Amneal Pharmaceuticals, Inc. Q1 FY2021 Earnings Call

Hello, and welcome to the Amneal First Quarter 2021 Conference Call. I would now like to turn the call over to Amneal's Head of Investor Relations, Tony DiMeo.

Good morning, and thank you for joining us for Amneal's First Quarter 2021 Earnings Call. Earlier this morning, we issued a press release reporting our financial results. The press release as well as the slides that will be presented on this call are available on our website at amneal.com. We are 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 a 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 entitled Cautionary Statements 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 and 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 our reconciliations to U.S. GAAP in our earnings release. Included in the appendix of today's presentation, you will find U.S. GAAP financial metrics that correspond to some of our U.S. non-GAAP measures we reference throughout the presentation. On the call this morning are Chirag and Chintu Patel, our Co-CEOs; Tasos Konidaris, our CFO; Andy Boyer and Joe Todisco, our Chief Commercial Officers for the Generics and Specialty segments; and Steve Manzano, our General Counsel and Corporate Secretary. I will now turn the call over to Chirag.

Thank you, Tony, and welcome to Amneal. Good morning, all, and thank you for joining us this morning. First, I want to acknowledge the public health crisis in India. COVID-19 has challenged the world in many ways. But even by the standards set over the last year, the situation in India is very challenging and access to medical care is limited. We are working diligently with Indian Government officials, charitable foundations and other pharmaceutical leaders to utilize our expertise and resources to secure critical care medications and equipment. Our hearts are with our colleagues in India as well as all those who continue to fight COVID-19 around the world. As an essential business, we are proud of the investments we continue to make in protecting the health and well-being of our employees. In addition, we are also ensuring the continuous supply of medicines for patients and customers in the United States. Our robust global supply chain is operating well, and the efforts of our procurement, quality and manufacturing teams have been truly heroic. Finally, this latest COVID outbreak is a reminder of the dependency of the U.S. generics pharmaceutical industry on foreign manufacturing. We believe it remains critically important to make more products in America for America. Fortunately, Amneal's significant domestic manufacturing base, superb quality record and the U.S. domicile enable us to work closely with federal and state legislators and public policymakers to provide meaningful solutions. We look forward to sharing updates as we make progress. Turning now to our financial and operating results. I am extremely pleased with our first quarter results and how the full year is shaping up. We remain confident that our momentum, the strength of our commercialized and pipeline assets, and solid execution will deliver another year of strong top and bottom line performance, consistent with our guidance. Let me now provide you with an update on key initiatives across our business. First, we believe companies in our industry are only as strong as their R&D organizations. Innovation is growth, and we continue to invest in product development in both generics and specialty. In generics, we have established a well-oiled engine to replenish our development portfolio and drive increasingly complex product launches. Our strong innovation capabilities are a major reason we have delivered growth in an industry experiencing secular pressure. While our base business faces competition, our R&D team is constantly moving us up the value chain with high barrier to entry products that have longer tails of revenues and profits. In specialty, we are acutely focused on executing the development plans for IPX203 and Kashiv Specialty Pharmaceuticals programs we acquired earlier this year. Chintu will touch on innovation in greater detail shortly. Second, we are excited to see our manufacturing and supply chain continue to improve every quarter. When we came back, it was one of our first public goals to optimize our global operations, reduce excess overhead and cost, improve our margins in generics and ultimately increase profitability. We are executing well towards these goals as generics' gross margin in the first quarter grew to 45%. Going forward, we are pursuing additional efficiencies to improve margins over time. Third, we know the execution of strategic, accretive, and creative transactions can help us accelerate our growth. Just after the end of the first quarter, we completed our acquisition of Kashiv Specialty Pharmaceuticals. With Kashiv, Amneal gained best-in-class small molecule formulation and development talent, which we expect will drive substantial organic long-term value across our portfolio. We also gained several near-term NDA programs across neurology and endocrinology that we expect to begin to launch as early as 2023. But we're not stopping there. Given our existing commercial infrastructure in neurology and endocrinology, we are pursuing complementary commercial stage assets as well as late-stage clinical programs to provide near-term synergistic revenue streams. We believe we are uniquely positioned to drive substantial value to all stakeholders and further strengthen our balance sheet over time. Finally, we continue to grow our AvKARE distribution business where we saw solid top line and profitability performance this quarter. As we have discussed in the past, AvKARE represents a strategic long-term opportunity for us as we focus on the federal government channel. This business is buoyed by favorable tailwinds, including the continued stream of branded pharmaceuticals going generics every year. As we look towards the rest of 2021 and beyond, Chintu and I could not be more excited about our business and confident in our strategic direction. Today, Amneal is truly firing on all cylinders, and we expect continued strong financial and operational performance as we move forward. With that, I'll now turn the call over to Chintu.

Good morning, everyone. Thank you, Chirag. As always, I would like to begin by recognizing our employees whose tremendous dedication inspires Chirag and I every day and drives our continued success in making health possible. The team's relentless commitment to delivering medicines for our customers and patients even in these trying times is truly remarkable. To our employees, we thank you for your service and are filled with gratitude for all you have contributed. Our employees in India have demonstrated amazing courage, and we are actively supporting them to ensure they get the care they need in light of the most recent COVID outbreak. Our India team has continued to ensure our supply chain remains strong and the flow of products is uninterrupted. From the beginning of the pandemic, we focused on building an even more resilient global supply chain, which has led to strong inventory levels across all locations. These are unprecedented times, and we pray for those who have lost family members to this terrible virus in India and across the world. Now let me provide a few key business updates. First, I'm happy to share that we are advancing key initiatives across the company to improve efficiencies, which will save costs and expand margins. For example, while we manufacture most of our generics in-house, we are transferring several products from external manufacturing partners to our facilities, which will reduce costs and improve supply chain. Many of these types of initiatives will help improve our gross margins in a sustainable way. And as always, we continue to uphold the highest standards of good manufacturing practices and integrity across every aspect of our business. From the very beginning, we have prioritized quality and compliance at all levels; it is truly in Amneal's DNA and part of our culture. As Chirag said, R&D is the growth engine for our industry, and we continue to invest in our future pipeline. I will start with generics. We believe that we are at an exciting time for Amneal 2.0 as we begin to see the benefits of the transition of our development activities towards complex dosage forms, drug-device combinations, and other high-value programs. Over 80% of our pipeline is non-oral solid products, and an increasing share of that is drug-device combinations. Zafemy, which we launched in March, is a perfect example of our generics strategy in action. Zafemy received CGT designation, which grants it 180 days of exclusivity. And given the complexity of its development and manufacturing, we believe it will have limited competition even post-exclusivity. Of the 80 generics approved with CGT designation industry-wide, Amneal has launched 10, by far the highest number in our industry. Looking forward, we will continue refreshing our pipeline. We expect to deliver at least 6 to 7 high-value products on an annual basis. In addition, we are actively looking to expand our high-value complex generic portfolio into select international markets via external partners. Our existing partnership with Fosun is proceeding nicely. Together, we have already filed 4 products in China and expect to file another 5 by the end of the year, and this is just the first of multiple international collaborations. Overall, we see global expansion as another vector for long-term sustainable growth. Next, biosimilars will be an increasingly meaningful component of our pipeline going forward. As we have shared in the past, we think the biosimilars market will behave more like complex generics over time. We believe our core strength in high-quality manufacturing, innovation, and strong commercial execution will position us extremely well in this space. Currently, we have filed 3 biosimilar products, which we expect to launch over the next couple of years. Beyond that, we are actively evaluating additional opportunities via partnership models where we can be first or second to market. We believe biosimilars will be a key strategic opportunity for us over the next 5 to 10 years. Turning to our specialty pipeline, IPX203 is the most advanced of our 4 specialty pipeline programs and is currently in Phase III clinical trials with an estimated launch in 2023. As a reminder, IPX203 is our next-generation product for Parkinson's disease. We expect the product will offer a material improvement over Rytary and existing therapies. In the United States, 60% of PD patients, or roughly 600,000 people, are on some form of levodopa therapy to help manage off time, which are periods of drastically reduced motor function due to low levels of dopamine. Immediate-release carbidopa-levodopa is a first-line therapy for Parkinson's. Our current leading product, Rytary, is an extended-release carbidopa-levodopa product designed to provide better on-time for moderate and severe patients compared to generic immediate release. In this patient population, an hour or 2 of additional on-time can be a large improvement in quality of life as off periods can be stressful and painful. We expect IPX203 will demonstrate a clinically superior efficacy profile versus immediate release and will boast a much more convenient dosing regimen. As a result, we believe that IPX203 has the potential to be a much larger product than Rytary and help us drive further market leadership in the management of Parkinson's disease. We are excited to see top line data in the second half of this year. The integration of Kashiv Specialty Pharmaceuticals is proceeding well. This deal has expanded our specialty product pipeline significantly in both endocrinology and neurology. We have K127 for myasthenia gravis; K128, a modified trihexyphenidyl for the treatment of sialorrhea; and K114, a modified T3 product for the treatment of hypothyroidism. With the addition of these programs, we are well positioned to launch at least 1 specialty product per year starting in 2023, and we believe the various drug delivery technology platforms we acquired will also provide a wellspring of new branded products for years to come. To summarize, we built this company to deliver affordable, essential medicines for patients and create value for all our stakeholders. The company is executing well. Our pipeline, our technologies, our commitment to quality, and most importantly, our people are elevating Amneal to new heights. Chirag and I share excitement and confidence in the journey ahead. I will turn the call over now to Tasos.

Thank you, Chintu. Our first quarter financial momentum reflects the relevance and diversification of our product portfolio, successful new product launches, and our focus on execution and driving efficiencies. As a result, in the first quarter of this year, we reported net revenue of $493 million, adjusted EBITDA of $126 million, and adjusted diluted EPS of $0.20. In addition, we generated $148 million of operating cash flow and further reduced our net leverage. Let me now move to our segment results, starting with generics, where net revenue of $313 million was down $40 million or 11% compared to Q1 2020. This decline was not surprising and was primarily driven by an almost non-existent flu and cold season, which adversely impacted products like generic Tamiflu, as well as higher purchases last year at the onset of the COVID-19 pandemic. On a pro forma basis, as we adjust for the various discrete events, generic net revenues grew low to mid-single digits. We continue to be very pleased with the performance of our new product launches, where products launched since January of last year delivered over $36 million in net revenue growth offsetting price deflation as well as the lingering negative impact of the pandemic. From a product perspective, epinephrine, azathioprine, levothyroxine, and sucralfate were strong contributors in the current quarter. In addition, Zafemy is performing very well. And as you may remember, we launched it in March of this year, so there is only 1 month of it in the current quarter. Looking ahead, we expect a step-change increase in generic net revenue due to continued new product growth, strong commercial execution, and the fact that the seasonal nature of the flu and high purchases last year due to the pandemic are behind us. Adjusted gross margin for generics was 44.6%, 250 basis points higher than Q1 2020 and 630 basis points ahead of full year 2020. This growth reflects our strategy and solid execution in transitioning to more complex generics, as well as the efforts of our team to drive supply chain efficiencies and favorable pricing on certain manufacturing materials. Let me now turn to our specialty segment with net revenue in line with our expectations of $96 million, up $8 million or 9% from Q1 2020. As a reminder, our specialty segment centers around neurology to endocrinology, with our promoted brands performing well. Both brands continue to grow. And in aggregate, they delivered $56 million, up 11% versus Q1 2020. This growth, as well as improvements in our gross to net, offset declines in Zomig due to its upcoming loss of exclusivity. Adjusted gross margin for specialty was 78.4%, 380 basis points higher than Q1 2020 and 420 basis points ahead of full year 2020, mostly due to a favorable product mix. Let me now move to AvKARE, which reported net revenue of $84.7 million, up $26.7 million or 46%. As a reminder, the acquisition was closed on January 31, 2020. As a result, the current quarter reflects 3 months of sales versus 2 months last year. Adjusted gross margin for the quarter for AvKARE was 19.6%, in line with Q1 2020 and 210 basis points higher than full year 2020. While the top line was slightly lower than our expectations due to lingering effects of the pandemic, the business was able to overcome it by leveraging a more profitable product mix as well as operating expense efficiencies. Total company adjusted EBITDA of $126 million was slightly ahead of our expectations and $8 million below Q1 2020, reflecting 3 dynamics. First, higher gross profit, primarily due to a favorable product mix and operating efficiencies this year. Second, we're making substantial investments in our R&D and sales and marketing to drive long-term growth. And third, the tough comparison to Q1 of 2020, where our adjusted EBITDA of $134 million was substantially higher than the $107 million average for the remaining 3 quarters of the last year. Adjusted diluted EPS of $0.20 was flat in Q1 2020, as our adjusted EBITDA performance and lower interest expense offset the very high prior year comps. Again, last year's first quarter of $0.20 in EPS was much higher than the $0.14 average of the remaining 3 quarters of 2020. From a cash perspective, operating cash flow of $148 million was ahead of our expectations and well ahead of the $49 million we generated in Q1 2020. We have to be mindful that this metric is inherently variable. Nevertheless, the strong performance was driven by top line performance, lower DSO, and some favorable timing. As a result of our strong financials in the quarter, we strengthened our balance sheet and our financial flexibility. Cash and cash equivalents in March 2021 were $456 million compared to $347 million in December 2020, and our net debt to adjusted EBITDA ratio improved to 5.1x compared to 6.2x in March 2020. In summary, we're pleased with our top line performance, higher levels of profitability, cash generation and improved balance sheet. Consequently, our full year 2021 guidance remains unchanged, and we remain confident in our financial and operating performance for the remainder of the year. With that, let me turn the call over to Chirag.

Thank you, Tasos. We are pleased with our continued positive momentum through the start of 2021 as we continue to execute against our Amneal 2.0 strategic vision of long-term sustainable growth. I would now like to turn the call over to the operator to take your questions.

And the first question comes from Greg Gilbert with Truist.

I have a few. Chirag, I want to start with a high-level strategic question. I understand the desire for companies, including yours, to want to move up the value chain and have more durable products and brands. I certainly understand that. But also, I wonder why the generic industry in the U.S. hasn't consolidated more, given what we've seen on the customer side. Do you think that's in the cards sort of independent of your stand-alone strategy? Let me ask the other questions right upfront. Tasos, maybe you could comment a little bit on the AvKARE strength and how lumpy that is and what some of the drivers are there? And lastly, for Chintu, is generic NEXPLANON a project that is interesting to you and perhaps underway? And curious how challenging something like that would be compared to other projects you've had your team work on?

Greg, you look great this morning. Consolidation in generics is highly sought after, but as you know, it presents challenges. The FTC requires us to divest many products, which we experienced during the Impax merger. We had to negotiate extensively with the agency and ended up giving up a lot of value. Additionally, transferring products from Impax's facilities to Amneal resulted in significant revenue loss. This makes the process very difficult. We often question the reasons behind these actions, even though there are many synergies to gain. The overlaps are numerous, so if we can find a target without overlaps, that would be excellent. It's essential that we see consolidation occur, but we need to consider its form. If new players emerge without overlaps, that would be beneficial; Perrigo's divestiture in generics was a positive step. There are a few smaller companies that could potentially consolidate, which would be good for the industry. Indian companies, however, face significant challenges and tend to focus on maintaining family legacies, making consolidation an uphill battle. I hope that answers your question. Tasos, can you provide insight on AvKARE, and then Chintu...

So let me try this if that works. So AvKARE overall is growing nicely. So last year, we did about almost $300 million. This year, it will grow mid-double digits, so feel good about the top line growth. Profitability. We knew that when we did the deal, profitability for the business is around high double digits. So last year, it was 18%. And Q1, we're seeing at 20%. So we're pleased with that improved level of profitability. One of the things we like about the business, about more than 50% of that $300 million growing double digits this year is the government business. And what we like about this is many of the contracts are long-term contracts. So it gives us a nice, stable platform that we can grow over time. And for that reason, we cannot turn the growth rate overnight, right? But it embeds us with our government customers and the team has a lot of expertise. So over time, we're looking to grow that segment, not only by leveraging third-party products but also Amneal products, which, as you can imagine, provide a nice, much more profitable growth there. The rest of the business is a number of other more distribution like businesses with low single margin business. And that's been growing nicely, and that's where we're looking for more operating efficiencies over time. So I think overall, I think the business, again, this year is going to grow mid-double digits. I think for the next few quarters, it will be low of $80 million to low $90 million in terms of quarterly revenues and profitability will be in that 18% to 20% gross margin. Hopefully, Greg, that helps.

And just to add a bit, we're also growing the unit dose business by launching 8 to 10 of our own liquid products out of our branch at New Jersey site. So that should be a nice uptick for AvKARE next year. Chintu?

Greg, so good question on NEXPLANON. So Amneal, as you know, has been investing into a complex generic space, and we continue to move up the value chain. And the products like NEXPLANON, which is a drug-device combination implant product, sits on the top of the most complexity from the development and from the device perspective and also how to conduct and work with the FDA. With Kashiv's acquisitions, we acquired some of the talent that is required. I will not get into the particular product, but Amneal, we have the good knowledge on how to develop these 3 to 5 years long implant products. We have a very good drug-device group within the organization. We understand the formulation and the other challenges and the PK studies and other regulatory requirements. But absolutely, Amneal is moving up, and it's part of our portfolio, not the particular product but the entire drug-device combination implant category is something we are very excited about. And we have the knowledge, and we are working aggressively to bring that to the market.

And the next question comes from Daniel Busby with RBC Capital Markets.

Maybe sticking with the big picture theme. As we think about the business longer term, in your view, what is the ideal revenue mix between generics and specialty, and also, I guess, U.S. versus OUS? Clearly, right now, you're still more heavily weighted towards U.S. generics. But what would you ideally like to see when we look at the business 5 years from now? And how does business development play into that? And second, how should we think about the cadence of additional generic new launches over the remainder of this year? And how important are those for the anticipated step-change increase in generic revenue that you mentioned?

Thank you, Daniel. So the big picture, how do you see Amneal growing in Amneal 2.0? So we said complex generics is a driver of the business within generics. We've got complex generics all kind of dosage forms. As Chintu mentioned, the device products, the inhalation products, injectable products. And as we have said a year ago that biosimilars, we put them in complex generics. So that segment is going from somewhere around $1.4 billion to $1.5 billion to a higher level in 5 years. We're not going to give you an exact number now, but there is enough growth for us because of all these scientific capabilities and investment we have made over the years to produce this. So it will be excellent growth in that one segment of the business. The specialty, we have our own pipeline. We haven't given forecast to that pipeline. IPX203 is moving nicely so is K127. We are very serious on, and we got the platform, we've got the technology. And one thing Amneal does really well is once we get in, we do it, we finish the job. So it's a long-term view for us, 5 to 10 years. We'll build the specialty business to be at a great level on a more contribution on EBITDA than revenue. And I don't want to say the mix exactly, but it is on a tremendous growth trajectory. And also, it will be complemented by accretive strategic M&A because we have the strength. We've got the cash flow and we've got the complex generics complementing specialty. So our Parkinson's disease side, we like to consolidate as many products as we can. Same thing on endocrinology, how our T3 comes and then there's more to come. So very excited and very targeted on those 2 areas. Do you want to take this?

Yes. Just in terms of overall, new product launches are critical to us, right? But we are really not relying on any additional new product launches to lead to that step change I spoke of. Based on the product portfolio that we currently have, we're very confident of the step change, number one. Number two, as new products come in, those new products will be fueling growth mostly toward Q4 and into next year.

And the next question comes from David Amsellem with Piper Sandler.

So just a couple of questions. Regarding the biosimilars, could you discuss your net economics? I'm interested in how the three opportunities you've identified will compare in terms of margins to your overall generic margins, considering the shared economics. Also, you mentioned other biosimilar programs. When can we expect to see those other opportunities identified? Will they have better or similar economics to Avastin and the G-CSFs? Lastly, can you provide any updates on the Copaxone generic? Do you still anticipate this opportunity will generate results later this year?

Thank you, David. Our biosimilars strategy is based on a partnership model, which is very cost-effective for us. We wanted to take some time to observe how the market develops because we didn't want to invest $150 million or $200 million for each biologic. We're also considering the complex patent landscape and the adoption of biosimilars, which we believe could lead to a successful business over the next 10 years. Additionally, similar to small molecule 505(b)(2) products, biosimilars could eventually evolve into biobetters or follow-on branded biologics that can be brought to market sooner. We have been diligently working to find strong partners, understanding that manufacturing quality is vital, with 80% of value stemming from high-end, consistent manufacturing. We are developing strategies to excel in the manufacturing of biosimilars, similar to our approach with complex generics. We plan to establish our R&D capabilities soon. In terms of margins, we expect a split of about 60% for us and 40% for our partners, which will give us around 25% to 30% EBITDA per product. If we start handling production in-house, that number could rise to over 35%. We will announce our next partnership this year.

And David, your last question on Copaxone. Yes, we are working, and the product can have launch later this year or early first quarter 2022.

And the next question comes from Elliot Wilbur with Raymond James.

This is Lucas Lee, on for Elliot. The question I have is, what drove the gross margin upside during the quarter? Is this sustainable? And how does that impact your prior expectations around generic gross margin trends? And as a follow-up, how are you thinking about potential generic competition on Zomig?

Lucas, this is Tasos. Listen, we're incredibly pleased on the gross margin performance. And it was, as you saw, every business expanded margins, which is something we're very focused on improving profitability. Generics had a great quarter with margins about 45%. We believe those are sustainable. My gut feel is that we were going to see some moderation, right, to the low 40s, some moderation. But I think we're going to finish the year on the generic side most likely in the low 40s, which, as you know, which is a substantial increase versus the 38% we delivered last year and the 35% we finished 2019. So as you can see, we are executing in terms of what we had said over the last couple of years. We see generic margins going over 40%. So I think we'll be pleased to cross that bridge this year. That's in terms of our expectations. So pretty much sustainable. And it's the same thing across the remaining other 2 parts of the business.

Sure. Thanks, Tasos. With respect to specific generic competition on Zomig nasal spray, we're aware of 2 filers that are already publicly known, but we always assume that someone else could be coming to market. We had preemptively launched an authorized generic earlier this year. We've got sufficient inventory of both labels, and we've taken steps to maximize the value of the product regardless of the number of generic competitors that come to market at the end of May.

And the next question comes from Dana Flanders with Guggenheim.

I just had two. My first is, I was wondering if you could comment on just base business generic pricing trends. We are hearing some comments from the supply chain and other manufacturers that they're seeing a little bit more pressure this year, kind of independent of competition. So just wondering if you're seeing that as well? And then my second question, I was wondering if you could comment on just the unfortunate and sad situation going on in India with COVID. And wondering if you are seeing or expecting to see kind of shortages start to pop up, impacting the U.S. market and just how Amneal's overall supply chain is just relatively positioned?

Dana, this is Tasos. I'll take the first question on pricing. And we're seeing, just at a high level, consistent behavior, as you're hearing from some of the other manufacturers. But I also want to point out, this is exactly what we planned this year. So as a reminder, in our guidance, we assumed mid-to-high single-digit deflation. As you mentioned, it's coming in certain areas. Certain areas, it's coming a little worse than that. But our ability, right, to get new product launches is actually ahead of our own expectations. And our ability of our supply chain to drive operating efficiencies and the new market share growth that we are seeing by the commercial team is offsetting that, and ultimately is increasing our profitability in a sustainable way. So we're pretty much very happy how the company is dealing with this and so forth. As in terms to India, let me turn it over to Chirag. I think he has a good perspective on that.

Thank you, Tasos. The situation is quite serious with local lockdowns in place. However, the pharmaceutical industry is considered essential and can continue operations. Amneal's inventory levels are strong, with over three months of supply secured for active pharmaceutical ingredients. Overall inventory is approximately four to six months, so we do not anticipate any product shortages at Amneal. Other companies may experience shortages depending on their location and preplanning. For the next month or two, we expect to manage adequately. We hope to see improvements in about a month. In India, we are doing everything possible to assist by providing oxygen concentrators and supplying or donating remdesivir and steroid products. We have obtained licenses from the Indian government to sell. Our U.S. FDA-approved plant in India has never sold to the local market. Many countries have offered support, and there appears to be sufficient remdesivir available. I spoke with Gilead, and they plan to produce 15 million vials this month. Pfizer is also working on the situation, and we hope to have more vaccines available beyond just AstraZeneca. It remains a very challenging time, and we are hopeful for improvement soon.

And just to add, just one point, we were very proactive in vaccinating many of our Amneal India employees. So large population of our employee base has been vaccinated. And that has led to very good attendance and a strong supply chain. But we are working diligently with everyone to make sure we do everything to provide health and support. But our supply chain still in this current situation is very, very strong.

And the next question comes from Nathan Rich with Goldman Sachs.

Maybe Tasos, can you clarify the revenue trends for the generic segment? You mentioned the $23 million impact from the mild flu and cold season. I assume that revenue isn't expected to return for the rest of the year. Is that correct? If so, it seems like your general outlook for the business has improved. It appears that pricing trends remain stable, and you noted progress with new product launches. Is that what is contributing to the positive outlook for the rest of the year? Additionally, regarding the margin potential for complex generics, how should we view those margins compared to the average for the generic segment? I believe you mentioned that biosimilar margins can exceed 30%. How do you see the average for complex generics stacking up against that segment?

Yes. So yes, I think that $23 million, right, in Q1 related to low flu season, et cetera, that's not going to come back. So I think you're spot on. But nevertheless, the rest of the year remains unchanged or slightly ahead of our own initial projections, and that really reflects new product introductions and primarily the Zafemy launch just doing extremely, extremely well, that's number one. And the margins, I think we see sustainability in the low 40s for the rest of the year on the generic side, so that bodes well for increased profitability overall with generics versus our initial expectations. In terms of the new product, the complex generics, overall, the generic margins is in the low 40s, right? So you can assume that's substantially more than that, and primarily during the first, call it, 6, 7 months, where we have an exclusivity. So that kind of bodes well as we think about next year and the year after that about improving gross margins of the generics. Biosimilars, I think it's early stages. I think the first 3 biosimilars we have in place, just because there is just more competition at this point in time, and because it's much more partnered, I think the EBITDA that Chirag talked about earlier on, call it, the 30%, I think that's a good number. Over time as we enhance our manufacturing capabilities and our internal expertise, I think we see those going up from there.

Yes. Nathan, this is Chirag. So what we see is durability for the complex generics and biosimilars. The complex generics may be shorter, biosimilars will be longer. And the margins, and let's stay with the EBITDA margins, would be north of 30%. It may start out between 25% to 30% because these products are highly competitive, the 3 we have filed. But as we come out as a first or second biosimilar, just like first or second complex generics, it will be much higher than 30%.

And the next question comes from Gary Nachman with BMO Capital Markets.

Chirag and Chintu, when you're having discussions with different parties about expanding your portfolio, what segments or technologies are you most focused on? Or where are you seeing the most opportunities at this point? So I'm curious how competitive is the BD environment for assets, especially biosimilars? Do you feel like sellers or partners are being reasonable? And what sort of advantages do you have in getting some of these deals done?

Thank you. In our biosimilars portfolio, we are focusing on expanding our oncology assets and also looking into autoimmune treatments for eye conditions. Our aim is to establish a long-term platform for biosimilars similar to what we did with complex generics over the next 10 to 15 years. We are particularly interested in navigating patents to position ourselves as first or second to market, even with smaller opportunities. This approach reflects the same strategy we employed to build our complex generics portfolio. On the business development side, there are available assets in biosimilars because companies that invested over the last decade have largely concentrated on R&D but faced hurdles due to patent issues in the U.S. market. This has resulted in delayed biosimilar launches compared to Europe. Currently, there is excess manufacturing capacity, especially in Europe, South Korea, and China, which we are looking to leverage. We already have two strong partnerships in place and are considering expanding to a third, while also aiming to enhance our manufacturing capabilities in the U.S. for various reasons, including pandemic preparedness and climate emergencies. Our biologics manufacturing is already established in the U.S., and we expanded our vaccine production, which allowed us to vaccinate our population more quickly than many other countries, positioning us to export vaccines now. Thus, manufacturing our products domestically would be highly beneficial. Additionally, we are exploring opportunities in our Parkinson's category, where we have a leading commercial asset, IPX203, which will have top-line results reported in the second half of this year. We are focused on consolidating this space as part of our portfolio expansion strategy. Yes, sorry about that. So pretty much our work is done since we came back. We have brought in most of the products in-house. The partnered products such as EpiPen come from Pfizer and Philips, our trusted partner, very reliable, great partners. Then we continue to expand that relationship. And our levothyroxine, our Long Island partner, Jerome Stevens, is excellent over the years and one of the best quality levothyroxine in the market. So besides those, we pretty much have brought everything, like 14 or so products in-house from various CMOs, which allowed us to now produce more and more margins. So very, very highly efficient already.

Yes. I think that's spot on with other areas, right? So we spent close to more than $500 million purchasing raw material. So that gives us a nice opportunity for our strategic sourcing organization. The same way our customers are pushing for price that kind of goes down the supply chain, right? So I think that's an area of opportunity as well as our efficiencies within our own global manufacturing footprint, right? The efficiencies on the plant. So Chintu and his team are very focused on that. And we see this continue to produce income for us for the foreseeable future. And that's not done yet.

Just to give you an example, a year ago, our back order was $30 plus million. Last week it's $1 million. So we have gained tremendous efficiencies all across New Jersey operations, in New York, India and now Ireland is coming up soon. So it's fantastic. Thank you.

Thank you. That concludes both the question-and-answer session as well as the call itself. Thank you so much for attending today's presentation. You may now disconnect your lines.