Amphastar Pharmaceuticals Q3 2021 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2021

There are 5 speakers on the call.

Operator

I'd like to thank everybody for joining us this afternoon. As you have seen, Amphastar recently reported our financial results. I am pleased to announce that the upward momentum from last quarter's strong execution was sustainable and carried over into the third quarter. That said, we saw another great quarter of top line and bottom line growth as we remain generally insulated from the typical challenges facing our sector in the pharmaceutical space. Again, this is another validating quarter, highlighting the importance of Amphastar's core strengths as our vision, strategy and vertical integrated platforms continue to deliver on our growing commercial proficiencies.

Operator

After my portion, will turn the call over to our CFO and Executive Vice President of Finance, Bill Peters, who will provide an update on the company's financials. After Bill's remarks, we'll move on to the Q and A portion of the call for Tony Mars, Senior Vice President of Regulatory Affairs and Clinical Operations Bill and myself will answer any questions. I want to begin with our commercial results, where the third quarter saw net revenues just over $112,000,000 which is a 10% increase from last quarter and an impressive 34 percent increase on an annualized basis. Amphastar has seen remarkable growth on a quarterly basis and annualized in revenue, gross profit, net income and earnings per share. I want to emphasize that Amphastar is a bright 2022 ahead based on this trajectory.

Operator

While R and D expenses enhance our base business and setting up a foundation for more successful future quarters' performances from an operations perspective, equally important is our vision. Specific regards to our pipeline strategy, coupled with our vertical integrated platform, continues to be a proven by our more recently launched products. Since the beginning of 2021, we have observed that our glucagon, Primatene Mist and Epinephrine products have been key revenue drivers. We continue to believe that these three products will be significant growth drivers for the remainder of the year due to their recent performance. Regarding our glucagon product, sales of the product were $12,100,000 in the third quarter.

Operator

We're very pleased with the performance of this product and the ability to capture market share since its launch in February of this year. With that said, we believe Glupagon is still positioned to have a positive trajectory for the remainder of the year. On the timing of Primatene Mist, sales maintain a positive trend, seeing a 38% increase compared to Q3 in 2020. As trends continue, Primatene Mist annualized sales will likely exceed our goal of $65,000,000 this year as our continued nationwide TV, digital and radio marketing efforts, coupled with our physician sampling program, have proven effective. On epinephrine, sales of both the prefilled syringe and the multidose vial presentations grew to $13,900,000 due to our ability to capitalize on opportunities when they are presented.

Operator

As we have said before, Amphastar can consistently supply the product when our competitors cannot. This is mainly due to our investment in our recently added state of the art production line. We anticipate similar opportunities continuing into 2022. On another note, our careful planning and supply management has allowed our commercial portfolio sales to remain strong regardless of the impact felt from COVID-nineteen. However, the impact from COVID was not without its limitations, especially in regards to the clinical site impact.

Operator

On the clinical front, our clinical and other third party vendors continue to face various COVID related restraints that are out of our control. Therefore, we anticipate refiling for intranasal naloxone in Q1 of twenty twenty two. The same can be said for our intranasal epinephrine, which is now expected of filing in 2023. As for our filed ANDAs, AMP-two and AMP-six both remain on track to have a GDUFA date for the first quarter of twenty twenty two. As a preapproval inspection is necessary for either product, the GDUFA date may be postponed for two months.

Operator

For our teriparatide ANDA, our first Penn product, we have had continued dialogue with the agency, but it's still on a first cycle review, which is now anticipated to have a GDUFA date in the second quarter of twenty twenty two. Concerning our Paragraph IV filings, AMP-eight, our first inhalation ANDA, is anticipated to be filed in the fourth quarter of this year. We continue to believe we have a strong non infringement position. Likewise, we feel the same with AMP-nine, another paragraph for filing that is currently being litigated. With regard to our products in our diabetes portfolio, specifically our insulin program, we believe that though that through the advanced technologies we have developed, we can create a more standardized process in developing these types of products to have a robust diabetes portfolio.

Operator

To accomplish this, we have developed a framework based on FDA guidance and our extensive complex molecule experience. In closing, I would like to reiterate that we continue to make significant progress in our commercial portfolio's revenue growth trajectory with a further emphasis on our pipeline. Amphastar sees our future progress towards interchangeable biosimilar and proprietary products. We are confident we can achieve these goals as our long term vision, proven strategy and vertically integrated platform serve as complementary forces in building momentum towards its future as we head off into 2022 with a great start. I will turn the call to Bill to discuss the third quarter's financial results.

Operator

Thank you, Dan. Sales for the third quarter increased 34% to $112,200,000 from $83,400,000 in the previous year's period. Glucagon, which we launched in the first quarter, once again led the growth with sales of $12,200,000 Primatene Mist saw sales growth of 28% to $16,600,000 from $13,000,000 in the third quarter of last year, with strong sales to all of our current customers. Epinephrine sales increased to $13,900,000 on strong sales of both the multi dose vial and the prefilled syringe, the latter of which saw a surge in demand due to competitor shortages. We have been consistently able to meet the demand caused by competitive drug shortages quarter after quarter, which is why we increased the capacity in our IMS facility.

Operator

Noxaparin sales decreased to $8,000,000 primarily due to increased competition, which led to reduced volumes and lower average selling prices. Other finished pharmaceutical products saw a sales increase of $5,600,000 driven by increases in medroxyprogesterone, clutrosyn and amphidase. Our insulin API business had sales of $3,200,000 up from $2,100,000 last year, primarily due to the timing of orders. Cost of revenues increased to $61,000,000 from $46,900,000 Gross margins improved to 46% of revenues from 44% as newer higher margin products such as glucagon, Primatene Mist and epinephrine multi dose files more than offset the lower pricing for enoxaparin. Selling, distribution and marketing expenses increased 29% to $4,700,000 from $3,700,000 due to increased advertising distribution costs, including television commercials for Primatene Mist.

Operator

General and administrative spending decreased 7% to $10,900,000 from $11,700,000 due to lower legal expenses. Research and development expenditures decreased 39% to $10,800,000 from $17,600,000 as lower clinical trial expenses and a decrease of R and D costs in China due to the restructuring of our subsidiary, Amphastar Nanjing Pharmaceuticals for A and P and the deconsolidation of its subsidiary, Hansen. Our non operating income line includes a onetime gain on the divestiture of 80% of A and P's subsidiary, Hansen. Strong results this quarter show the significant operating leverage available to the company as we grow sales faster than our expenses. The company reported net income attributable to Amphastar shareholders of $29,500,000 or $0.59 per share in the third quarter, a significant increase from $3,900,000 or $08 per share in the third quarter of twenty twenty.

Operator

The company reported an adjusted net income of $23,000,000 or $0.46 per share compared to an adjusted net income of $7,600,000 or $0.15 per share in the third quarter of last year. Adjusted earnings exclude amortization, equity compensation, impairments of long lived assets and onetime events, including the gain on the divestiture of 80% of our interest in Hansen. In the third quarter, we had cash flow from operations of approximately $2,600,000 and we used a portion of our cash to buy back approximately $6,100,000 of stock. As mentioned on the last conference call, we completed a syndicated debt offering in the third quarter, borrowing $70,000,000 and increasing our lines of credit to $70,000,000 In the process, we lowered our interest rate significantly and have paid off approximately $36,000,000 of higher interest rate debt. I will now turn the call back over to Dan.

Operator

Thanks, Bill. If we can now turn to the Q and A section of our presentation. Thank you. We'll now be

Speaker 1

conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation phone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. If there's this confusion with your equipment, we ask that it may be necessary to keep up your hands before pressing the star keys.

Speaker 1

One moment, please, while we pull for questions. Our first question comes from Jacob Hughes with Wells Fargo Securities. Please proceed with your question.

Speaker 2

Hey, guys. Thanks for taking my questions. I have just a couple. On Primatene Mist, I think the sales in the quarter were flattish quarter over quarter. Now is there anything to call out in the quarter?

Speaker 2

And how should we think about that for the fourth quarter? And will you be providing a new target since we're basically already at 365,000,000?

Operator

Yes. So the sales were just a little bit or relatively flat from the second quarter. But we did see strong growth year over year, which looks like is a very good sign. And we started off, I'll say, the fourth quarter pretty strong as well. So while we're not going to give any formal guidance at this time about a decreased sales target, at this point, we do feel very confident that we will be above the $65,000,000 mark this year.

Operator

And we might address further targets probably on our March call.

Speaker 1

Okay. Got it.

Speaker 2

And then on the storages that you called out for Coneflin and other finished pharmaceutical products, do you expect exactly a similar benefit in the fourth quarter, or is it have those been resolved now?

Operator

So the epinephrine specifically, we see that trend continuing into next year. That has not been resolved, and we still see very strong demand for that product today. So our competition doesn't seem like they're going to get it from what they've indicated. The drug shortage at FDA doesn't look like they will be back on track until next year. Some of the other products, they've some of them resolved in Havington.

Operator

But I think the real important point here is what Dan and I both mentioned, which is we increased we spent a lot of money to increase the capacity of our facility at IMS. And by doing that, we're now able to capture and take care of the demand for those things when they do occur. And honestly, I've been here at this company for over seven years. And I think pretty much every quarter, there's been some sort of supply issue from one competitor or another. And now we have the ability to take advantage of that.

Operator

So I think we really delivered on that each quarter.

Speaker 2

And then lastly, just on the pipeline. I saw the the new disclosure in the slide deck is for a m t zero one eight. Is there anything you can think about that program?

Operator

That's the new one we've just recently added to the deck. And we're we're it's one that has been in development here for a little while. We've just added it to the deck just as further disclosure. And as time moves along, we'll give further development further information about that one. But we're just today, we're just indicating that, that's one of the products that's out there in development and part of that unfiled injectable $6,500,000,000 of IQVIA sales.

Speaker 1

Thank you. Our next question comes from Elliot Wilbur with Raymond James. Please proceed with your question.

Speaker 3

Thanks. Good afternoon. Just a follow-up question on PrimeKate Mist brands. And just looking at the chart in the deck, I mean, it looks like unit sales continued to trend higher even though you saw flattish sequential performance in in terms of revenue. Just wondering, you know, what the impact may have been on, obviously, not pricing, but I don't know if there was an increase in couponing or or or sampling.

Speaker 3

Then I wanna get a sense from you in terms of your your sampling program, just a a sense of how effective you believe that's been and whether there's any anecdotes you can share in terms of whether or not you've been able to initiate starts on the product in patients that are new to the asset, haven't really utilized it before.

Operator

Yes. So first of all, I will say that while we don't have hard data on the sampling program, we think it's a really effective way to get some people who have mild cases of asthma on the product. When they go to their doctor, their doctor can give them a free sample of the product and then go out and try it afterwards. So as far as coupons go, we actually are not doing any couponing. So none of the sales growth was led by that or the unit growth.

Operator

And thanks for mentioning the updated slide on the deck. As you know, that trend there shows continued steady growth in sales of the product. So we're very happy about that trend.

Speaker 3

Okay. And then a question

Speaker 1

for you, Bill. Could you

Speaker 3

just walk us through the change in the R and D line? Obviously, a significant number trying to figure out is the run rate this quarter sort of a good representation of new baseline spend? How have things changed in terms of cash flow implications or or, you know, your rights to products and development by some of the subs that have been deconsolidated now? Just not sure I understand the fully the implications of the change in that line.

Operator

Yes. Good question. So we did back when we announced this reorganization, we

Speaker 3

had mentioned that we'd get about a

Operator

$03 a year savings this year, and I think it was $0.12 next year savings on the income line. Big part of that was the lower R and D costs as we moved some of the projects that we weren't that weren't really for us out of our R and D line. So that's part of the trend. The other trend is we did lower the headcount at our A and P facility slightly as well. So there's a little bit less expense out of that.

Operator

And part of it the third thing is really timing, and that goes back to what Dan had mentioned in his part of the script, which was the timing of certain clinical trials. We've had some delays there on some of the R and D projects. So the clinical trial expense is one that can be variable and large at times. So that number you see this quarter is more of a floor, and you should only expect up to see success in that line as clinical trials move forward.

Speaker 1

Thank you. Our next question comes from Serge Belanger with Needham and Company. Please proceed with your question. Hi. Good afternoon.

Speaker 1

A couple for me on Clementine also. First, do you expect any winter season seasonality? And then secondly, product is now in all of the major big box stores. So where do you foresee the next leg of growth here? Is it just more penetration within these segments?

Speaker 1

Or is there additional segments to penetrate?

Operator

Yes. With Primatene, this seasonality is still a little hard to determine. Typically, Q4 is a good year is a good quarter for it. And so we'll be monitoring that situation. As far as growth for Primatene, yes, we hit we're in all the major retail commercial.

Operator

I think the next key growth is as we develop our marketing strategy and brand recognition, getting the product, letting people know that the product is back on the market and we expand into maybe a younger demographic with some of the more concentrated marketing efforts that our team has planned. So I think that's where we can see some growth moving forward.

Speaker 1

And then similarly on Glucagon, you expect that product to to continue growing. Is this a question of expanding that, the market size of the product or just continuing to grow your market share?

Operator

Yes. So the we don't see the market share for changing much of this because we already have significant market share when you take a look at the IQVIA data. We already have a large majority of that market for the this injectable version. We see the overall glucagon market growing for a couple of reasons. And one is that we believe with the generic alternative out there, which we now provide, we think that there'll be more people that are likely to get a script filled given the fact that it was an expensive product in the past.

Operator

So we see this as a growing market, but we see our market share probably remaining about where it is.

Speaker 1

Thank you. Our next question is from Tim Chang with Northland Capital. Please proceed with your question.

Speaker 2

Hi, thanks. So could you just talk about the

Operator

just you sort of highlighted the financial leverage, and it seemed to be pretty apparent given the fact that your operating margins were north of 20% this quarter. Do you see that sustaining the fourth quarter as well, the operating margins? Yes. So right now, we do see sales trending the same way they were in the third quarter. So again, another quarter of very strong sales.

Operator

We think our gross margins will be pretty similar and our SG

Speaker 2

and

Operator

A lines will be relatively similar. The R and D line is the one line that can be a little bit more variable, as I mentioned. We had a little bit of delays in some of the clinical trials. So the clinical trial expense was a little bit low in the third quarter. So in all likelihood, that goes up a little bit in the fourth quarter from where we are today.

Operator

I see. And and maybe just a follow-up on

Speaker 2

the pipeline. I think you guys did update that pipeline slide. An a m p o one five, I think that's one of your bigger ticket items. I guess you've set a PDUFA date of

Operator

the second quarter of twenty twenty two. Is that right? Correct. Yeah. Yeah.

Operator

That's correct. They haven't this is not a CRL. This is just as a complex product that we work on.

Speaker 4

This is just an interesting thing, which is the agency through our communication. And as we progress with them, it extended that action date until that quarter.

Speaker 1

Can you comment a little bit just on capacity for that product? I mean, do you think you'll have ample capacity to meet supply, assuming

Operator

you get approval sometime in the second quarter of next year? I think it's part of our planning. Capacity. So I think it's Bill, do you want to say anything else? Yes.

Operator

We do have it's not a very big unit volume item. It's a relatively high priced item. So the capacity we have the capacity here at our Amphastar headquarters to make that product and still the market share that we believe that we will be able to get to. So we don't see that as being an issue. And Tim, to reiterate that, it's a separate line.

Speaker 4

It's a dedicated because it is a Penn product. So from encroaching in some of our other products, it would be just this product on that line.

Speaker 1

Thank you. Our next question comes from David Steinberg with Jeffrey. Please proceed with your question.

Speaker 3

Thanks, and and good afternoon. And I

Speaker 1

apologize if you you've already addressed it. There are a couple of calls going on simultaneously. This question is on o o two. Do

Operator

you could you could you remind

Speaker 1

us of the potential size of this product? How long the brand has been off patent without any generic competition? And when you do get on the market, you know, do you foresee any competition near term? And then secondly, in m

Operator

and a, it seems like in

Speaker 1

the last few quarterly calls, you know, your interest level has has waned. You obviously have a lot on your plate, pipeline wise. Are you actively looking at any, candidates? Or

Operator

just you have so much going on, there's no

Speaker 1

need to buy anything? And if you are looking, have prices come in at all? Are they still relatively high in your view? Thanks.

Operator

Sure. About the size of the two market, it's about a $300,000,000 IQVIA sales market and has been off patent for a very long time. So it's not something that we would expect anybody else to get approval on in the near future. And just to reiterate, we do have that Type A Q to date coming up early next year. So we're looking forward to that.

Operator

And your second question was? On M and A. Oh, yes, and A. So on the M and A, Dan, you want to take that? Yes.

Operator

I mean, it's fine. We are very as we've mentioned before, we're very focused on what we have going on here. We have a very robust pipeline, and we're very focused on executing on our pipeline. But that said, I think there's always we have a very solid balance sheet. And if the right opportunity represented itself to us, it's something that we would pay attention to.

Operator

So in that regard, it really hasn't changed much. And just to follow-up on to so you you indicated that sales

Speaker 1

are over 300,000,000. It's been off patent for years. You expect no competition. So if you work out the math on that, that should become your biggest product over time. Is that a reasonable way to think about it?

Operator

I think I would hold off on making that a set that extrapolation. I see I see how your math gets you there. I'm not really sure that we do it does become our biggest product over time. Right now, I think that's kind of remain a primacy miss. So I'll just leave it at that for now.

Speaker 1

You. Our next question comes from Elliot Wilbur with Raymond James. Please proceed with your question.

Speaker 3

Hey. Just a couple of quick follow ups. I guess with respect to the shortage products, did any of those benefit from off contract pricing terms in the quarter? And then just a quick follow-up on naloxone. And how are you guys seeing that market today?

Speaker 3

Obviously, there have been couple recent approvals of injectables in the high strength category. Just sort of wondering how you're now thinking about that opportunity in light of incremental competition in the market.

Operator

Let's see. So I'll start with naloxone, and we can go to the shortage on the contract pricing term. Bill can answer that one. Naloxone, we keep seeing that program or the market for that growing. We believe that there's still room for us.

Operator

We have experience in this market. I think there is it is getting crowded, you're right. But I do think as the market continues to grow, there's still room for our product. Then with the shortage of off contract pricing or on the drug shortage, the off contract pricing? Yes.

Operator

So the off contract, most of the products that were on Shores and related to Shores that we had sales on did not have that benefit. So they're straight normal pricing because they were multisource products. So there wasn't really any issue with that.

Speaker 1

Thank you. There are no further questions at this time. I would like to turn the floor back over to management for any closing comments.

Operator

Well, thank you, Paul, and and thank you everybody for joining us today. We were, you know, very pleased to be able to have a a great quarter this quarter, and we look forward to the momentum carrying on for the remainder of the year. And we look forward to talking with you all again very shortly.

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