Amphastar Pharmaceuticals (NASDAQ:AMPH) Q4 2020 Earnings Call

0:00 Greetings and welcome to Amphistar Pharmaceuticals Q4 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the call, please press star zero on your telephone keypad. Please note, this conference is being recorded. All statements on this conference call that are not historical are forward-looking statements, including, among other things, statements relating to the company's expectations, regarding future financial performance, backlog, sales and marketing of its products, market size and growth, product development, and the timing of FDA filings or approvals, including the DMFs of AMP, and the timing of product launches, acquisitions of other matters related to its pipeline of product candidates, and its share buyback program and other future events, such as the impact of COVID-19 pandemic and related responses of businesses and governments to the pandemic on our operations and personnel and on commercial activity and demand across our business operations and results of operations.

1:12 These statements are not historical facts, but rather are based on AMFSTAR's historical performance and its current expectations, estimates and projections regarding AMFSTAR's business, operations and other similar or related factors. Words such as may, might, will, could, would, should, anticipate, predict, potential, continue, expect, intend, plan, project, believe, estimate, and other similar or related expressions are used to identify these forward-looking statements, although not all forward-looking statements contain these words. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties, and assumptions that are difficult or impossible to predict and, in some cases, beyond Infrastars control.

2:06 Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described in Infrastars filing with the Security and Exchange Commission, including an annual report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 15, 2021. In particular, the extent of COVID-19's impact on our business will depend on several factors, including the severity, duration, and extent of the pandemic, as well as actions taken by governments and businesses and consumers in response to the pandemic, all of which continue to evolve and remain uncertain at this time. You can locate these reports through the company's website at ir.amphistar.com and on the SEC website at www.sec.gov.

2:58 Forward-looking statements in this release speak only as of the date of the release. Amphistar undertakes no obligation to revise or update information or any forward-looking statements in the conference call referenced above to reflect events or circumstances in the future, even if new information becomes available or if subsequent events cause Amphistar's expectations to change. I will now turn the conference over to your host, Mr. Dan Dishman. Vice President, Human Resources, and Corporate Communications. Thank you. You may begin.

3:29 Thank you, operator. Good afternoon, and thanks for joining Amphistar Pharmaceuticals' fourth quarter earnings call. My name is Dan Dischner, VP of Corporate Communications. Joining me on the call are Bill Peters, CFO, and Tony Marrs, Senior Vice President of Regulatory Affairs and Clinical Operations. We appreciate you joining us today, and we look forward to announcing some very exciting updates. While 2020 was quite an exhilarating year, to say the least, and for obvious reasons, on the positive, I'd like to say it was an exceptional year for the company. To start it off, we reported net revenues of $349.8 million for the fiscal year, while the fourth quarter saw a net revenue of $95.9 million, making it the best quarter in terms of our sales history.

4:15 Prime Team Miss saw a 3% increase in sales compared to Q3. attributing this mainly to our nationwide TV, radio, and digital advertising, along with unit volume increases in our online sales and our recent launch with Kroger. As a result, we are still confident in reaching our $65 million in annualized sales for the product. Furthermore, putting the company on the path towards reaching our sales goals with more ease, we are excited to announce Primateen's launch into Target stores later this month. To add momentum to that launch, We will coincide it with a new television commercial ad campaign. As we have said in the past, we may increase our marketing spend where we expect our marketing expense to be a lower percentage of sales. However, we're more interested in spending smarter as we plan to expand our reach to the younger 18 to 34-year-old demographic through the use of digital marketing.

5:07 In other words, as the time-tested and proven marketing saying goes, it's all about reaching the right person with the right message at the right time. and with that kind of thinking, whether it's TV or digital, we'll be poised to structure our marketing expenses at a reasonable enough level while optimizing its influence. Turning to Inoxaparin, you'll notice the product saw an increase in sales due to Teva exiting the market. While we've seen the Inoxaparin market ebb and flow over the years, and regardless of others entering, leaving, or even re-entering this market, I'd like to reiterate that our vertically integrated structure beginning and being the only company that manufactures the API and finished product in the United States, continues to make Amphistar a long-term player in this market.

5:53 In terms of our pipeline, we entered 2021 in a position of strength. Last year, we saw four ANDA approvals in addition to our state-of-the-art high-speed fill line approval. Of the four ANDAs, we saw one grandfathered product approved, Atropine. Mid-year, we saw Succalcinylcholine Chloride, while the remaining two were epinephrine multidose vial and glucagon, otherwise known as AMP001. With respect to epinephrine multidose vial, you'll notice some incredible movements as the product saw an 86% sales growth compared to Q3. Meanwhile, we continue to see no other generics entering the market. As said in our last call, while we stated we expected to get a fair share of the epinephrine market, We're seeing an upward trend without disrupting the pricing as we've originally planned. However, given the fact that we've recently seen a tremendous upside, we'll continue to look at opportunities that drive our market share while balancing this effort with maintaining optimal pricing. Regarding our newly launched glucagon product, I'd like to say the approval continues to demonstrate the strengths and technical and scientific capabilities of Amphistar. This approval was highlighted in the FDA's Office of Generic Drugs 2020 Annual Report. specifically citing it as a significant first generic approval. Since the launch of this product in February, we're observing some very positive uptake so far in the first quarter and continue to expect to see increases in sales. We're confident in Glucagon's launch, relying on our previous experience in

7:25 the retail markets with products such as Inoxaparin and Midroxypogesterone. On the matter of our AMP002 product in development, We previously disclosed that we received a CRL for the product in late December, and we've already responded to the CRL earlier this year. While CRLs are often common amongst complex products like AMP002, we have a GDUFA date in the fourth quarter of this year. Moving forward with previously discussed items, we anticipate our intranasal naloxone to be refiled in the fourth quarter of this year. Regarding our first inhalation ANDA, which I'd like to announce is AMP008, We've seen very promising results with our PD and PK studies, having been completed with some good guidance and dialogue with the agency.

8:12 We anticipate AMP-008 to be filed in the first half of this year instead of 2020 because we had some delays due to the COVID pandemic. Additionally, as a gauge of confidence, I can report that we've been building additional capacity at our Massachusetts facility for the inhalation product pipelines. Continuing on the topic of previously discussed items, our insulin programs have seen some exciting development with a path towards interchangeable status. With that said, we're planning to disclose more about this program later this year and just in time to coincide with the 25th anniversary of the company's founding. Turning to our proprietary items, our intranasal epinephrine has produced clinical study results with a good efficacy and safety profile as reported to the FDA.

8:57 Thank you for joining us. and many more. I'd like to conclude my portion by emphasizing that Amphistar is on the path towards transitioning from a generic and specialty-based pharmaceutical company into a proprietary product and biopharmaceutical-based company. While 2020 has been a year where many businesses in our niche have slowed down, it's been an exceptional year for Amphistar.

10:13 Of course, we owe this thanks to our vertically integrated business model and our original intent, which was to place quality as our first priority. This vertically integrated model coupled with a robust and diverse R&D portfolio, a trait often rare to be seen in a historically generic focused company since Amphistar towards a path of resiliency, growth, and progression. Amphistar was able to weather through the COVID constraints thanks to our vertically integrated structure, and we were also able to weather through sector influence shutdowns such as elective surgeries thanks to our diversified portfolio, adjusting and offsetting the imbalances seen. And finally, Amphisar has been primarily focused on growing organically. While the company remains diligent in finding opportunities that could enhance our capabilities, we remain focused on our internal development first and foremost, thus allowing us to transition from a generic and specially farmer-based company into a biopharma-based company more focused on proprietary products.

11:16 I will now turn the call over to our CFO, Bill Peters, to discuss the year-end and fourth quarter's financials.

11:23 Thank you, Dan. Sales for the fourth quarter of 2020 increased 15% to $95.9 million from $13.4 million in the previous year's period. Importantly, Primateam missed to achieve very strong sales growth of nearly 50% to $13.4 million from $9 million as we continue to see the benefits of our national advertising program. Anocroparen sales doubled to $17.6 million in the fourth quarter from $8.8 million in the prior year's fourth quarter as we were able to pick up some new business. Additionally, epinephrine sales increased to $7.5 million in 2020 from $4.3 million in the fourth quarter of 2019 due to the launch of epinephrine multidose vials.

12:13 Gross margins declined slightly to 38% of revenues in the fourth quarter of 2020, from 40% of revenues in the fourth quarter of 2019, as significantly higher sales of negative margin anoxaparin offset increases in primatine mist and epinephrine multidose vials. Selling, distribution, and marketing expenses increased slightly to $3.8 million from $3.5 million due to television, radio, and digital expenses for marketing primatine mist. General and administrative spending increased 15% to $12 million from $10.5 million, primarily due to increased legal expenses, including the cost of settling some employment litigation.

12:59 Research and development expenditures decreased 8% to $18.1 million from $19.6 million due to decreased clinical trial expenses. Other expenses included a $12.8 million reserve for our litigation with Aventis, The company reported a net loss of $6.3 million, or $0.13 per share, compared with last year's fourth quarter net loss of $1 million, or $0.02 per share. On an adjusted basis, the company reported net income of $8 million, or $0.16 per share, compared to an adjusted net income of approximately $3.6 million, or $0.07 per share, in the fourth quarter of last year.

13:46 Adjusted earnings exclude amortization, equity compensation, impairments of long-lived assets, and one-time events. In the fourth quarter, we had cash flow provided by operations of approximately $16.9 million. Also during the fourth quarter, the company repurchased approximately $3.4 million of stock to bring the total repurchases for the year to over $24 million. Now, let me review a few of the financial assumptions that we are using as we look to 2021. First, let me state that we expect Primatine Mist to achieve our previously disclosed goal of $65 million in sales this year. We also expect sales growth to be driven by glucagon, which was launched in February, and continued growth in our epinephrine multi-dose vials, which we launched in the second quarter of 2020.

14:38 We could have sales contributions from one or two ANDAs, which have GDUFA dates later this year. When we look to our ANP subsidiary, please remember that first and foremost, this business is our critical supplier of APIs for current products and, more importantly, our pipeline. That said, we expect continued sales growth to come from ANP, which saw third-party sales double in 2020 to $3.2 million from $1.5 million in 2019. Our expectation is that third-party sales from this facility will more than double again in 2021. We expect gross margins to increase as we sell more primatine mist, epinephrine multidose vials, and most importantly, glucagon, all of which are high-margin products.

15:28 We also anticipate high margins from sales of any new ANDA approvals that we receive this year. Our selling, distribution, and marketing expenses will rise as we plan to increase our advertising for primatine mist. However, the advertising expense will decrease as a percentage of primatine mist sales to provide earnings leverage. This year, we expect G&A spending to increase due to litigation expenses related to paragraph 4 patent challenges. Research and development spending will continue to increase in dollar terms, but we expect it to decline as a percentage of sales as we plan to commence clinical trials for three inhalation products, two insulin products, and continued trials on our intranasal epinephrine. I will now turn the call back over to the operator for Q&A.

16:17 At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation cell will indicate your mind is in the question 2. As a reminder, we ask that you limit yourself to one main question and one follow-up question. If you would like to remove yourself from the queue, please press star 2 on your telephone keypad. For participants using speed equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Tim Chang with Northland Securities. Please proceed with your question.

16:49 Thanks. I have a financial question. It really just ties to gross margins. What would have your gross margins been if you had excluded a Nazi parent? I'm just curious where your steady-state gross margins are. I know you're targeting higher gross margins in 2021. I'm just wondering, where did you sort of exit if you excluded Anoxaparin?

17:17 Yeah, well, I haven't done that calculation, but I'll tell you, if you take a look at the Anoxaparin sales for the quarter, we had $17.6 million in sales. and basically what we have to do, we have to reduce the inventory price levels to the point which our assumed future sales are at zero. So if you just take out $17.6 million in sales and $17.6 million in costs, you're not going to be too far off. There will be any inventory purchase adjustments if we purchase some new inventory or add commitments for it. So that's what takes it to negative over time. But, you know, if you just do that calculation at zero and weight that up, then that's a good way to look at it.

17:59 Okay, got it. And then just one follow-up on AMP002. Have you guys responded to the CRL, or is that response coming in the next two weeks?

18:15 Yeah. Hi, Tim. As Dan had mentioned in part of the script, we have already responded to that CRL.

18:23 Okay. And do you get any sort of notification from the FDA once they receive your response, or is it basically you just wait to get the GDUFA date at some point?

18:37 No. They will respond to us with an updated GDUFA date, which they have done, which is the fourth quarter of this year. Okay. Okay. Okay. Our next question comes from the line of Gary Nashman with BMO Capital. Please start with your question.

19:01 Hi, guys. Good afternoon. First, just on 2021 expectations, I appreciate some of the color there. But if you pull it all together, consensus revenue of $428 million implies 22% growth. Consensus EPS of $1.09, 70% growth. Are you comfortable with those levels? And I know you talked about Some of the key drivers behind it, but maybe just get us a little bit more comfortable with how you think you could get to those kinds of growth targets for this year, if you do feel comfortable with them. I don't have one follow-up.

19:41 Yeah, so to get to those levels, we would have to have the sales growth. We'd have to get to the primatine mist number that we had there. We'd have to have very strong sales of glucagon, which is a high-margin product. We'd have to have continued strong sales from the epinephrine vials. We'd have to more than double our sales at A&P, which I mentioned in there. And in order to get there, we'd really have to have contributions from at least one other ANDA that is not approved at this point. Otherwise, it would take something that I'm not sure about to get to those levels.

20:17 Okay. So you're sort of saying, Bill, that Thank you for joining us.

20:46 I'd say that we do need contributions from products like AMP002. And if we got that early enough, then and we did have sales contributions from that being a high margin product and then that that could be doable.

21:02 Okay, that's helpful. And then just on primating, you know, getting to the 65 million this year, I mean sales have flattened a little bit over the last few quarters. So just talk about how durable are the benefits that you got from COVID. Is there more of a headwind now with more patients going back to see their doctors and getting the prescription products as opposed to retail? It sounds like you'll be more aggressive with DTC this year. Just maybe talk about how much more aggressive you're going to be with that and how much of a benefit you think you could get from going into Target. and then if there are any other pharmacy chains or retail chains that you guys are looking at at this point.

21:50 Thanks. Yeah, so we're excited about Target launch. We're in a full chain launch there at the end of this month, and so we're excited about that. We think that's going to help us. We're also expanding into and many more. Thank you. We're pretty confident right now with that.

22:37 Okay. And do you have other retail chains lined up that you think be on target?

22:46 Well, the reality is that we've gotten all the big ones at this point. Right. And we do have a program where we're launching. We've already last year launched into all the wholesalers, and so we have a smaller program targeted at independent chains. But that's, you know, none of – I think there's not really many remaining chains that would have a meaningful boost to sales.

23:06 Okay. All right. Got it. Great. Thank you. Our next question comes from the line of David Ansell with Piper Sandler. Please state your question.

23:17 Thanks. So on 008, the inhalation product, can you disclose what the underlying brand sales of that product is and is your expectation that that's going to be a and so forth. And then, and then secondly, on, I believe it is 015, the other injectable product, which you say is over half a billion, just, just, I wanted to make sure that I have this, that product that you do not expect to be sued on or have not been sued on.

24:03 Is that an asset where you think that's going to have reasonable competition or any competition at all? Thanks.

24:15 Yeah. So first of all, let me start the second question, AMP05. That is one that is a Paragraph 4 challenge. So the time to be sued is up in April. So as of today, we have not been sued. But, you know, that timeframe is not. and going back to A008, we don't want to disclose what the potential sale or what the IQVIA sales are at this time because, you know, given the fact that we have a limited number of these inhalation products and we've disclosed its inhalation, we don't want to kind of tip our hand as to what it is, especially since it's a paragraph four challenge.

24:55 Okay. And then, just if I may, taking a follow-up on the inhalation pipeline, what's your expectation regarding the pace of filings Next year, you said you're expanding capacity to accommodate the pipeline at the Massachusetts facility. So how should we think about that as we go into 2022 in terms of the pace of filings?

25:18 Yeah, we hope to have one to two filings per year, and then going into the subsequent years, expand that to two to three.

25:26 Okay, helpful. Thank you. Our next question comes from the line of Elliot Wilbur with Raymond James. Please, see with your question.

25:40 Thanks. Good afternoon. A couple of follow-up questions on 015. So, this is a P4 filing. You're still within the 45-day statutory window with which the innovator has to commence litigation against you. But I'm curious if you believe that this is a would be a First to file A&D or are there already pending applications or at least one application?

26:13 We're not aware of any other filings at this time. Okay.

26:20 And then with respect to glucagon, strong performance based on the latest weekly data, seeing any competitive response here from Lilly. and I know it's a little bit early in the launch, but any anecdotes given kind of the volume trends and what you're seeing in terms of future orders that you may be drawing units away from other glucagon products?

26:49 Yeah, it's really hard to say where we're drawing from other glucagon products. As you know, we're clearly substitutable for low-lease glucagon. But, you know, we don't know if they're going to have any response or not, but I will say that initial sales are strong. So we're happy with the way that the pace will roll out at this time. Once again, as a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Once again, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from the line of Serge Bellinger. with Needham & Company. Please stay with your question. Seems to have disconnected, so our next question comes from the line of David Steinberg with Jefferies. Please stay with your question.

27:37 Thanks very much. My first question is just tagging on to Elliot's question. With regard to glucagon, it looks like in the fourth or fifth week of launch, the end of February, the prescriptions really started heating up. Looks like you've captured just about 25% share of the market already. Given that trajectory, would it be reasonable to think that peak sales of this product could be in the range of $40 to $50 million or so and that you would hit that probably mid-year or so? And then with regards to capital allocation, I know you said, Bill, that you repurchased about $24 million worth of stock for the year.

28:24 and traditionally you have made acquisitions but they've been sporadic and you've always used cash. Does the pretty significant share repurchase rely on the fact that you just can't find any assets to purchase even though generic drug, you know, divestitures or acquisitions have only been for pretty low multiples? Where are you with business development? Thanks.

28:49 So the first one, the $40 to $50 million is, we think, a good range to think about as a peak. So I think that that's a doable range for us. And as far as the acquisitions go, you know, we've looked at multiple things. With us, the main thing hasn't been the multiple. It's been the right fit and the right acquisition target for us. We've looked at a few things over the last year and a half, not as many things as today in the last six months as we did probably in the year before that, but we looked very carefully at a couple things and ended up not doing those more for strategic fit than anything else because that to us is the most important thing is where does this fit and where we want to be in the future and does it help us get there.

29:47 Okay, thanks. And as a final reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from the line of Serge Gunter with Needham & Company. Please, here's your question.

30:02 Hi, good afternoon. Sorry for previous technical difficulties. A couple questions on Plimateen. First, can you just talk about what – What size of business that Target distribution represents? Is it something closer to Walmart or Kroger? And then do you expect any seasonality to drive primatine sales, especially this spring?

30:30 So first of all, on the size, Target has significantly fewer locations than Walmart. And so, you know, when we looked at where we were, with our old formulation of Primatine. Walmart was the biggest customer. Today, really, we kind of see Walmart, CVS, and Walgreens as really the big three for us in sales, and that's the way it's lining up right now. So we expect Target to be an important customer and a large customer, but not the same level as what we think our biggest three are today.

31:05 And I think our fastest-growing segment is on the online, though.

31:09 Yes. So we're making headway online sales.

31:15 And on seasonality?

31:17 Yeah, on seasonality, it's one that, since we've been selling it again, we haven't been able to see a seasonal pattern. And we actually just updated our graph and put it up online today around 2 o'clock our time. So it just came up right before the call started. So if you take a look at that, you can still see that we've got an upward trend. Some weeks are higher, some weeks are lower, but overall sales are moving in the right direction. It's hard to discern a seasonal trend in that. The only trend that I got last year was COVID, and that was a huge spike that kind of obscured everything else. We're hitting up on the anniversary of that right now, so maybe at this point we'll be able to discern that. Better Trends this year.

32:08 And we've already almost captured that peak. So we're not too far off of that peak from when the pantry loading occurred.

32:16 And then in terms of CapEx projects, are there any significant expansions ongoing in any of your U.S. facilities? And is the Chinese facility still undergoing some manufacturing expansions?

32:36 Yes, the Chinese facility is still undergoing a significant expansion there with a significant CapEx requirement. But also in the U.S., we have some big projects as well. I think it was alluded to earlier. We're increasing the capacity for our metered disc inhalers out of our Armstrong facility outside of Boston so that we can ramp up demand for the AMDAs that we have in our pipelines. and we've also added capacity here at Amphistar for our pen syringes so that's going to be an important part of our insulin program that we're working on and we also are looking forward to the future as we have other approvals coming in the future we're going to add some significant capacity to Amphistar as well to meet that long-term capacity in both vials and pre-filled syringes.

33:33 So that number is increasing from 2020?

33:36 I don't want to say it's increasing from 2020, but I'll say that we're maintaining a relatively high level of CapEx spend as we look for future expansion. Got it.

33:49 All right. Thank you.

33:51 All right. Thank you. Thanks, sir. And with that, we've reached the end of our question and answer session, and I would like to turn the call back over to Mr. Dischner for any closing remarks.

34:00 All right, I want to thank everybody for joining us today and sharing in the exciting advancement that Amphistar saw in 2020 and look forward to 2021. I want to wish everybody to stay safe, and we'll catch you next time. And this concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.