pricing will behave like, as more competition pours in these markets? Do you think you'll see erosion that's anything like what you see for small molecule generics? And then secondly on biosims, can you talk about other opportunities and when we could get more visibility on other opportunities that you're working on? Thanks.

David, good morning. As we've mentioned before, biosimilars, we have three key products filed with the FDA. One is to be filed soon. We consider biosimilars as more of a complex generics. The market will behave as such; as more competition comes, and more doctors feel comfortable prescribing biosimilars. An intent from Congress was to create competition and reduce pricing. That's exactly what's happening. From the beginning, we have invested very carefully, and so far, we are only commenting on three programs, not commenting on the additional opportunities we are working on. The erosion you mentioned like small molecules? No, that will not happen. Small molecules, as you know, have ridiculous erosions that get up to 98%, 99%. I do not expect that. It is extremely difficult manufacturing lots of signs and involves a lot of investment. So, it will more or less behave somewhere in between complex higher-value generics and what you see today in biosimilars pricing.

The next question comes from Gary Nachman of BMO Capital Markets. Please go ahead.

Hi guys. Good morning. First, a little follow-up to the last question. So, what have been the dynamics with new launches that you're seeing? How much pricing pressure? How difficult to negotiate managed care contracts? So maybe compare EluRyng and Sucralfate with Fulvestrant that was launched more recently and then expectations for complex generics going forward. And then just Tasos, on the gross margin guidance, I guess I was surprised that it came that much slower. So just talk a little bit more about the mix that's driving that. I know a lot of it is AvKARE, but is there anything else baked in there? Thank you.

Good morning. Regarding your questions about complex generics, they typically experience a quick uptake from customers and convert to generics just like small molecules have for many years. Therefore, we do not encounter major challenges when negotiating with managed care concerning complex generics. However, biosimilars represent a completely different situation for us, and we are preparing to launch these products as they receive approval. We are learning how to navigate this with our specialty and managed care groups, and we will be engaging with various stakeholders in the biosimilars sector. I'll pass it over to Tasos for more information.

Thank you. Hi Gary, good morning. There isn't anything affecting the gross margin other than the impact of AvKARE. Let's break it down. As you know, we consider our business in three segments. Starting with generics, which represents the majority of our business, we are currently at a 38.4% margin year-to-date, which is 240 basis points higher than the same period last year. Given the first nine months, we expect the overall generic margins for the year to be significantly higher than the 35% we saw last year. We're very pleased with this. The largest part of our business is seeing revenue and profitability growth. The second largest segment is Specialty, where margins have remained relatively stable, around 75%. This indicates stability and durability, which we appreciate. Then we have AvKARE, which we acquired at the end of January. When we provided guidance in February, it was based on this newly acquired business. AvKARE has exceeded expectations in terms of revenue, but its profitability fell short due to COVID and slower new product launches from other companies, not ours. This led to a more significant than anticipated challenge regarding how AvKARE would affect our results, which is reflected in our guidance of 41% to 42%. As I mentioned earlier, AvKARE will be included in our base next year. We will continue to focus on launching new generic products and expanding our business. We are hopeful that COVID-19 will largely be behind us, which should lead to more stable manufacturing utilization, and we expect to see improved gross margins in our specialty segment.

Sure. And also, we are working to transfer many products to our U.S. plants for AvKARE's business, which will add to the top line and especially on the gross margin.

Gary, did that address your question?

Yeah. That's great. Thank you very much.

The next question comes from Greg Gilbert of Truist Securities. Please go ahead.

Thank you. Good morning. Chirag and Chintu, I was hoping you could share with us your thinking about the strategic importance of AvKARE, longer-term. Obviously, you've lived with the asset for some time now. And as Tasos just said, it's performing well financially. So curious about the strategic importance of that asset longer-term beyond simply being a diversification angle? And then Joe, I was hoping you could comment on what's going on with Rytary in terms of face-to-face detailing versus other methods you've learned about over the past several months? And what's the outlook for continued growth on that important brand? Thank you.

Good morning, Greg. This is Chirag. Regarding AvKARE, we have three main areas within the business. The first is government business, which we're particularly excited about. We offer multiple products from our own lineup as well as from third parties. As the largest U.S. generics company, we have a wider range of products to add to the AvKARE portfolio. Several products are set to go off patent for government business in the next five years, so we are significantly expanding our pipeline in this area. We are very enthusiastic about that. The second area is unit dose, where we launched our first product and have built the capacity to introduce eight additional products next year. The strategic importance of these products is noteworthy. The third segment is direct to providers, which is smaller and has lower margins, but it helps build customer relationships and partnerships. During shortages, we can supply immediately, as we did during the COVID period, which proves beneficial. The strategic significance lies in our direct distribution to customers, which enhances margin growth across all segments and boosts sales through various channels. We remain very optimistic about these opportunities. Joe?

Thank you, Chirag, and thank you, Greg, for your question. We were quite satisfied with Rytary's performance in the third quarter, despite the challenges posed by COVID. New patient starts have been a significant hurdle across the pharmaceutical industry, particularly among at-risk populations who are not returning to their doctors for regular appointments. However, retail sales remain robust. We have seen a respectable number of new patient starts that allow us to maintain some growth compared to last year. Although script growth may not match revenue growth, there is an increase in the number of pills per script for Rytary, indicating a rise in 90-day sales, which is beneficial for the refill rate of that brand. Regarding the effectiveness of our sales force, they were largely inactive during the lockdown in the second quarter, necessitating adaptation, much like other companies in the industry. We became effective in virtual promotion, utilizing platforms like Zoom for our events. As territories have reopened, we plan to maintain a balance between in-person detailing and virtual events, which has contributed to a slight decrease in our SG&A costs. We feel positive about Rytary's prospects; we have a solid plan in place through 2025 with our settlements and are poised to return to growth in 2021.

The next question comes from Ami Fadia of Leerink. Please go ahead.

Good morning. Thank you for the question. I have two inquiries. First, for Chirag and Chintu, can you discuss the opportunities to enhance your CNS portfolio with the Zomig expiring next year? What is your commitment to incorporating additional assets into that portfolio? Secondly, for Chintu, could you share your expectations regarding new product opportunities in the upcoming months leading into August 2021? Specifically, can you provide any details about the respiratory product and when you anticipate getting Copaxone 20 and 40-mg approved? Thank you.

Thank you, Ami. This is Chirag. So CNS opportunity, as we have mentioned, that's our top priority from an M&A perspective. We're looking at various products, companies, and whatever fits with our neurology field sales. And as you know, Rytary is our lead product. We will add on to the movement disorder or particularly to the PD category. So, we've been active on that front. We are also building an organic pipeline in movement disorder overall, which would complement our neurological sales. K127 is an example, and we're looking to see if we can build out with external partnerships, more product partnerships. I'll turn it over to Chintu for the new product launches.

Hi. Good morning, Ami. As we have mentioned previously, we have a very diverse portfolio and are confident about launching the remaining seven products in the next nine to twelve months for our complex products, primarily in the non-oral solid area. We have promising launches ahead in ophthalmics, topicals, and transdermals. Regarding the glatiramer, we are cautiously optimistic about a launch in the second half of 2021. Concerning the Rytary product, we are currently not providing any additional information beyond what we have shared previously. However, it appears that a launch could occur toward the end of 2021, and as we get closer, we will be able to offer more details.

The next question comes from Randall Stanicky of RBC Capital Markets. Please go ahead.

Great. Thanks for taking my questions. Two questions. First, the implied fourth-quarter EBITDA based on guidance, is that a good run rate for next year? I think consensus implies a step up. So, if you could just help us understand what some of the moving parts there are, that would be helpful. And then secondly, Chirag, on the topic of complex products, I want to ask you maybe a bigger picture question here. The drug landscape continues to evolve, and obviously, there's a lead time in terms of building the pipeline. At least one of your peers, who also has a branded business, has called out digital therapeutics as an opportunity, specifically adding technologies to traditional drugs. Has Amneal looked at that? And are there other 505(b)(2) opportunities or ways to differentiate that you see that you could pursue to build out your pipeline as we think about the next three to five years? Thanks.

Thank you, Randall. We'll address your first question later; I'll refer that to Tasos. Regarding your inquiry about complex products and expanding our portfolio, that's a great question. As previously stated, Amneal has a robust generics R&D, a strong lineup of complex products, and a wide range of therapeutic categories. We are well-prepared in the generics space and will refresh our pipeline annually. Our growth strategy for Amneal extends beyond generics. One key area is biosimilars, which I noted will be competitive but may take time to ramp up. Consequently, we are particularly enthusiastic about the Specialty business. We currently have two products, Unithroid and Rytary, along with K127 and IPX203 in the pipeline. We're also exploring drug delivery technologies that can facilitate more products in the 505(b)(2) categories. Essentially, 505(b)(2) involves taking older molecules developed 20 to 30 years ago and integrating new technologies to minimize side effects and enhance patient convenience. This is our focus, and we see numerous opportunities. We’re not starting from scratch; we're leveraging our existing knowledge and experience to create a systematic pipeline that allows us to introduce products annually over the next several years. We anticipate significant growth. As we advance, we can utilize our drug delivery technologies to expand into additional programs and technology-based products. This is the direction in which we have positioned Amneal, and we will continue to pursue it. However, we remain attentive to the generics market, which is stable and growing, and we have many therapeutic areas where we can consistently introduce new products in the coming years.

I'm sorry, I just wanted to expand on technology and our complex. As Chirag said, complex, we have an entire spectrum of a diversified portfolio, and we have in-house developed technology also to address the need for the complex to bring to market because many products are custom technologies, right? On a 505(b)(2), our second asset, which I talked about, K127, uses a proprietary platform to deliver that product in a certain way. And Randall, there are many products that are great molecules, but they were not developed properly to deliver right weight to the human body and to give them good efficacy and a better profile. So, we have a few technology platforms that are under evaluation, and we'll expand on that and repurpose those products to bring that to market to provide great quality of life and better drug delivery through many means. So, we are laser-sharp focused on our 505(b)(2) by using unique platforms.

So, hey Randall. Just a couple of thoughts. We look at the EBITDA in Q3, we delivered $109 million. When you look at the implied full-year guidance on what this means for Q4, that implies that will be between $96 million and $111 million. So essentially, Q4 is in the ballpark of Q3. And Q4 is a strange quarter for everybody, right? We're in the middle of the election, you got COVID, you have wholesaler inventories with the holidays and so forth. Typically, Q4 just creates more volatility. Our ability to perfectly project Q4, like for every company just at times difficult, but we feel good about how we think about Q4. As regards to next year, we'll give you our guidance at the end of February. At this point in time with us, our focus is on sustainability and growth, we're not looking to be one quarter here or anything else; the management team is looking for sustainability and growth, and this is how we plan to uphold next year. When you look at the specialty area, we feel very good about the sustainability and visibility of that business. Hopefully, we'll have some additional growth as COVID subsides next year. On the generic side, it's a race, right? It’s a race. This year, we benefited from EluRyng and Sucralfate. Next year, we're likely to have some competitors. But there is a new pipeline and the strength of the pipeline. Our expectation and hope are that these new products will offset competition in the rest of the portfolio. Finally, as Chirag said, we're focused on ensuring that every investor dollar gets invested properly. So whether or not the gross to net deductions or whether or not is where we spend R&D and SG&A expenses, and this year, that has been a good guide for us, and we're really focused on investing every dollar and continue to be as efficient as we can. Hopefully, that gives you enough to think about next year.

Hey, Tasos, can I follow up and ask you about the stock today? If you annualize Q4, you're looking at around $400 million in EBITDA, while consensus is close to $500 million. Do you have confidence in the pipeline to achieve a significant step-up as we look towards 2021? I understand you can't provide specific guidance right now, but could you give us an indication of whether you're confident that the pipeline can support a substantial increase?

Yes. From my perspective, we can't comment on external consensus or similar matters. This year, which marks the first year of our turnaround with the new management team led by Chirag and Chintu since August, has seen a significant increase in EBITDA, rising from $355 million last year to around the midpoint of approximately $445 million, which represents a 25% increase. We've observed a meaningful improvement in the business overall. You've likely heard how we are performing this year and our outlook moving forward. Our emphasis is on achieving sustainable growth in the coming year and beyond. That's about all I can share at this moment. Raising our EBITDA guidance this quarter doesn't necessarily mean that conditions are worsening; rather, it suggests that supply issues are improving. I'll leave it at that.

Okay. Thanks, guys.

Next question comes from Dana Flanders of Guggenheim. Please go ahead.

Great. Thank you for the questions. My first one is just on the base Generic business. I think in your prepared remarks, you had mentioned capacity utilization is back close to pre-COVID levels. And I know you've had a lot of success winning contracts this year. As you look towards 2021, is that part of the lift for the Generics business passes now? Or how much of a tailwind could additional kind of contract wins and base business maximization be for you heading into next year? And then just my second quick question on OTC. I know you had a store brand launch of V-gel with the partner about a month ago. Just curious if that's a channel you plan to get bigger in, and if there's a strategy around that? Thank you.

Thank you, Dana, and good morning. In our base business, we maintain a substantial commercial portfolio consisting of 250 products, and we will continue to seek new opportunities. We pride ourselves on having one of the best customer service approaches in the United States. We have strong relationships with both our large and small customers, who depend on our alternative supply chain with locations in the U.S., India, and Ireland coming soon. This allows us to collaborate with our customers to enhance our offerings. We will persist in uncovering new prospects within those 250 products. Our base business remains stable, and we anticipate growth. We are not factoring in competition or the expected launches of new products such as EluRyng and Sucralfate. We take pride in what we've built in our base business over the years, which is a diverse portfolio. We possess the capabilities, capacity, and quality to provide reliable supply, and we are fulfilling that commitment. We are recognized as one of the most dependable suppliers, delivering high-quality products and excellent customer support, which is reflected in the rewards we receive. In the OTC sector, we have a variety of products, primarily the ANDA resulting in Rx to OTC transitions, with over 10 products launched over the years. We have not solely focused on launching OTC products; instead, we partner with PLD, a significant OTC distributor in the United States, second only to Perrigo. We have maintained a long-term relationship with them for over 10 years. They are based in Long Island and have an outstanding management team and founders. As we already hold a considerable market share, we are expanding our retail presence. We were pioneers in introducing generics in retail, so we anticipate increasing our market share in the OTC space as well. We are exploring various RX to OTC switches, and we believe the FDA may support this for the sake of patient convenience and cost savings. We are enthusiastic about these developments and are looking into additional opportunities within OTC, which is a promising area, enhanced by our strong partnership. We will continue to expand our OTC portfolio.

The next question comes from Nathan Rich of Goldman Sachs. Please go ahead.

Good morning. Thanks for the question. To start, I just wanted to follow-up on the topic of biosimilars. I know it's early, but I'd be curious to kind of get your high-level view on what your commercial strategy will be in these markets. Obviously, we're seeing kind of more options out there, more competition. How are you guys thinking about pricing and kind of building market share as these approvals come?

Nathan, excellent question. We are utilizing our specialty infrastructure led by Joe Todisco. We are looking at various alternatives; we have existing relationships with large wholesalers who happen to be leaders like ABC and McKesson in oncology. We enjoy years of great relationships. We want to find practical solutions. We don't believe you need a pill cell of hundreds of people to sell the same approved branded product, again, that is a waste of resources. As doctors get comfortable, I think what more is needed is customer support and physician education about biosimilars, and that is where Joe is focusing more. Somewhat of creative partnerships with large ready oncology players such as McKesson or ABC would also be in play. We do want to start laying out the groundwork for what should be the biosimilar distribution. Why does it have to follow the traditional model? How do we work with managed care partners, the PBMs? That's all on the table. And I would stick with what I've said before, biosimilars will become more competitive, but it has a lot of products. As you know, there's $200-plus billion of biologics, which are branded, and that is the best way to provide access and affordability over the next decade. So it's an excellent business opportunity, but it fits more in with Generics players, who are focused on providing affordable medicines, and that's exactly the mindset we are using to launch biosimilars. I hope that answers your question, Nathan.

Yes. That's helpful. Thank you. If I could just ask a very quick follow-up to Tasos on the generics business. I think earlier in the prepared remarks, it sounds like volumes are maybe still a little bit below normal levels due to COVID. So I guess a question being, would you continue to expect to see those volumes improve kind of as things normalize into the fourth quarter, just as we think about sort of a steady state for the generic segments before considering new launches that might add to that? Thank you.

It's difficult to answer that. From our perspective, we believe Q4 will resemble Q3 to some extent. However, more than half of the country is still experiencing a significant COVID outbreak. We've performed fairly well over the last nine months. There are some factors to consider; for instance, EluRyng is expected to perform better, especially since we have some unused capacity. On the other hand, certain injectable products might face challenges as people avoid hospitals. We see both positive and negative aspects, but we don't anticipate any major changes compared to Q3. That's my perspective on this, Nathan.

Yes. And looking ahead to next year, we anticipate launching eight additional high-value products by August, following the seven we've already introduced, with the lidocaine patch launching soon as it has received approval. These complex and high-value products hold significant potential. In our Generics business, we have been expanding our product lineup since 2002. Each year, we need to focus on our pipeline with new commercial products and launches, which is precisely what Amneal is doing. We have revitalized this pipeline, increased our product offerings, and are confident that over the next five years, we will continue to launch new products to counter competition, which is always a factor in generics following previous launches, while also stabilizing our base business and seeking new opportunities as our large base continues to grow. I hope that answers your question, Nathan.

I've seen we're coming to the bottom of the hour. The last question comes from Balaji Prasad of Barclays. Please go ahead.

Hi. Thanks for squeezing me in, Chirag. Good morning. I joined the call slightly late, so excuse me if this has been asked already. So two questions from me. Firstly, on the biosimilars. We just wrapped up our Generic and biosimilar industry symposium, where lots of experts had the opinion, multiple experts had the opinion that there is a strong first-mover advantage in biosimilars. So considering your positioning in Neulasta, or Filgrastim, Neupogen where you would be number five, number six. I want to pick your brains on how you think you'll be able to break through this first-mover barrier and there are multiple moves out of here? Secondly, I want to get your thoughts also on injectables as to where you are currently in terms of your product build-out and your outlook on the injectables side for next year? Thank you.

Thank you, Balaji. Good morning. You're correct that the first-mover has an advantage in biosimilars, and this advantage will likely last longer. As the market develops, the second, third, and fourth entrants will capture their respective shares. It is challenging to find innovative channels, which is what we are striving to do through government channels, wholesaler channels, and captive channels. We do not expect to fully match the first mover, and our future plans for biosimilars will concentrate on whether we can be the first in the initial or subsequent waves. Competing in the third or fourth wave in biosimilars would be very difficult. This is our primary focus. Regarding injectables, we currently generate about $150 million in net sales, and our portfolio is expanding. Our pipeline is also growing, with an emphasis on more complex products that utilize Amneal's R&D capabilities—particularly suspension-based products and challenging products that require trials. We aim to be the first to market with injectable products rather than competing solely on volume and are exploring various other strategies in the injectables sector. We are very enthusiastic about expanding this business over the next five years. Thank you, Balaji.

This concludes our question-and-answer session and today's annual third quarter 2020 earnings call. Thank you for attending today's presentation. You may now disconnect.