Amphastar Pharmaceuticals (NASDAQ:AMPH) Q1 2021 Earnings Call

0:00 Welcome to the Amphistar Pharmaceuticals, Inc. first quarter 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 conference, please press zero on your telephone keypad. All statements on this conference call that are not historical are forward-looking statements, including, among other things, statements relating to our expectations regarding future financial performance, backlog, sales and marketing of our products, market size and growth, product development, the timing of FDA filings or approvals, including the DMFs of A&P, the timing of product launches, acquisitions, and other matters related to our pipeline of product candidates.

0:50 Our share buyback program and other future events, such as the impact of the COVID-19 pandemic and related responses of business and governments to the pandemic on our operations and personnel and on commercial activity and demand across our business operations and results of operations. These statements are not facts, but rather are based on Amphistar's historical performance and our current expectations, estimates, and projections regarding our 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 and 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.

1:44 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 AMFSTAR's control. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described in AMFSTAR's filings with the Securities and Exchange Commission, including in our 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, businesses, and consumers in response to the pandemic all of which continue to evolve and remain uncertain at this time.

2:46 You can locate these reports through our website at ir.amphastar.com and on the SEC's website at www.sec.gov. Forward-looking statements in this release speak only as of the date of the release. AMPHASTAR 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 our expectations to change. Please note this conference is being recorded. Our speakers are Bill Peters, CFO, Dan Dischner, VP Corporate Communications, and Tony Marrs, Senior VP of Regulatory Affairs and Clinical Operations. I will now turn the conference over to your host, VP of Corporate Communications, you may begin.

3:47 Thank you, operator, and good afternoon, everyone. Earlier this afternoon, Amphistar reported a very strong start of the year in executing our growth strategy with another quarter of solid revenue growth. We look forward to sharing details behind the quarter's growth and provide a company's update regarding our pipeline. Following my prepared remarks, Bill Peters, CFO, will provide an update on the company's financials and will open up for Q&A with Tony Marrs, Senior Vice President of Regulatory Affairs and Clinical Operations, Bill and myself. To begin, we've ended the first quarter with the continuing trend of our diverse portfolio materializing to drive top-line and bottom-line growth. With the first quarter seeing $103 million in top-line net revenue, and our bottom line increasing substantially to $5 million.

4:38 This represents a back-to-back period of record net revenues. Against the backdrop of a 7% increase in revenues versus the fourth quarter, we saw the successful execution of glucagon's launch, growth with primatine mist sales, and our epinephrine products continuing to gain momentum. Regarding Glucagon, while the product saw its launch in mid-February, we've seen tremendous progress with its intake in the retail pharmacy space as we've executed on the same launch platforms as our enoxaparin and medroxyprogesterone products and expect this trend to be durable into the year. Likewise, the same trend can be observed with our epinephrine products as growth in this area was driven organically by higher unit volumes prompted by a competitor shortage.

5:26 seeing a 52% increase in total sales compared to previous quarter. Though competitor shortages tend to resolve themselves, we can consistently supply the product when our competitors cannot. Turning back to Glucagon, while its launch and its initial loading can be seen to offset a mid-quarter launch, we're keeping an eye on important factors, such as its 72% share in the retail market, according to Equivia data as of March 2021. Nonetheless, we continue to believe the fundamentals are strong for glucagon, epinephrine, and primatine. Our vertically integrated business and planning efforts afford a reasonable resiliency to support the product's growth and demand around the potential supply chain bottlenecks seen among suppliers.

6:15 Turning to primatine mist, the product has reached $65 million in annualized sales this year. seeing a strong increase of 27% compared to the fourth quarter as week-over-week retail sales have continued to trend strongly as observed in the updated slide in our company presentation. Recall that Primatine in the first quarter of last year was driven by significant COVID pantry loading. We've closely reached those levels organically through our updated nationwide TV, radio, and digital advertising campaigns before launching into Target's retail stores. Adding another layer to our marketing strategy, we'll be relaunching a physician sampling program this month to increase awareness of the product as we continue with our digital media campaign to add to our consumer awareness strategy amongst asthmatics in the 18 to 34-year-old demographic.

7:10 Turning to products in the pipeline, we received a minor CRL for AMP006 in late April, and we have already responded to it. While this product has a plus $50 million opportunity based on annualized Equivia sales, we are still confident to anticipate a GDUPA date in the third quarter of this year, pending the agency's usual response after minor CRLs, roughly within 90 days. We believe we are in the closing stage of this product's development. AMP002, a plus $300 million opportunity, based on annualized Equivia data, continue to have no generic for this product. We announced earlier in April that the FDA has reclassified our CRL status to minor.

7:57 Therefore, we now have a second quarter GDUFA date. We have no reason to believe that this product will not meet the newly established action date. However, given that this is a complex product, that there could be additional questions about the development of AMP002. As for AMP015 products, we announced in mid-April that our paragraph 4 filing saw no legal challenges as the 45-day window expired in the same month. Again, this product remains a plus $500 million opportunity with no generics on the market. At the same time, we have a GDUFA date in the fourth quarter of this year or the first quarter of next year if a pre-approval inspection is needed. Likewise, this is another complex product, and we can't anticipate further review given the product's complexity.

8:49 Concerning our proprietary product in development, intranasal epinephrine continues to progress well, as our second clinical study has started after a positive response from the FDA was received regarding its safety and efficacy profile. Therefore, the product remains on track for filing in 2022 as planned. Finally, with updates in intranasal naloxone and AMP008, we still anticipate our intranasal naloxone to be refiled in the fourth quarter as we are closer to completing our stability studies. Regarding AMP008, the product is still on track to be filed in the coming months as this is another paragraph four filing where we believe we have strong non-infringement position as stated last quarter. However, notwithstanding the usual possibility of a 30-month stay could be triggered regardless of our IP strength.

9:45 Regarding previously discussed business items, our insulin program update is still anticipated to occur in the second half of the year, and our IMS UK products launch is now anticipated to occur in the third quarter of this year as MHRA has afforded more flexibility following COVID restrictions being subsided in the UK. Lastly, I'd like to conclude by noting that our pipeline continues with a clear path forward. AMP002's reclassification, the recent news on the legal clearing for AMP015, the continued progression of our intranasal epinephrine product through its clinical process, an update on our insulin programs soon to be announced, and a filing expected for intranasal naloxone sets an ambitious yet achievable schedule.

10:36 Meanwhile, our already launched growth drivers have time to mature in gaining market share. We've seen tremendous execution on primatine mist, epinephrine, and glucagon and anticipate this trend to be durable while aligning their success with the progression of our pipeline, which in turn ultimately strengthens our growth driver portfolio. I will now turn the call to our CFO, Bill Peters, to discuss the first quarter's financial results.

11:04 Thank you, Dan. Sales for the first quarter increased 22% to $103.84 million in the previous year's period. The launch of Glucagon in February was the biggest driver of this increase, with sales of $8 million, including an inventory buildup by most major retailers. Primatine Mist once again showed strong growth, with sales up 43% to $18.4 million from $12.9 million in the prior year. Epinephrine sales nearly quadrupled to $15.6 million from $4 million in the prior year as we increased the market penetration of multi-dose vials and had strong demand for our pre-filled syringe product as it was in a shortage situation with competitors unable to fill orders. And our parents saw sales increase to $10.7 million from $9.2 million in the prior year, primarily due to a pickup of a new customer after Teva left the market in 2020.

12:06 Naloxone sales declined to $6.3 million from $8.9 million on increased competitive pressures, while lidocaine products and phytonodione saw sales declines due to weaker market demand. Our insulin API business had sales of $5.1 million, up from $3.4 million in the prior year, primarily due to the timing of shipments. Gross margins increased to 44% of sales from 43%, as increased sales from high-margin products such as glucagon, primatine mist, and epinephrine more than offset lower prices and higher costs related to anoxaparin. Selling, distribution, and marketing expenses increased to $4.5 million from $3.3 million primarily due to marketing costs as we implemented a second commercial campaign for primatine mist.

12:57 General and administrative spending increased to $15.3 million from $10.7 million due to increased legal costs for Paragraph 4 cases and employment-related lawsuits. Subsequent to the quarter, we settled various employment lawsuits and arbitrations for $1.3 million, which was booked to G&A expense. On a related note, we booked a $4.4 million charge to other expenses for additional reserve for our litigation with Aventis, after the court order increased the fees, interest, and costs. We intend to appeal this case. Research and development expenditures increased to $14.8 million from $15.3 million due to the timing of clinical trials.

13:43 We anticipate that these expenditures will increase in the upcoming quarters. The company reported net income attributable to Amphistar shareholders of $5 million, or 10 cents per share, in the first quarter compared to a net income of $3.9 million or $0.08 per share in the first quarter of 2020. The company reported an adjusted net income of $13.6 million or $0.27 per share compared to an adjusted net income of $8.4 million or $0.17 per share in the first quarter of last year. Adjusted earnings excludes amortization, equity compensation, impairment of long-lived assets and one-time events. In the first quarter, cash flow from operations was $22.8 million. We used a portion of this cash flow to repurchase $3.8 million of Treasury stock during the quarter, leaving $13.6 million remaining on our buyback authorization.

14:38 I will now turn the call back over to the operator to begin Q&A. We will take our first question from Gary Mackman from BMO Capital Markets. Your line is open.

14:52 Hi, this is Evan Hua filling in for Gary. Thanks for the update and thanks for taking my question. So first, for Primitine, how much stocking was there in the quarter for target launch in March? And do you expect any sort of step down in 2Q or 3Q? And secondly, is there any seasonality component with asthma or allergy? And should we be considering that for the next few quarters as well?

15:22 Thanks. So for the first question, there was some stocking for Target because they had to load the product into all of their stores across the country. And we would say that this is between a half million and a million dollars of impact for the quarter.

15:42 I think the next question was around seasonality. Is that correct? Yes. It's still hard to say on seasonality. We do see a little bit of seasonality, but nothing definitive.

15:58 One thing I'll point to is we've updated the presentation, our corporate website. So you can see that the primatine uptrend there has been very strong right now. So I advise you all to take a look at that.

16:15 And I also have another follow-up question. Can you provide some more color on the strength of epinephrine and where exactly that revenue came from? Was it more volume or price? And were you able to take more share?

16:31 It was all volume, not price. And the issue was two things. First of all, we picked up – we're up to what we consider a good volume now for the multi-dose vials, but the pre-filled syringe was in a shorter situation, so some of our competitors weren't shipping this quarter, and subsequent to the quarter, that trend has ended, but we had a very strong quarter because of that.

16:55 Thanks for taking my question. Sure. We will take our next question from Elliott Wilbur from Raymond James. Your line is open.

17:12 Hi, good afternoon. This is Lucas Leon for Elliott, and thanks for taking the questions. The first question I have is regarding Glucagon. Are there any news on competitive entries or response from Lilly, and where do you expect your share to ultimately settle? And I have a follow-up.

17:33 Right now, we haven't seen any other entries. As we've talked about many times, this is a very complex product. It was off-patent for Thank you. Thank you.

18:06 Next question is regarding AMP015. Is this a 505J or 505B2 filing? And are there any other filers ahead of you with potentially blocking exclusivity? Thank you.

18:24 Yeah, this is an ANDA product. It's not a 505B2. So this is a generic product. and we don't have, when they had an opportunity for the paragraph four, we did not see any litigation coming from that. We weren't provided notice and that time has expired. We do know that there is another product that has an application in, but it's been in for quite some time. and so there's a potential for that. Again, if you would like to ask a question, please press star and one on your touch-tone phone. We will take our next question from David Anselm from Piper Sandler. Your line is open.

19:28 Hey, thanks. A few pipeline questions. and I apologize if I missed this because I joined late, but number one is on the inhalation pipeline. Just remind us what we should expect in terms of the pace of filings, not just this year, but also next year. as well. And then secondly, on EPI, on that program, can you just talk about how you're envisioning clinical development? Is it just a PK path forward or something else? And update us on the filing timeline for that.

20:19 Thanks.

20:22 Yeah, for the first one for the inhalation, we anticipate one to two this year, and then two to three, and three or more in subsequent years. So it is a focus and an emphasis of us. For your second question around the intranasal epinephrine, it is more of a PK type of clinical program. That is, we're not... specifically measuring efficacy directly. And a lot of the trials are around special populations, special circumstances with the use of the product. We've got a clinical plan that we've presented to the agency and we've discussed it with them in multiple occasions. and so they're aware of what our strategy is and we think we have a pretty good grasp on it.

21:23 Most of the sites and the physicians that are in this arena we have great relationships with. We're consulting and we've been working with people that are highly knowledgeable in it so we feel pretty confident in what our clinical plan looks like. We will take our next question from David Steinberg from Jefferies. Your line is open.

21:52 Thanks and good afternoon. I have a couple questions. First is on primatine mist. So even when you adjust, I think you said it was about a half a million to a million in stocking through Target. So even when you adjust for that, it looks like it's annualizing at around $70 million or slightly more. And I think The expectations for the year are around 65. So given that, what do you think sales could be achieved for this year? In addition, are there any other major chains besides Target that you're planning on entering this year or have the big chain entries pretty much played out? And then also on 002, we've lived through Three Cycle Reviews for Primatine and Glucagon, and you got them both across the goal line. Definitely less cycles with this product. What's your conviction that you'll get approval on the GDUPA date? And then secondly, since you would be the first generic, can you remind us what the current peak sales of that product are? And then how many years has it actually been generic or off patent? Thanks.

23:13 The first one, Primatine missed sales. The first quarter was very strong. We got off the year to a great start. Our target for the year is still $65 million. Not sure how much of that first quarter may have some seasonality involved in that as well. Our target remains $65 million.

23:35 We've said that we do think it can grow due to three major factors being The price point on it is higher than it used to be. There's more asthmatics, and there's less doses in the canister as before. So we do believe there's still room to grow.

23:55 The next question, remind me again, you asked several questions. We have all of the major chains now with Target out there, and we even have availability into the and the smaller retailers through our program through the major wholesalers. I think there's room on the online sales to grow a little bit there.

24:18 For the question on ANPO-002, we remain confident. This is a complex product that's been outpatented, I think maybe Thank you for your time. It was categorized as a minor response, a minor CRL, so I think you can kind of gauge that and what that means.

25:04 And to us, I think that speaks quite a lot for how the agency views this product.

25:14 And just one follow-up. On glucagon, it looks like you did about $8 million in its first quarter. Was that all demand-based, or was there some pipeline fill in that glucagon number? Thanks.

25:28 I'll say there was definitely a pipeline fill involved in that number. But remember, we didn't launch until about halfway through the quarter. So even though there was a pipeline launch, there was probably a month's worth of the pipeline stock in that. Once again, if you'd like to ask a question, press star one. Our next question comes from Tim Chang from Northland Securities. Your line is open.

26:04 Hi, thanks. Just on primatine mist, I mean, are there any other additional channels that you might be able to take advantage of on a distribution side for that product? I mean, obviously, you've hit all the major retailers. You're at Amazon. I mean, have you guys thought about any other channels and many more.

26:37 Thank you for joining us. the demographic that knew the product well. And then now expanded into other demographics using different mediums such as media and even the TV. The TV ads have been really working, so we added another TV ad, but really kind of branching into different demographic groups. We think that's where the growth will be most.

27:18 And then maybe just a financial question, Bill. I mean, I think your gross margin is this quarter over at around 44%. You know, how do you sort of think of gross margins, you know, through the course of the rest of this year? I mean, is a 44% gross profit margin, is that sort of going to stay at that level, or do you think it has some opportunity to increase later this year?

27:43 Yeah, it has some opportunity to increase. Part of, you know, we do have, with an Oxaparin, there's, whenever we buy inventory, we have to take a write-down because we're selling it below cost. So that process can be lumpy because we're not buying it at exactly the same rate that we're selling it. So this quarter there's probably a little bit more of the reserve involved in that than there is on the average quarter. So there's some opportunity for that. And also we think that as glucagon sales go up from the rest of the year, we believe that because that's a high-margin product, we'll get a benefit out of that as well. and should we get one of these other products at the FDA right now approved, all of them have higher margins than our corporate average so that there's an opportunity to go up for that reason as well.

28:35 And then also primatine mist as we, you know, if that can grow further from where it is today and we believe it will grow further, you know, that's a higher than average margin product too.

28:49 You know, just one last question. Just on this This facility you guys have in China, obviously you have a number of DMFs filed there. When do you guys expect to actually start to generate some meaningful revenue out of the Chinese market?

29:09 Last year, first of all, the biggest customer of that facility is our Amphistar U.S., and we buy some APIs from them and also we contract them to do some R&D work for us mostly around the R&D of APIs. But last year we had over $3 million in sales which was up significantly from the prior year and I think what we said this year was that we expect that number to double this year and so we should have more revenues this year. It wasn't reported in the and the press release, but we had a little over $1 million in third-party sales from that facility in the first quarter of this year.

29:54 So it's already on a trend higher than the quarterly run rate from last year and we do expect continued growth out of that facility.

30:02 Okay, great. Thanks. We will take our last question from Sergei Ballinger from Needham and Company. Your line is open.

30:22 Hi, good afternoon. Thanks for squeezing me in. So, Bill, you received approval for a grandfathered product earlier this week. Any more of these grandfathered ANDAs in front of the FDA right now? And then In terms of the rest of the pipeline, you've talked extensively about 02,015, 06, and some of the P4 products. Can you just give us an idea of which ones you expect could receive approval in 2021?

31:00 Well, since you addressed that first question to me, I'll take that. So we do have one more grandfathered product out there, but it's It is the epinephrine pre-filled syringe, which is a very important product to us. However, we have filed that as an NDA, not an ANDA, so that application is pending. And then I'll turn it over to Tony for the rest of that question.

31:27 Yeah, you had mentioned AMP015, and that one has a goal date in the – fourth quarter of this year. We have a couple of other products, AMP006, which is the third quarter anticipated or action date. We have another AMP009, which we have an action date later this year as well. And then AMP013, that has an action date later this year. The last two of those, they're filings that are paragraph four filings.

32:17 And so there'll be some issues surrounding those. But from an approval perspective, those are what we are anticipating. We also have a GDUFA date for 002.

32:31 So that one is also Q3, I think. No, it's Q2.

32:37 Oh, Q2, sorry, you're right, my mistake.

32:42 And then just on the biosimilar insulin program, any new developments or FDA interactions regarding the development path for that program?

32:57 I'm sorry, can you repeat the question?

32:59 Yeah, regarding the biosimilar insulin program, Any new developments or FDA interactions regarding the developmental pathway?

33:11 We're planning on providing more color to that insulin program in the second half of this year. We want to roll out the entire program and kind of give a more complete update at that time.

33:28 All right. Thanks. Thanks. We have no further questions at this time.

33:40 Okay, thank you, Jamie, and thanks, everybody, for joining us today on our Q1 call. It was a good quarter for us. We hope to continue that success into the next quarter and look forward to sharing it to you at that time. Have a great day.