Amphastar Pharmaceuticals - Q2 2023

Transcript

Operator (participant)

Greetings, and welcome to the Amphastar Pharmaceuticals second 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 star 0 on your telephone keypad. Please note that certain statements made during this call regarding matters that are not historical facts, including but not limited to management's outlook or predictions for future periods, are forward-looking statements. These statements are based solely on information that is now available to us. We encourage you to review the section entitled "Forward-Looking Statements" in the press re-release issued today and the presentation on the company's website. Please refer to our SEC filings, which can be found on our website and the SEC's website, for a discussion of numerous factors that may impact our future performance. We will also discuss certain non-GAAP measures.

Important information on our use of these measures and reconciliations to US GAAP may be found in our earnings release. Please note this call is being recorded. Our speakers today are Mr. Bill Peters, CFO, and Mr. Dan Dischner, Senior Vice President of Corporate Communications, and Mr. Tony Marrs, Vice President of Regulatory Affairs and Clinical Operations. I will now turn the conference over to your host, Mr. Dan Dischner, Senior Vice President of Corporate Communications. Dan, you may begin.

Dan Dischner (SVP of Corporate Communications and Human Resources)

Thank you, Paul. Good afternoon, and thanks for joining us for our second quarter earnings call of 2023. Joining me today will be Bill Peters, CFO and Executive Vice President of Finance, and Tony Marrs, Executive Vice President of Regulatory Affairs and Clinical Operations. To start, I'm pleased to highlight the successful completion of our acquisition of BAQSIMI, which has advanced our diabetes portfolio and added to Amphastar's strategy to focus on proprietary products, biosimilars, and complex products. We are excited about this acquisition's opportunities and have experienced a smooth transition to date. In terms of sales, we ended the quarter with $145.7 million in revenue, representing an impressive 18% increase compared to the same period last year. This quarter's standout performer has been our Glucagon injection product, which has achieved an exceptional sales milestone, reaching $27.3 million.

This remarkable achievement can be attributed to our expanded market share in this space, gaining market share in the diagnostic market, and our carefully planned capacity increase, resulting in an impressive 131% growth on an annualized basis. We anticipate the Glucagon injection demand to remain durable. Concerning our other key high-margin products that have been usual contributors to our quarterly success, Primatene MIST and Epinephrine, sales for the quarter reached $16.5 million and $16.7 million, respectively. We note that our retail in-store Primatene MIST weekly sales maintain a positive growth trend, with a 5% increase from Q2 of last year. Retailers have readjusted their inventory levels, leading to a decline in sales at the factory level. As for Epinephrine's total sales, we note that this shift was attributable to competitors returning to their normal distribution levels.

Shifting our focus to our other finished pharmaceutical products, especially regarding our products in our portfolio benefiting from competitor shortages, we have seen a significant increase in sales, ending the quarter with a 47% increase. While we are aware of the recent natural disaster that affected a large sterile injectable facility, we anticipate that Amphastar will play a significant role in addressing the nationwide drug shortage, especially regarding products used in the hospital setting. We are pleased to announce that the FDA has recently approved the brand name REXTOVY for our intranasal naloxone product. After careful assessment, we plan to delay the launch of this product to the 4th quarter of this year because it utilizes the same manufacturing suite as products needed to supply the critical emergency products during this drug shortage.

This will allow us to maximize our current capacity and augment our revenue opportunities with the impacted products. Having covered our revenue drivers for the quarter, I would like to turn our attention to our pipeline and regulatory activities concerning our proprietary biosimilar and complex products. In a recent development for AMP-002, the action date was not achieved due to unresolved regulatory matters. The FDA has assured us of their commitment to progress with this application swiftly and remain in positive dialogue and are hopeful of a successful response. This product continues to be without a generic, with a +$600 million market opportunity based on annualized IQVIA sales.

For our Teriparatide ANDA, or AMP-015, we responded to the CRL and have a GDUFA date in the 1st quarter of 2024, with the standard subsequent quarter GDUFA date if an inspection is needed. With regard to our AMP-008 inhalation ANDA, which is classified under priority review, the filing recently received a minor CRL. We plan to respond in the 3rd quarter of this year, which we would expect to lead to a late 2023 action date. While our second inhalation ANDA, AMP-007, we plan to file in the 4th quarter. As for our proprietary product, intranasal epinephrine, we continue working with the FDA and progressing with the clinical development.

Turning to our biosimilars pipeline strategy, our AMP-004 product, or our insulin aspart, is progressing according to plan, and we expect to submit our BLA with interchangeable status by the end of 2023. If nothing else, this quarter shows the strength of our portfolio of products and the flexibility we have to adapt and take advantage of presented opportunities. We remain focused on our strategies to invest for growth, improve margins and cash flow, and stay committed to advancing our product pipeline. Research and development remain an integral part of our future that we believe will continue to drive growth. In summary, we see significant growth opportunities ahead with new products emerging from our pipeline, and we remain committed to delivering consistently strong performance.

I would now like to turn the call to our CFO and Executive Vice President of Finance, Bill Peters, to discuss the second quarter's financial results.

Bill Peters (CFO and EVP of Finance)

Thank you, Dan. Sales for the quarter increased 18% to $145.7 million, from $123.5 million in the previous year's period. Glucagon sales more than doubled to $27.3 million from $11.8 million in the prior year, primarily due to continuing strong market demand as some suppliers discontinued selling Glucagon. Phytonadione sales increased to $17.9 million from $13.4 million in the second quarter of last year as a result of supplier shortages. Primatene MIST declined to $16.5 million from $19 million in the previous year due to inventory drawdown by retailers. Sales of Primatene MIST continued to grow at the retail level, increasing by 5% in the second quarter. Lidocaine and Epinephrine saw sales declines as competitor re-returned to these markets.

Our other finished pharmaceutical products category also had strong growth due to higher unit volume sales of dextrose, atropine, calcium chloride, and sodium bicarbonate, as well as sales of new products such as Ganirelix, Vasopressin, and Regadenoson. Since we closed our BAQSIMI acquisition on June 30th, 2023, we do not have any sales of BAQSIMI in the quarter. Lilly recorded sales of $34.9 million, up 20% from the second quarter of 2022. While we usually don't talk about quarterly sales trends, there are a few items I would like to point out for our third and fourth quarters. First, in the third quarter, we will begin recording a net economic benefit of BAQSIMI, which will be Lilly's sales less the cost they incur on our behalf until we take over responsibility for BAQSIMI distribution.

Once we have taken over distribution, we will begin recording sales and expenses as we would for any other product. We have estimated the impact of BAQSIMI on adjusted EPS will be $0.12-$0.18 in 2023. Second, we plan to launch glucagon injection in Canada in the near future, adding to this product sales. Finally, we've had to temporarily stop selling our medroxyprogesterone, one of our larger products in the other finished pharmaceutical products category, because our API supplier has discontinued manufacturing the product. Our ANP subsidiary has developed this API and continues to pursue an approval of a DMF. We hope to obtain FDA approval in the first half of next year, at which time we would relaunch this product.

Our insulin API business had sales of $2.8 million, down from $3.3 million in the prior year, primarily due to the timing of shipments. As we've discussed in the past, the products we've launched in the last few years, including Glucagon, Vasopressin, Ganirelix, and Regadenoson, have higher margins than our corporate average. While these trends continued this quarter, gross margins dropped slightly to 50% of sales in the second quarter of 2023 from 51% of sales in the same quarter last year. We decided to impair all of our U.K. product rights and tangible assets, which were purchased several years ago, resulting in an impairment charge of $2.7 million. These products were to be made at our IMS facility, but given better market opportunities in the U.S., we've decided to focus on our U.S. products there.

Selling, distribution and marketing expenses increased to $6.7 million from $5.8 million, primarily due to increased advertising of Primatene Mist. General and administrative spending increased to $12.3 million from $10 million, primarily because of increased personnel-related costs and costs related to the BAQSIMI acquisition. Research and development expenditures decreased to $16.8 million in 2023 from $22.8 million last year, as spending in the prior year was elevated due to purchases of raw materials and components for our AMP-018 and insulin pipeline products. Non-operating expenses increased to $4.1 million from $1.7 million due to one-time costs related to our credit agreement used to finance the BAQSIMI acquisition, currency fluctuations, and mark-to-market adjustments related to our interest rate swaps.

The company recorded net income of $26.1 million or $0.49 per share in the second quarter, compared to net income of $17.3 million or $0.33 per share in the second quarter of 2022. The company reported a 68% increase in adjusted net income to $34.8 million or $0.65 per share, compared to an adjusted net income of $20.7 million or $0.39 per share in the second quarter of last year. Adjusted earnings excludes amortization, equity compensation, impairments of long-lived assets, and one-time events. In the second quarter, cash flows provided by operations was $54.9 million, bringing our year-to-date cash flow provided by operations to $95.3 million. I will now turn the call over to the operator to begin Q&A.

Operator (participant)

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Thank you. Our first question is from Tim Chiang with Capital One. Please proceed with your question.

Tim Chiang (Senior Research Analyst)

Thanks. Maybe, maybe just a few questions on the branded side. Obviously, BAQSIMI, you've just recently closed that product acquisition. Could you talk a little bit about the marketing strategy with that product? You know, when, when is the switchover going to happen in the third quarter? Do you expect to benefit from the new school year with that product? On Primatene Mist, maybe just talk about, do you, do you expect a recovery in sales in the third quarter, given, given demand trends?

Bill Peters (CFO and EVP of Finance)

Yes. On, on the branded side of BAQSIMI, let me start there. Right now, this, this transition is going in phases. Currently, we're in the phase where Lilly is doing everything that they were doing prior to the acquisition, and that will continue until the end of September. At that time, we're going to begin taking over the marketing of BAQSIMI from, from Lilly. We've already hired a contract sales force to begin detailing that product for us. They've begun the hiring process, and they're going to be begin training relatively shortly after that, so they can hit, hit the ground running on October first. As far as the school year goes, BAQSIMI is a product that does see seasonal trends with the back-to-school timeframe, usually resulting in higher sales.

This is our first year, but we've seen in the past that, the August, September timeframe usually shows an increase in sales of that, of that period, and the third quarter is usually the peak quarter of the year, for that product. As far as Primatene Mist goes, we do expect. You know, it's hard to say from the second quarter to the third quarter, whether sales will be down, up, or flat. Historically, going from the second quarter to the third quarter, they've been flat to down slightly. You know, this, you know, what we've seen in the trend is each of the last two quarters, we've seen increasing sales at the retail level, but decreased sales at, the factory level.

We believe that trend can't continue forever, so at some point, the destocking that the retailers are doing right now will have to come to an end. Eventually, the sales will have to match, the factory sales will have to match the store sales. Whether that takes another quarter or two quarters, it's hard for us to say right now, but, at some point the sales growth, we expect to continue.

Tim Chiang (Senior Research Analyst)

Maybe I'll just squeeze in one follow-up. You know, obviously, you're still benefiting from a lot of the supply shortages that are ongoing in the U.S. on the generic side. I mean, are there specific products that you think you'll be able to benefit from outside of the products that you're currently selling at this point?

Bill Peters (CFO and EVP of Finance)

I'm, I'm not sure what you mean, our products that we're that we're not selling at this point. Because, you know, just in the shortage area, you know, there's a lot of products that we have benefited from in the past. We expect to see those benefits in the future. There's a number of products that right now we're the only company selling into the hospital market for at least the time being. Our plan is to ramp up production of those to help, help out the country as best we can.

Tim Chiang (Senior Research Analyst)

Okay. That helps a lot. I'll jump back in the queue, and ask another question after.

Bill Peters (CFO and EVP of Finance)

Yep. Thanks, Tim.

Operator (participant)

Thank you. Our next question is from David Amsellem with Piper Sandler. Please proceed with your question.

David Amsellem (Managing Director and Senior Research Analyst)

Hey, thanks. Got a few. On Glucagon, can you talk about the mix between retail and institutional in terms of your sales mix, and talk about also how penetrated you are in the institutional setting? I'm just trying to get a sense of, you know, how big this, this opportunity could be. I'm not talking about BAQSIMI here, just the Glucagon injection. Then secondly, on the CRL for ANP-008, can, can you provide a little more color on the nature of that CRL? You know, how complex or, or not complex, the issues that, that were raised there? Just any color there would be helpful.

On shortage products, as we move through the back half of the year, how should we think about the impact of the damage at the Pfizer North Carolina facility, and how that could how you could benefit from that? I guess maybe the best way to ask it is, should we see even more of an impact from shortage products in the back half of the year compared to what we've seen thus far in the first half of 2023? Thanks.

Bill Peters (CFO and EVP of Finance)

Let me take the first one, which is the Glucagon question. In the, the retail versus the institutional market, the last we looked, it was about over 60% retail, for us, and so we feel that we have penetrated some of the other markets. Remember, our product is slightly higher priced than some of the alternatives, and while we think it's a more convenient, package, the kit is more convenient, there are some people that would be unwilling to pay that little bit extra for that.

Dan Dischner (SVP of Corporate Communications and Human Resources)

Then for the CRL, I'll turn to Tony.

Bill Peters (CFO and EVP of Finance)

Sure. Hey, David. For AMP-008, as Dan said, it's a minor CRL. I think the most notable item on that is we've, we've said that our response is going to be in the third quarter this year. From a complexity perspective and kind of the funnel analogy that I use, I think just the, the timeliness of our response, should give it an indication on the complexity of, of the, CRL.

Dan Dischner (SVP of Corporate Communications and Human Resources)

In regards to the shortage products, David, yeah, we actually are anticipating, having to pick up some of the work there. We do think, especially in, in the products in the hospital setting and the CCD products, we should see an increase there. That's why we decided to postpone the launch of our intranasal naloxone product.

Bill Peters (CFO and EVP of Finance)

While we are gonna see an increase, it won't be too material 'cause we were already running those suites pretty much full out on this. There, there is a little bit of room, and we are looking for ways to increase the capacity that we can push through there by doing some small steps to increase things here and there. But this isn't gonna be something where we can, you know, boost sales by 20% out of that factory. It's, it's gonna be incremental because we were already running, you know, effectively full, full shifts on the two lines at that IMS factory that produced product for that. As Dan mentioned, unfortunately, you know, we were planning to, to start manufacturing the intranasal naloxone Rexulti this, this quarter.

We postponed that because, because of the shortages that are out there, and so we've, we've had to stop, you know, or stop that process.

David Amsellem (Managing Director and Senior Research Analyst)

Okay, just on Glucagon, just going back there, on the institutional piece of the, the Glucagon business, can, can you say, you know, how or, or quantify what the, the opportunity is there just on the, on the institutional side?

Bill Peters (CFO and EVP of Finance)

I, I think a significant portion of the, the pickup that we've had, there has been on the institutional side, so the increase.

David Amsellem (Managing Director and Senior Research Analyst)

Okay.

Bill Peters (CFO and EVP of Finance)

From compared to a year ago, 'cause remember, a year ago, we already had 80% of pretty much the retail market. You know, let's say we, you know, you know, if you say that we've, you know, more than doubled, so a big portion of that doubling was, was picking up some of the retails, I mean, the, the institutional side.

David Amsellem (Managing Director and Senior Research Analyst)

Okay, that's helpful. All right, thanks.

Bill Peters (CFO and EVP of Finance)

Thanks, Dan.

Dan Dischner (SVP of Corporate Communications and Human Resources)

Thank you.

Operator (participant)

As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. Thank you. Our next question is from Tim Chiang with Capital One. Please proceed with your question.

Tim Chiang (Senior Research Analyst)

Hey, thanks. I think you mentioned on AMP-002, there's a slight regulatory question that the FDA had asked. you know, is it still possible that you could respond and then get that product onto the market at the end of this year?

Bill Peters (CFO and EVP of Finance)

Yeah, Tim, it's not that the FDA is waiting for us to respond to anything. We haven't had a, a, a response that we provided to them, in, in some time for this. It's not that, that, that the FDA is waiting for us to, to do anything. The way we have had our conversation with the agency is they're assuring us that, that they're working diligently on the application, and we view that as, as, seeing a path forward with this. We do see this as something that we're very optimistic that we will have a path forward for this. We do anticipate having positive news for, for this. It's just based upon just dialogue that we're having with the agency, and, and we are hopeful of that.

Tim Chiang (Senior Research Analyst)

I see. Okay. Then I, I guess, just back on BAQSIMI. I mean, obviously, you're inheriting a lot of the formulary access that Eli Lilly has already established for the product. I mean, is there anything else you think you will need to do once the handover occurs around, what, October?

Bill Peters (CFO and EVP of Finance)

Yeah, they do have, you know, You know, we're basically following their playbook and following the actions that they did and plan to keep marketing very similar to the way they did. We're also working with different groups throughout the country, like the Juvenile Diabetes Research Foundation and other groups that are working with patients with diabetes. You know, we're, you know, we think they set up a good playbook. You know, we have a lot to learn from them, and we're, you know, in the process of taking, taking what they've done and implementing it here. We don't expect anything significantly different from what they did.

Tim Chiang (Senior Research Analyst)

Got it. Okay, great.

Operator (participant)

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

Dan Dischner (SVP of Corporate Communications and Human Resources)

I want to thank everyone for joining us today. The second half of 2023 remains to be a highly anticipated period in terms of our filings, our progression of our recent acquisition of BAQSIMI, our role in helping address the nationwide drug shortage, in addition to our upcoming launch of Rexulti in the fourth quarter. We look forward to updating you all again and again, thank you. Have a great day.

Operator (participant)

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.