Amazon.com Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2023

There are 11 speakers on the call.

Operator

Morning, and welcome to the Amneal Third Quarter 2023 Earnings Call. I will now turn the call over to Amneal's Head of Investor Relations, Tony DeMeo.

Speaker 1

Good morning, and thank you for joining Amneal Pharmaceuticals' 3rd quarter 2023 earnings call. Today, we issued a press release reporting our Q3 results. We announced certain unaudited preliminary results for Q3 on October 23. Our earnings press release and presentation are available at amneal.com. Certain statements made on this call regarding matters that are not historical facts, Including, but not limited to, management's outlook or predictions are forward looking statements that are based solely on information that is now available to us.

Speaker 1

Please see the section entitled Cautionary Statements and Forward Looking Statements in the earnings presentation and our SEC filings for a discussion of factors that may impact our future performance. We also discuss non GAAP measures. Information on our use of these measures and reconciliations to U. S. GAAP, earning the earnings presentation.

Speaker 1

On the call today are Shirogan Shintu Patel, Co Founders and Co CEOs Tasos Konidaris, CFO our commercial leaders, Andy Boyer for generics Joe Renda for Specialty Harshar Singh for Biosciences and Jason Daley, Chief Legal Officer. I will now hand the call over to Shiraz.

Speaker 2

Thank you. Thank you, Tony, and good morning, everyone. We delivered another very strong quarter with $620,000,000 of revenue, Which is up 14%, adjusted EBITDA of $154,000,000 up 22% And adjusted EPS of $0.19 up 36%. We saw growth in all three of our business segments And reduced net leverage to 4.6 times. Given the strength of our year to date performance, We are pleased again to raise our full year 2023 guidance.

Speaker 2

We are excited about our continued momentum, which underscores the strength of our strategy and solid execution. As we have discussed throughout the year, We believe Amneal is at an inflection point, poised to drive significant top and bottom line in 2024 and beyond. I'll start with a quick overview of our company and then walk through what we saw in each of our businesses during the Q3. At a high level, Amneal is a world class global diversified pharmaceutical company, Fulfilling our mission to provide access to high quality and affordable essential medicines. In our Affordable Medicines business, our generic segment, we have retail, injectables, biosimilars and international.

Speaker 2

Our strategy continues to focus on expanding our portfolio with impactful, complex and high level for High Value Products. For the 1st 9 months of 2023, generics revenues were up 7% compared to last year, reflecting a meaningful acceleration from the steady 3% CAGR We delivered from 2019 to 2022. We expect high level digit high single Digit top line growth in generics to continue, driven by our diverse portfolio and cadence of over 30 new product launches every year. In injectable, our goal is to be top 5 in the United States Institutional Market. There are 2 key factors that we believe differentiates Amneal and will drive our success.

Speaker 2

The first is expanding capacity and capabilities, and the second is an expanding portfolio. In 2023, we have executed on both. We successfully brought online 2 new sites, which doubled our manufacturing capacity. Currently, we have 35 commercial injectables with over 25 new launches planned by 2025 As we continue increasing production and expanding our portfolio in a market plagued by shortages, We are well positioned for higher injectables revenues in 2024 and over $300,000,000 by 2025. In biosimilars, our 3 commercial products continue to see strong uptake.

Speaker 2

Our largest product, Alemsys, Was at 6% market share as of September, which is remarkable in the 1st 3 quarters post launch. We expect $60,000,000 in biosimilar sales this year, more than double that next year and over $200,000,000 in 2025. In addition, we expanded our partnership with MAPSciences, who we work with on Alemsys to add 2 formulations of denosumab and oncology biosimilar to our pipeline. This is part of the next basket of biosimilars for Amneal. By 2024, we look to add 2 to 3 more biosimilars to the pipeline.

Speaker 2

We see biosimilars as the next wave of affordable medicines and are committed to being a leader in this space. Internationally, we're leveraging our U. S. FDA approved portfolio To expand our reach and drive profitable growth. In India, we have our local infrastructure and are expanding our local portfolio.

Speaker 2

In other geographies, we are working with partners to commercialize our products. For example, We now have 2 products approved in China. We expect international expansion will add $50,000,000 to $100,000,000 revenues by 2020 7 and scale further over time. In our affordable innovations business, Our Specialty segment, we are focused on neurology and endocrinology therapeutic areas. Our commercial teams continue to drive growth in our key branded products, dietary for Parkinson's and Unithroid for hypothyroidism.

Speaker 2

As you know, we received a CRL for IPX203 seeking additional data in July. I'm pleased to report that we had a Successful Taipei meeting with FDA last month, and we are working diligently towards the 2024 approval and launch, which Chintu will discuss shortly. We expect specialty revenues to be over $500,000,000 by 2027. Finally, in our rev care segment, we continue to see robust growth across all three channels, Distribution Government, VA DoD, Unit Dose. We expect AvCare revenue of $500,000,000 in 20 20 and over $600,000,000 by 2025.

Speaker 2

I'll now pass it to Chintur.

Speaker 3

Good morning, everyone. Thank you, Chirag, and thank you to the global Amneal family who work hard every day To help make healthy possible for so many. We are laser focused on executing our strategy to be an innovative and diversified Global Pharmaceuticals company capable of driving sustainable growth in the key areas of medicine. The successes of 2023 are clear proof points that we are on the right track. I will touch on how Operational excellence, strong supply chain and highly productive R and D engine propel our strategy.

Speaker 3

First, we remain focused on driving operational excellence and efficiency as Anil has one of the best service level in the industry As part of our efforts to drive continuous cost efficiencies globally, we are transferring production for about 30 products for cost improvement and also working on many operational excellence programs for long term savings. In addition, we have strengthened our supply chain by expanding our infrastructure, particularly in injectables. We have doubled our injectables capacity with 4 facilities and 19 production lines, while the injectables market continue to face Importantly, about 30 of our commercial ANDA and pipeline injectable products Are on the U. S. FDA shortage list.

Speaker 3

Amneal is very well positioned to help address drug shortages in the U. S. At the same time, we remain committed to maintaining our stellar quality track record. Since 2,005, The U. S.

Speaker 3

FDA has conducted nearly 100 successful inspections with no observations or only minor 483s. Overall, our high quality global operations are at scale to support sustainable long term growth. 2nd, innovation is the lifeblood of any growing pharmaceuticals company and that's certainly the case for Amneal. In generics, we are on track for over 40 new launches in 2023 with 33 year to date. This is well above our normal cadence of 30 per year.

Speaker 3

Also, it's more than just the number of new launches. It is the complexity of these products, less competitors and the increased value of our diversified portfolio. Our pipeline is deep with 166 products pending approval or in development. Accordingly, we expect over 30 new launches next year and for years after that. In addition, while we have shifted towards complex innovations, we have also improved the efficiency of our R and D operations.

Speaker 3

We are doing more R and D with less spend, which results in a better ROI on projects. Let me share some more details on R and D. Overall, we have 88 ANDAs spending with FDA, of which 64% are non Oral Solid Products. Behind that, we have 78 pipeline products, of which 90% are non oral solids. We have shifted our focus to high value complex categories with approximately 45% of pending ANDAs and over 60% of our pipeline expected to be 3% of our pipeline expected to be first to market, first to file our 505(2) products.

Speaker 3

In injectables, we have launched 10 new products year to date, including 2 high value products in Q3 with potassium phosphate and calcium gluconic bags. Also, we recently received approval for Methylprednisolone Acetate, which is in shortage. Further, we are advancing a number of complex injectables in our pipeline. In Q3, we filed our first 2 55(2) ready to use bags as planned. We expect to file several long acting injectables in the near term as well.

Speaker 3

As a result, we expect a strong cadence of impactful new injectables to continue in 2024, including the launch of already approved Pembry D RTU. After injectables, we see inhalation as Amneal's next key growth area in complex generics. Our pending ANDA for generic version of NARCAN is under priority review, and we look to launch in the coming months upon approval. This important over the counter product improves access to a critical overdose treatment. In addition, we have 2 Key metered dose inhaler ANDAs pending for generic version of QR and ProAir.

Speaker 3

In biosimilars, our first three oncology products are seeing excellent uptake and we have added 2 additional molecules to the pipeline. We are also evaluating opportunities to be vertically integrated over time. Please see our Catalyst slide for the list of recent and upcoming launches. Turning to Specialty R and D, we continue to work to advance our 55(2) pipeline. On IPX203, as Chirag highlighted, we had a successful Type A meeting with FDA last month to align on the path to approval.

Speaker 3

As agreed with FDA, we are in the process of completing a small Routine QT study in healthy patients. We will complete the study in the coming months and we will resubmit our NDA in early 2020 We are working diligently towards an IPX203 launch in the second half of twenty twenty four pending FDA approval. We continue to see IPX203 as a critical innovation that meaningfully advances the standard of care for Parkinson's patients. In summary, we are driving operational excellence and executing our innovation strategy, which together are fueling our ability to drive sustainable growth. I will now hand it over to Tasos.

Speaker 4

Thank you, Chintu. Let me first start with the 4 pillars of value creation from Anil. That is diversification, Strong financial performance, cash generation and 4th, overall debt reduction. 1st, starting with increased diversification. Sivak and Chintu touched on this throughout their overview of Amneal's strategy and business highlights.

Speaker 4

Since 2019, the portfolio is remarkably more diversified with new lines of business. In 2019, oral solid generics represented 53% of total revenue. Now in NT23 with new complex generic launches, growth in injectables and specialty and the addition of biosimilars in AvCare, The portion of oral solid generic revenue is less than half of that at only 26% of the total company revenues. The higher level of diversification was intentional and driven by our desire to deliver consistent financial performance Despite the typical ups and downs of any business. As a result, our diversified portfolio is driving Sustainable higher levels of growth and profitability as well as increased future visibility.

Speaker 4

Let me now move to our 2nd pillar of strong financial performance. As an example, Since 2019, our annual revenues have increased by over $800,000,000 or 50%, While adjusted EBITDA is up about $200,000,000 or 60%. Consequently, Our Q3 strong financial performance is not an isolated event and reflects strong execution Across our strategic choices for a number of quarters and years. Let me now go into a bit more detail of our 3rd quarter results. Total net revenue was $620,000,000 growing 14%.

Speaker 4

Adjusted EBITDA $154,000,000 growing 22 percent adjusted EPS of $0.19 growing 36%. All three business segments grew revenue substantially this quarter. Q3 generics net Revenue was $391,000,000 growing 12%, driven by our new biosimilars in new complex generics as new launches in 20232022 added $40,000,000 in Q3 revenue growth. The acceleration in generics growth in 2023 reflects the continued shift towards a diverse Complex Portfolio and the addition of key new products that are additive to growth. Next, in Specialty, net revenue was $97,000,000 growing 9% driven by unit throwing and writeery.

Speaker 4

Q3 AvCare net revenue of $132,000,000 grew 25%, which reflects strong execution and new product introductions by the team. Q3 adjusted EBITDA of $154,000,000 reflects Strong revenues, durable gross margins and tight expense management. Looking at our Q3 year to date results, Total company revenue growth is 11%, with generics up 7%, specialty growing at 5% and Avacare growing at 28%. Combined with stable gross margins and operating expense leverage, Year to date adjusted EBITDA grew 16% and adjusted EPS grew 11%. Let me now move to our 2023 full year guidance, where given the continued strong performance across the business, We're raising our full year 2023 expectations again this quarter.

Speaker 4

We now expect net revenue of $2,370,000,000 to $2,420,000,000 which reflects high single digit revenue growth. Due to higher revenues, we're raising our 2023 adjusted EBITDA guidance to $540,000,000 to $550,000,000 and adjusted EPS range between $0.51 and $0.58 Let me now move on how strong financial performance is translating into the 3rd pillar of value creation, That is higher cash generation. In 2023, in conjunction with higher profitability and our efforts to drive working capital Our September year to date operating cash flow on an underlying basis has grown about 40% to $295,000,000 compared to $213,000,000 for the 1st 9 months of 2022. Going forward, we're focused on converting an increased amount of higher EBITDA to operating cash flow as a function of targeting further working capital improvements and thoughtful CapEx investments. In addition, as you may have noticed on Form 8 ks we On October 17, we made important progress on a key legacy item that is transitioning From an up C corporate structure to a more traditional C corp structure.

Speaker 4

This transition was highly and technical in nature, But has substantial cash flow benefits to our company as it enhances investor transparency and serve load By having only one class of common stock. This leads me to the 4th pillar of value creation and that is deleveraging. With higher cash generation and many of the historical improvements investments to expand our portfolio and infrastructure already made, We're in a very good position to further reduce debt. From 2019 to now, net leverage has Come down from 7.4 times to 4.6 times in the most recent quarter. We're focused on delivering consistent debt reduction over the course of time, And we feel confident in our ability to achieve net debt to adjusted EBITDA below 4x in 2025.

Speaker 4

I hope this overview of the key pillars of value creation for Amneal is helpful. Going forward, we're confident that the increased diversification of our business, Strong financial performance, higher cash generation and further deleveraging will create substantial value. Let me now hand it back to Shirank.

Speaker 2

Thank you, Tassos. In summary, Amneal has never been in a better position to drive substantial, Sustainable long term growth, and we believe the best days are ahead for our company. Let's now open it up, Tony for Q and

Operator

A. Thank you. When preparing for your questions, please ensure your device is unlisted locally. And if you wish to revoke your questions, please press star followed by 2. We will now take our first question from Balaji Prasad from Barclays.

Operator

Balaji, your line is now open. Please go ahead.

Speaker 1

Operator, we can go to the next participant and put Bellagio back in queue. Thank you.

Operator

Okay. No problem. We will now take on a question from David.

Speaker 5

A couple. So, I wanted to ask you about AvCare and its role in the organization going forward. I mean, is that a business that you think might be non core over time? How do you think about it Strategically, that's number 1. Number 2, regarding injectables and all the launches that you cite, Are these mostly shortage products?

Speaker 5

Are is it a mix of shortage products and Complex products, I'm just trying to understand how to think about the product mix here in injectables and what the margin structure For injectables is going to look like over time margin structure visavis your corporate margin structure. Thanks.

Speaker 2

Hey, David. How are you? Good morning. On EvCare, as you know, we are Very few remaining U. S.

Speaker 2

Manufacturers that is where our most of the business is driven through TA compliant products. So it is strategic business for us. It grows as you can see the number of products for VA DoD Plus we have a niche unit dose as well. And as you know, we have a partner who is Expert in this area is running the business. So I would I mean exact definition of Core non core, but it is very strategic at this point for us, but we are open to value adoptions in the future.

Speaker 2

It is a strong business, highly profitable, and we're very committed to it. The second part, I'm going to pass it to 2 gentlemen since we have everybody today in the conference room. We're going to start with my brother, and he'll pass it to Harshad.

Speaker 3

Hi, David. Good morning. On Injectable, we have a very big portfolio and we invested for last 2 years on Funding our R and D capabilities and also infrastructure. So we have a very wide variety of dosage from capabilities, PFS, large bags, Auto injectors, liposomal peptides, microspheres. These are complex categories and some are also Volume.

Speaker 3

So we have now capabilities to play value and volume game, both in the injectable space going forward, where our current capacity It was around €20,000,000 €25,000,000 Vials or PFS combination of different products, it has gone up to about €70,000,000 So that's a big shift. So second question on shortages, we have about 30 products that's pending approvals Already approved. And the shortage products goes keep in and out, but Anil is very much passionate about Addressing the shortage issue and we as soon as we have product, we try to help alleviate the shortages. And some of the launches your question was, it's a mix. Some are first to market products, some are complex Products like MPA Multidose.

Speaker 3

So it's a combination of both, and that's what we'll see in coming years. And we are confident to launch 20 new products also in injectable in 2024. So very strong pipeline, Which is expand to about 80 products by 2025. Harshav, anything to add?

Speaker 6

David, I'll just build one thing to frame your comment, right, which is I think shortages and complex products are not mutually exclusive. Often the biggest shortages are on complex products. As you see us launch, our last 6 months are pretty good proxy for the portfolio, which is premixed bags, electrolytes, which are a structurally short category, Where there are structural issues in the market over the long term that we hope to address and single product opportunities where we have structural strengths Like the corticosteroids, methylprednisolone and others. But you should expect us to continue to proceed along a

Speaker 4

pathway like that. And David on the gross margin,

Speaker 5

but Yes.

Speaker 4

That's okay. Okay. Your last one goes back to the margin. So injectables in general and the areas we play I'll just they're going to be accretive to the overall gross margin of the company. So this is one of the reasons why as we think about the future, We feel confident about the enhancing and increasing our financial, not only top line profitability and adjusted EBITDA and cash growth.

Speaker 5

Okay, got it. That got to my last question. Thank you.

Speaker 4

Thanks, David.

Operator

Thank you, David. As a reminder, please ensure you have the webcast live We will now take our next question from Les Polowski from Truist.

Speaker 7

Good morning. Thank you for taking my questions. Just first on the Rytary front, it seems the script growth has been

Speaker 8

Good. I thought the sales figure was

Speaker 5

a bit light. So just perhaps you

Speaker 8

could walk us through some

Speaker 7

of the pricing dynamics In 3Q, was there any discounting in the GTN front? And then secondarily, on the IPX203, can you provide a little bit more details around Feedback from the FDA regarding your Type A meeting, and the study design that you expect for that? And then also how are you thinking about commercial launch in the 2nd half.

Speaker 2

Great. Thank you, Les. I'm going to have our Chief Commercial Officer, Joe Renda answer the Rytary question and then we'll move to my brother for IPX203 more details, please.

Speaker 9

Yes. So your question on Rytary, nothing has changed with our contracting strategy. We're still fortunate enough with Rytary to have The best coverage of any prescription product in the Parkinson's space, we have about 70% or so commercial coverage And about 60% or so Part D coverage. We actually the growth we've seen has been In the latter part of the year, if you look at Q3 and Q4 as an example, our NBRx growth is in around 20% to 22%, Which is significantly higher than what we saw at the same time last year. So we are seeing both NBRx growth with Rytary as well as TRx growth.

Speaker 9

So we've been really pleased with the pattern that we're seeing as we round out this year. And overall, this year, it looks like our growth will be higher Than what we've seen in previous years with Rytary.

Speaker 4

And last, just on your point about the quarter gross to net, yes, we had about $5,000,000, six $1,000,000 of an unfavorable kind of timing gross to net adjustment related to Medicare rebates. So that's why probably your quarterly net revenue growth is that a little less of the kind of volume growth. But that's behind us It was more of a one time event.

Speaker 3

Hi, Lajdesh Chintu. On IPX203, We had a very successful Type A meeting to align our path forward with FDA. So question was mainly on the safety And we have addressed that for the major as we had a 1 year of safety data on carbidopa And FDA is aligned on our data and what we had presented. And it leads to only one remaining question because anytime Carbidopa has been an old molecule. There's certain amount of carbidopa we had to do a QT bridging study.

Speaker 3

So we are doing a Ball routing QT study in a 36 healthy patient, which we are starting very shortly in a week's time. And we plan to complete that study and file in first half of twenty twenty four and launch product in second half of twenty twenty four. We are ready to launch the product from the commercial and also and from the manufacturing And the product is ready to go. We are very excited on IPX203 and what value it brings to the patient.

Speaker 2

Yes. It's a much broader value less than a writer. We're going after entire 1,000,000 patient population 90,000 new patients come on every year, unfortunately. So it's a large market, and we want to change The habits of prescription of prescribing IR to start with, why not IPX203? It's much better formulation.

Speaker 2

It gives a good on time, longer time a longer good on time every day, meaningful or huge impact on their daily lives. So and we have lots of obviously data to go with and we never market it to the broader Ian, so I mean broader patient population. So that is we are ready for the marketing strategy. We have learned a lot from a writer relaunch. And obviously, there's a lot of support for this product as the clinicians have seen the results of this product.

Speaker 2

So extremely exciting launch coming up. And not only in the United States, we are in the final negotiation in Europe because Europe only has IR. And that would be much needed for Parkinson's patient there and globally. We're going to push it out to deliver to our mission to provide high quality, life changing medications to affordable access Global Population.

Speaker 4

Very exciting.

Speaker 2

And we're filing the response only. That's great.

Speaker 7

Thank you for all that. Yes. Got it. Thank you for that color.

Speaker 1

Go ahead, Les. Do you have a follow-up?

Operator

Sorry, I muted his line. Let me open his line back up.

Speaker 7

Can you hear me now? Can you hear me now?

Speaker 1

Yes, we can, Les. Go ahead.

Operator

Yes, we can hear you now.

Speaker 7

Okay. There seems to be a lot of feedback online. My follow-up question was regarding your recent refinancing agreement. So can you just perhaps walk us through some of the key aspects and changes in the covenants and things of that nature? Thank you.

Speaker 4

Yes. Thanks, Nate. So we're pleased to report that after, as you know, refinancing our Term Loan B, Which was due May of 2025, was one of our key priorities of this year. And I think we're very pleased With the outcome so far. So after just a lot of very positive support from our existing lenders and a number of new lenders, we Successfully priced and allocated about $2,300,000,000 which is about 90% of our Term Loan B.

Speaker 4

And with that, the key thing was we extended the maturity by 3 years to May of 2028. So essentially, a couple of $100,000,000 are due in May of 2025 and $2,300,000,000 have been pushed To May 2028, it's essentially 4.5 years from now, which gives us a substantial amount Of additional runway for the company to continue the diversification path that we began a few years ago, Increasing our cash generation that I spoke of and reducing both absolute debt and net debt to adjusted EBITDA. As we expected, the pricing was pretty much in line with our expectations. So you may have seen on Bloomberg, Nate, it was sulfur+550basispoint. That's a couple 100 basis points to 100 basis points over the existing loans.

Speaker 4

So that was within our expectations. So that leads to about $50,000,000 of increase in interest expense, which The unwinding of the Apsi I spoke about will more than offset that increase. So from an overall cash perspective, That increase in interest expense, which we fully expect, it will be more than offset by our change in corporate structure, which will save us about $60,000,000 plus Year over year. In terms of covenants and so forth, there is nothing kind of big material Changes that I can fully recall. And the final thing I would mention is also we need to keep in mind that our interest expense growth is limited Partially because a $1,300,000,000 of our debt is fixed.

Speaker 4

So with a swap in place, We were able to amend that swap to kind of reduce our interest expense Associated with this refinancing. So great outcome from our perspective. I want to thank both our existing lender I mean, to our term loan, for being supportive and working with us over the last few months, because as we know, the capital markets He'll be pretty choppy.

Speaker 5

Great. Thank you.

Operator

Thank you, Les. We will now take our next question from Nathan Rich from Goldman Sachs. Your line is now open. Please go ahead.

Speaker 10

Hi, good morning. This is Sarah on for Nate. Thank you so much for taking our I first wanted to start on the new corporate structure and the cash flow implications. Can you just talk about the peak expected restructuring savings and also the

Speaker 4

So, good morning, Sarah. So as people know in this room, it took us a couple of years to kind of fully get our arms around the legacy structure and really Finding the best way that works for all our shareholders. So number 1 is we expect to effectuate the Change essentially tonight. So as of tonight, we'll have that new corporate structure And the savings will become immediate, number 1. Our expected savings per year is about $60,000,000 of cash every year.

Speaker 4

Those historic levels of cash was exiting the company as cash from Financing that was in that specific cash flow line. So those savings will be materialized and will be accretive to the company Essentially, immediately as those kind of tax distribution payments seize as of tonight. Great outcome. Some companies, I don't know how much you know about that, some companies have unwound those Structures by paying 100 of 1,000,000 of dollars out. We did not it cost us 0 to unwind this structure.

Speaker 4

We feel great about the outcome.

Speaker 10

That's really helpful. Thank you. And then I just wanted To dive into the strong, AvCare growth and the segment's operating margin improvement. So can you talk about what drove the significant margin uplift in the quarter? And then Also, I know GLP-1s have been a big area of focus.

Speaker 10

Is this also contributing to the strength in this segment?

Speaker 4

Let me take the so, Avacare, as you may know, we acquired 65% of Avacare in January 30, 2020. And since then, even in periods Of COVID and etcetera, that business has been proven incredibly resilient and growing. And that's point number 1. Point number 2 is part of our strategic rationale is was how do we leverage Amneal's pipeline of products To accelerate the historic growth of Advair, and that has played exactly as we thought. There's been a tremendous amount of product flow from AvCare to from excuse me, from NBL to AvCare That has created tremendous amount of value to the patients and the buyers, right, and the ultimate customers of Avacare.

Speaker 4

So that growth has been driven by a couple of different reasons. Number 1 is overall demand in the marketplace as population ages, right, And we have a natural, what I will call, tailwind, number 1. Number 2, There is simply kind of coming out of COVID, there is simply more product availability, both from Amneal as well as the 3rd party providers That, AdvCare works with. So new product introductions have fueled that. Number 3, we've talked about shortages in the marketplace Associated not only with injectables, but in general complex products.

Speaker 4

So AvCare was able to kind of tactically take advantage of certain Sort of this in the marketplace this year and price accordingly. So that's what why you see some of the increased gross margin in our performance this quarter and actually year to date versus prior years. So overall, Those were the reasons why the growth of AvCare has been strong, and we continue to expect, I'm not sure that the business will continues to be growing 25%, 30% top line every year, but definitely we expect strong double digit growth for the next few years to follow-up. Does that help, Sarah?

Speaker 2

Yes. So, Sarah, I just want to clarify that EvCare is a niche government distribution business for VA DoD, Where you have to invest in a product development, product partnership way in advance. So it's a value added distribution, not just simple We do not distribute GLP-1s or anything. So the growth is from Value added generics products from Amneal as well as other suppliers that for long term national contracts as well as FSS schedules and their unit dose business With hospitals, it's growing as well.

Speaker 10

That's really helpful. Thank you.

Operator

Thank you. We will now take our next question from Balaji Prasad from Barclays. Alhaji, your line is now open. Please go ahead.

Speaker 8

Thank you. Hi. Good morning, everyone, and Apologies for missing the previous opportunity. So thanks again for that. A couple of questions from me.

Speaker 8

Firstly, it's great to see the development of the company over the past couple of years and especially the last two quarters, the transformation has been pretty solid. As I look out over the next 1 or 2 years, I would love to understand the pushes and pulls that you can expect For the cash flow outflow for 2024, 2025, see how we can think about the cash flow trends for the next couple of years. 2, You definitely flipped around the traditional generic model in looking on going after the markets in India and China. I'd love to get a sense of how large these markets can be considering that both of these markets Our different Zendesktra, India seems to be on a very strong growth platform, whereas China seems to have stalled. And how would you approach these markets differently?

Speaker 8

Thank you.

Speaker 4

Hey, Abel, good morning. I'll take the first one. So as we think the Next few years, we continue to drive incremental revenue, incremental EBITDA and incremental cash. No question about it. And the incremental cost, so if you look at Our cash to EBITDA this year, it was over 50%, much more favorable than prior years Because we intentionally focused on certain working capital improvements.

Speaker 4

Again, our expectation is That will continue to grow. So as EBITDA grows, operating cash will continue to grow. That's point number 1. Point number 2, in terms of you also know that CapEx, we're pretty much at scale. So we typically spend between $50,000,000 $60,000,000 Neil, maybe it goes a little higher, maybe it goes a little lower, but because we are at scale, we don't expect CapEx to Substantially changed.

Speaker 4

Okay. We talked about an increase of interest expense. So maybe that goes up, Call it $50,000,000 year over year, okay? But also we will save year over year over $60,000,000 Of cash distributions related to the Absean and Wound. So the net of the 2 is a positive, Call it $10,000,000 to $15,000,000 $10,000,000 to $15,000,000 So and the other thing is In terms of settling, one of the other things you know about us is who've been very focused on kind of cleaning up legacy issues, Okay.

Speaker 4

So back in 2019, we really not only us, but the whole industry was facing substantial amount of liabilities And not a lot of clarity around it, okay? So as you know, a couple of years ago, we settled the OPAN AER. So last year, we had $130 some 1,000,000 payment related to that. This year, we had an 80 $6,000,000 payment and there is only one payment of $50,000,000 remaining in January of 2024. So You know 2024 versus 2023, right, it's $30,000,000 less of a headwind regarding the OPAN AER, Right.

Speaker 4

So that's going to be a positive. And then after that, right, Oppana is behind us. There are certain other liabilities. We talked about Opio, it's our team is working really hard. We've put a placeholder, a pretty well educated Estimate of about $22,000,000 in our balance sheet for that potential liability.

Speaker 4

It may be a little bit more, it may be a little less. And as you know, usually those liabilities get settled over a long period of time on multiple years. So we don't believe that's going to be Have a material impact at any given year. So overall, I think when you look at all of those pieces, I think there is more Cash that stays in the company over the next few years and growing than in prior years.

Speaker 2

Thank you, Tasos. And International Biology, we are 2 strategies we have. 1 is using Amneal's Own portfolio, which is very huge on injectables and the retail side as well as In the future, it could be biosimilars. We are partnering in Europe. We have Orion, 100 years old, Finland company as our partner.

Speaker 2

So we're working through their sales channel to sell the product, Amneal's products. Middle East, we just signed up multiple Partnership, so we'll be selling Anil's product in Middle East and U. S. FDA approved sites, approved products, Obviously, has more premium than the other products. We have finalized our term sheet So on the Southeast Asia as well and going now to South America, Canada.

Speaker 2

So we'll cover pretty much the entire world, some parts of And basically, it would be incremental revenue of Amneal's product, which are sold in the United States. That's a first strategy, which we expect to go to €50,000,000,000 plus it will keep growing Because we have more and more products that we are launching. And again, complex products in international markets are very good. We are not taking every product out It has to obviously make certain margins for us. And the second strategy is India strategy.

Speaker 2

That is a standalone strategy. That we are we have direct marketing. We have spent quite a bit time understanding the market And we have launched our sales forces in hospital, several products, including diagnostic in hospitals. And now we are just expanded of Thaumology, the eye care products portfolio in India. And we will be entering oncology and CNS as well.

Speaker 2

So pretty broad strategy because we believe India, It's growing at 14%, 15% every year, former market and it has even more room to grow. So we want to be part of that growth journey and we have the science. We have the Company's reputation and setup in India. So we believe India can become a substantial market. It's very small Today, like $10,000,000 will keep growing, but it has it can go pretty long way in India.

Speaker 2

So that's the international strategy we have. Just Balaji to add

Speaker 3

one thing in India, we are looking at beyond our current portfolio, Especially in the rare disease and some other unmet areas in India because there is a huge unmet needs on many, many products. So We are looking at certain branded aspect of product development and launching India specifics, and that looks pretty Exciting that space because there is a lot more awareness, affordability and people You are talking about health and prevention than the previous time. So entire India market is shaping up Very differently than what we have seen before. So we want to be there and we want to be a value added, something that is unique and new.

Speaker 8

Thank you all.

Speaker 7

Thank you all.

Operator

Thank you, Balaji. We have no further questions registered today. So with that, I will hand over to Chirag Patel for final remarks.

Speaker 2

Well, thank you very much, everybody, and have a nice day.

Operator

This concludes today's call. Thank you all for your participation. You may now disconnect.

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Earnings Conference Call
Amazon.com Q3 2023
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