Amphastar Pharmaceuticals (NASDAQ:AMPH) Q1 2020 Earnings Call

0:00 All statements in the conference call that are not historical or 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, the timing of FTA followings or approvals, including the DMS of ANP, the timing of product launches, acquisitions, and other matters related to its pipeline of product candidates. a shared buyback program and other future events such as the impact of COVID-19 pandemic and related responses of business and governments to the pandemic on our operations and personal personnel and on commercial activity and demand across our business operations and results of operations.

0:49 These statements are not historical facts but rather are based on AMSTER's historical performance and its current expectations, estimates, and projections regarding Amster'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-linking statements contain these words, you should not place undue reliance on forward-linking statements because they involve known and unknown risks, uncertainties, and assumptions that are difficult or impossible to predict and, in some cases, beyond Amster's control. Actual results may differ materially from those in the forward-linking statements as a result of a number of factors, including those described in Amster's filings with the Securities and Exchange Commission including in the annual report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 16, 2020.

2:06 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, 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 website at http://ir.mstar.com and on the SEC's website at www.sec.gov. The forward-looking statements in this release speak only as of the date of the release, AMSTAR undertakes no obligation to revise or update information in this press release or the conference call referenced above to reflect events or circumstances in the future, even if new information becomes available or if subsequent events cause AMSTAR's expectations to change.

3:14 Thank you. I'll now turn the conference over to Dan Dischner, Vice President of Corporate Communications.

3:21 Thank you, Operator. First, I want to acknowledge that there have been some technical difficulties, and we apologize for the delay. Good afternoon, and welcome to Amphistar Pharmaceuticals' first 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 look forward to sharing our latest updates. Thank you for joining us. With that, I want to say we've made significant progress in our pipeline in the first quarter. Since our last earnings call, I'll go ahead and address our recent FDA approval and upcoming launch of our epinephrine injection multi-dose vial.

4:33 With our recent approval and planned reintroduction of the multi-dose epinephrine product, we stand to benefit from the growth of the epinephrine vial market, which has grown into a $131 million opportunity based on Equivia data. At the same time, we stand to benefit and are pleased to have also received 180 days of market exclusivity as the first generic filer. Turning to Primatine Mist, sales have continued to increase because of the rising consumer awareness of the product as a result of our marketing efforts. We believe more consumers stayed home due to COVID-19 orders, and there was significantly more viewership of our digital and TV ads. Additionally, Consumer pantry loading caused an uptake in Primatine sales at approximately $1 to $2 million in the short span of just three weeks.

5:25 Although we have seen a surge in sales during the first weeks of the pandemic, Primatine Mist continues to achieve a steady and consistent increase in its baseline of sales. The increased consumer awareness from our media campaign adds another layer of the product's strength and adds momentum to the product's trajectory. Our sales have increased across all of our retail partners. Furthermore, I am pleased to announce we have launched the product onto Amazon in late March. Results from our performance on Amazon are still too early to tell. However, we will continue to build our presence as well as strive to capture an even greater market as we target other retail chains, including supermarkets. I would now like to turn to our IMS products.

6:10 For the first quarter of 2020, demand for our IMS products has grown. and our manufacturing output has increased due to our recently approved new production line and continued competitor shortages. Because we manufacture many of the emergency room crash cart products, we expect this trend in demand to continue as the FDA has communicated their continued need for many of our products. For our complex injectable product that has gone through three review cycles, which we will begin referring to as AMP001, The review process is ongoing. As we said on our last call, the GDUPA date for this product is in the third quarter or fourth quarter of this year, depending on whether another pre-approval inspection is needed.

6:57 For the more recently submitted other complex injectable in its first review cycle, which we will be referring to as AMP002, we had a mid-cycle review meeting with the FDA that went well. Initially, we had a GDUPA date this year, However, the agency has shifted the GDUFA date out to either the fourth quarter of 2020 or the first quarter of 2021 if an inspection is needed. For our intranasal naloxone NDA, we had a productive meeting with the agency in March, and we are progressing on the product's development. The agency has clearly outlined a clear path towards the product's acceptance, and as a result, we plan to resubmit next year. For our insulin biosimilar products, We are continuing to make progress for the multiple products that we have in development. The new guidance outlined by the agency affirms that if we properly characterize the product, immunogenicity trials will not be necessary.

7:57 We believe we have a proven history of performing characterization, and therefore, we will be able to avoid extensive immunogenicity trials. On a more pressing topic, I would like to communicate about COVID-19's impact on Amphistar. In summary, I want to say there is very minimal to almost no impact on the operation of Amphistar and all of our global facilities. We have implemented some policy changes to comply with CDC recommendations and currently all of our manufacturing facilities are operating at normal status. We have learned from the measures adopted by our A&P facility in China, which has made early adoption of prevention measures at our U.S. and France facilities seamless and effective.

8:43 With that regard, we will continue to ensure that our workforce remains healthy and safe. Furthermore, I would like to remind you that our strategic stockpiling of at least two years of some of our critical API and starting material is intended to insulate the company's commercial operations from supply disruptions created by issues such as COVID-19. Finally, I would now like to address the strength and resiliency of our business strategy. whose effectiveness is partially due to our vertically integrated business model along with our discipline management. As you have seen from recent events in the industry, some products saw a decline in sales due to disruptions related to COVID-19. Part of this is due to COVID-19 forcing specialist doctors to operate at a limited capacity and limit interactions with pharmaceutical sales reps, reducing sales.

9:36 However, this is not the case with Amphistar. While our products are indeed specialized, benefiting from high technical barriers to entry, the products that we focus on, combined with our business structure, safeguards us from disruptions like COVID-19. For one, our business model is designed to easily mitigate against risks in supply disruptions, partially through our vertical integration, where all of our finished products are produced in our U.S. facilities. And secondly, our products are often in high demand Thank you, Dan.

10:36 Sales for the first quarter increased 6% at $84.7 million from $79.8 million in the previous year's period. Primacy missed sales surge to $12.9 million from $2.9 million in the first quarter of 2019 as strong advertising support combined with quarter-ended pantry loading as the result of COVID-19 pandemic lifted sales dramatically. Naloxone and epinephrine also had strong growth, as did sodium bicarbonate, which we are now producing on the new filling lines approved by the FDA in February. Anoxaparin sales declined by 37% to $9.2 million as the competitor shortage from 2019 no longer has a positive impact to our business.

11:27 Strong primatine mist sales had the additional benefit of increasing our gross margin. Remember that Primatine Mist is a naturally high-margin product, but we are still benefiting from the components and APIs which were expensed prior to the product's approval in 2018. This benefit will decrease during the course of the year as we sell through these components, but Primatine Mist will remain a high-margin product for us. Selling, distribution, and marketing expenses increased 5% to $3.3 million this year. primarily due to marketing and distribution costs associated with primatine mist. General and administrative spending decreased by 34% to $10.7 million as we no longer have to bear the huge expenses related to the patents and trust cases with Lamenta and Sandoz.

12:18 Research and development expenditures increased $15.3 million from $14.6 million due to the increased clinical trial expenses for inhalation and insulin pipeline. The company reported net income attributable to Amphistar shareholders of $3.9 million, or $0.08 per share in the first quarter, compared to net income of $900,000, or $0.02 per share in the first quarter of 2019. The company reported an adjusted net income of $8.4 million, or $0.17 per share, compared to an adjusted net income of $4.9 million, or $0.10 per share, in the first quarter of last year. Adjusted earnings exclude amortization, equity compensation, and the impairment of long-lived assets.

13:05 In the first quarter, cash flow provided by operations was approximately $1.5 million. During the quarter, we repurchased $10.9 million worth of stock as we took advantage of the lower stock price to increase purchases. On the last call, we discussed our financial assumptions for the year. We know that a lot of companies have withdrawn guidance due to uncertainty related to the COVID-19 pandemic, but today we maintained what we said on our last call. Most of our products saw increased demand at the end of the quarter and into April. We are not certain how long these increases will continue, but the second quarter started as strong as the first one ended. This trend, coupled with the recent approval of our epinephrine multi-dose vial, which we plan to launch within weeks, means that our business remains strong. I will now turn the call back over to the operator to begin Q&A.

14:05 At this time, I would like to remind everyone to press star line to ask a question. and your first question comes from Tim Chang with Northern Securities.

14:30 Hi, thanks. I have two questions. First and foremost on primatine mist. Are you still planning to do direct-to-consumer advertising on this product this year and sort of how do you expect to get to additional retailers? I know you guys are I know you guys are in Walmart, CVS, Walgreens, Rite Aid. I mean, are there other retailers that you plan on getting Armantine Mist into? Yeah, thanks, Jim. Yeah, we are spending on the direct-to-consumer advertising, and we've shifted some of the focus from some of the shows that we were doing and we're doing more on some of the news networks now as more attention is on those. We had set on Previous calls that our budget was going to increase this in both the consumer TV and radio as well as the digital campaign and would be in the mid to high single digit millions of dollars to be spent.

15:31 As far as other retailers, we are actively working on some large grocery chains as well as some other mass merchandisers as well. So the good thing is that we recently did launch into Amazon.com. So we're on that platform as well as the major drugstore chains and Walmart. And Bill, just one follow-up. The epinephrine injection vials, could you provide an update as to when you expect to have capacity to launch that product on the generic side? Yeah, so as I mentioned in my comments, we're going to be launching that within weeks, but we've already begun manufacturing the product.

16:16 We've already begun the marketing effort and talking to customers. So it will just be, as I said, within a few weeks. Tim, this is Dan.

16:25 Can I add that, you know, we expect this launch to go smoothly as we've made this product in the past. So we expect it to go smoothly. You know, and I know this. I mean...

16:38 Endo reported pretty good growth in the first quarter. So I'm sort of wondering, this market's probably a $200 million plus market now.

16:49 So you don't have a capacity issue at all, do you?

16:53 No, we don't have a capacity issue. It's hard to say whether their sales were impacted by COVID because I know we did see some increased epinephrine sales in the quarter above what we usually see. So... Thank you. Okay, great. And your next question comes from Gary Nachman with BMO Capital Markets.

17:39 Hi, good afternoon, guys. Back on primatine, how durable do you think the benefit is that you got from COVID? You know, how much was the stockpiling in front of the pandemic? So maybe comment on how it's been trending more recently in the last few weeks to give us a sense. Yeah, so, Gary, we said what I'll say is that about $1 million to $2 million of sales in the quarter, we believe, were related to the COVID pandemic. And it's a little bit hard to decipher, you know, how much exactly it was. But based on the store trends that we saw, that was it. And subsequent to that, we'll update the chart that we have on our investor presentation within the next couple days to show some of the weekly sales trends. There's a definite spike up at the end of March, beginning of April. But if you take a look at the current trend, and even if you take those out, we're still on an upward trend from where we were throughout the year. Okay.

18:41 So what you're saying is, I mean, if we took out a couple million and just call it 10 million or so in the first quarter, a little bit higher than that, I mean, it should go up sequentially from there?

18:51 based on the reorders that you're seeing and the way you just sort of described it? Yeah, yeah, yeah. We haven't really seen, you know, the trajectory is still going upward, and so we think the trend is still positive for the product, and I don't think it'll probably consistently be that way. That's how we're forecasting it.

19:18 Okay.

19:20 That's great. And then how are you thinking about expenses going forward, especially in this environment?

19:27 You know, there's some areas that you think you might want to scale back a little bit to try and improve profitability, you know, so just, I don't know. You know, it seems like you had a good quarter, so maybe that's on top of mind, but what are your thoughts there?

19:44 and many more.

20:13 And then this last question in terms of any clinical trials that you need to do in the pipeline. Are you anticipating any major delays as a result of COVID for some of the important programs? I mean, it's across the industry, so I'm assuming it might impact you guys as well.

20:31 So actually, also on the call today, we have Tony Marrs, who, as we mentioned before, is in charge of regulatory and clinical trials. I'll let him answer that question.

20:42 Yeah, hi Gary. Speaking generally about our clinical trials, I think like the rest of the industry, we do see some minor delays in this. And overall, no new clinical trials are able to be started during this time. But the ones that we have going continue to be ongoing. Certainly there'll be a delay in those trials for a month or two, as we have much slower enrollment. and we don't know how long this will last. Obviously, when we talk to our sites that are actually performing the trials, their estimates are sometimes, as we all might estimate, the end of May to the beginning of June. It should start slowly returning, so we really would see that as just being a few month delay.

21:30 Okay, great. Thank you. Thank you. And your next question comes from Elliott Wolberg with Raymond James.

21:44 Hi, thanks. This is Lucas Leon for Elliott. I'm sorry I might have missed these from your prepared remarks, but I was wondering if any part of the portfolio benefited directly from COVID in terms of utilization, such as max of parents.

22:03 Well, we saw a spike in, well, there was a small, for inoxaparin, there was a small increase, but I think it's already returned back to the normal trends that we saw in Q4. And then we, obviously, with primatine mist, we saw a three-week spike in sales on primatine mist. And then, of course, some of our hospital-based products out of IMS, the crash cart products, There's some small increases there, but most of that's already returned back to normal.

22:39 Got it. Also, I'm hearing that a lot of deals will be coming to market soon based on the sellers increasingly needing cash. How are you thinking about acquisitions given cash and strong balance sheets?

22:57 We always say it. We will look at opportunities. It's really important when we look at these types of transactions that they synergetically fit in with us, that they complement our company and somehow benefit that we can add value to the company. We'll always entertain and look at those possibilities, but there's really nothing right now directly on our radar.

23:25 Got it. So Reddy's recently launched naloxone hydrochloride and lower jet configuration.

23:38 How much of your Thank you. I think you cut out. We didn't really get all of it, but I think you're asking us about naloxone and the recent launch by Dr. Reddy's. Is that correct? Yes. Yes. Yeah. Okay, we do anticipate some competition there this year. It's hard to tell exactly what the impact is gonna be, but we do see, we do acknowledge that and we know that there will be some competition there.

24:16 Got it, thank you. And your next question comes from David Stinker with Jefferies.

24:28 Hi there. Two sort of multiple hundred million dollar generic opportunities where there are brands where there's no current generics and I believe at least one of them is already off patent. I think you call them AMP001 and 002. And I forget which is which. One has had two or three CRLs and one is more recent. For AMP-02, which you called out, did you comment on why the GDUFO was pushed out? And whichever one is the one that you've had two or three CRLs, what's your confidence that the third or fourth time will be the charm?

25:23 This is Tony Marrs. I can address your first question. This is for the AMP002. You got that correct. That's the first cycle review, as it's historically been called. This is really in response to some questions that they had as part of the normal review process. One of the reasons we targeted this product was because it was such a complex molecule. One of the reasons that no other competitors have been able to, at this point, be approved for this product is because it's so complex. And so as part of the normal review process, as the agency asked us and we had discussions with the agency, when we responded to some of the questions that they had during the normal review process, they just wanted to view those questions and respond to those questions.

26:14 And so that's really the reason for doing it, to give them the opportunity to review our responses to those questions.

26:25 and then the other one that's had multiple CRLs. So your question is why?

26:32 How do we feel confident about? If we were to look at the comments that are received during those CRLs as a funnel, if I could use this analogy, we've seen through this process that the number of comments that we've received as part of this to significantly decrease. And so that gives us an indication that we are very much making clear to the agency about this product in getting them to understand what we're doing to where we can respond to all of their open issues. And so essentially we're seeing less and less of those.

27:17 Got it. Just a thought about this. Since it looks like there are quite a couple of products both sound like they're already off patent and there are no other generics. Given the size, I think you said there are 200 to 300 million in brand sales. Wouldn't each of these be at least $75 to $100 million peak sales opportunity for you?

27:39 I think what we've said over time, the value of these things has changed over time, so I think you're partially going back to some statements you might have made a few years ago. But I will say that... Both of these are $100 million plus branded opportunities, and both of them are off patents, and both of them have no generics on the market, and both of them are so complex that they've been off patent for many years with no generics, and we think that generics are just very difficult for both of them. So because of that, our expectation is that once we get approval on these, that we will have limited competition.

28:19 Right. And then just one final question on Primatine. So you did $12 million in the quarter. I think you said $1 million to $2 million relates to the pandemic. Was this all pull-through, or was there some – or have you disclosed what the pipeline fill on that 12 is?

28:39 Yeah, this is all pull-through, David. So we had very strong store sales in the quarter. So – We really, you know, while we did launch in Amazon in the quarter, I will say that there's really not much of an inventory there from this. It's a kind of just-in-time sort of situation with the company that we're working with on that. So there really was no chance. So this is all in store and customer demand. Got it. Okay. Wow. So it's really accelerating.

29:14 Thank you. Great. Thank you. and your final question comes from Serge Belanger with Neham and Co. Hi, thanks for the question. This is Tiano for Serge. So with the multi-dose vial epinephrine that's going to launch within the next few weeks, can you just give us, I guess, a general sense of how big this market could grow in the next several years? I think in the past you've mentioned about, you know, $120, $130 million. And then in terms of the ad spend for primating this, can you give us a breakdown of your I guess current spend on TV versus radio versus the digital ads. And I guess how do you expect your current trend to change for the rest of 2020?

29:59 Thank you.

30:01 Sure. So on the EpiVial, we've been using Acuvia data out there. The 12-month data was about $131 million. We did hear Endo mentioned that their sales were up significantly this quarter, so we did hear a number that was $50 million or so this quarter, so it did seem like they had a very good quarter in it. It's difficult to say if that quarterly number is going to hold or not, but given the fact that we have a six-month exclusivity, given the fact that we've sold this product in the past, we think that this is a good product for us. We expect that we'll get a reasonable market share and it will remain a very profitable product. As far as the DTC spend goes, the biggest of those categories is now TV and radio and digital, we spend less than that. This is something that we analyze every quarter and we take a look at how we're going to advertise and where we're going to advertise and it's the decision that we make depending on the costs at the time The good thing is that the costs have not been going up, so we think we're actually reaching more viewers than we have in the past for the dollars that we're spending.

31:20 So we're very happy with the performance, and Prime Machine's been a great product for us so far. Are we done? Operator, we'll turn the call back over to Dan now for concluding remarks.

31:42 Okay, well, thank you, everyone, for all your participation in our Q1 update. I want to say we're excited about the opportunities ahead of Amphistar as we continue to focus on advancing our pipeline and strengthening primatine mist trajectory. We remain focused that our employees and business stay strong and sustainable in light of the unfortunate circumstances that the world and our nation face with COVID-19. Stay healthy. Stay safe. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.