Amneal Pharmaceuticals - Earnings Call - Q1 2022

Transcript

Speaker 0

Hello, and welcome to Amneal's First Quarter twenty twenty two Conference Call. My name is Alex, and I'll be coordinating the call today. I will now hand over to Head of Investor Relations, Tony Demeo. Over to you, Tony.

Speaker 1

Good morning, and thank you for joining Amneal's first quarter twenty twenty two earnings call. Today, we issued a press release reporting our financial results. The press release and presentation are available at amneal.com, and a replay of this call will be posted after the call. 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. Please review the section entitled Cautionary Statements on 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. Important information on our use of these measures and reconciliations to U. S. GAAP may be found in the earnings presentation. Beginning in the first quarter of twenty twenty two, the company will no longer exclude R and D milestone expense from non GAAP financial measures.

In our press release, we provide revised prior period results reflecting this change.

Speaker 0

On the

Speaker 1

call this morning are Sharag and Shintu Patel, Co CEOs Tassos Conadera, CFO Andy Boyer, Generics Joe Fadisco, Specialty and Jason Daley, our Chief Legal Officer and Corporate Secretary. I will now turn the call over to Sharad.

Speaker 2

Thank you, Tony, and good morning, everyone. The first quarter was a good start to the year with a revenue of $498,000,000 and adjusted EBITDA of 100,000,000 as expected. We are on track to achieve our full year 2022 guidance commitments of continued top and bottom line growth. Building on our consistent results and continued success in executing our strategy over the last several years, we are expanding in high growth areas, including specialty, injectables and now biosimilars. As a global essential medicines company, underlying our strategy is our focus on affordability, access and addressing unmet patient needs.

Looking forward, as we continue to execute, we see our growth profile accelerating, our business mix increasingly diversifying and our impact on global healthcare expanding. Let me now provide a few updates across our businesses, starting with generics. Our business continues to grow as our productive R and D engine continues to diversify the portfolio with new complex medicines. As a result, Amneal has a low product concentration with our largest generics product represents only 5% of total company revenues, and our top five generics products are only 17%. With our focus on more complex and higher barrier products, over half of generics revenue today is non oral solids as compared to 35% a few years ago.

The mix shift towards complex medicines is continuing as 86% of our pipeline is non oral solids. Accordingly, we expect durable growth in this business and we continue allocating returns into high growth areas. In regards to our injectable business, as we have shared with you in the past, this is a key growth area for Amneal. We are pleased that injectables will grow approximately 30% this year to more than $160,000,000 in revenue as we are well on our way of achieving 300,000,000 plus by 2025. We look to scale our business with expanded capabilities, increased capacity and new products in our portfolio.

We believe these initiatives will drive substantial and sustainable growth in injectables for years. In biosimilars, we are very excited to enter The U. S. Biosimilar market with the upcoming launch of our first three oncology products. We are pleased with the approvals of ReLUCO, a filgrastim biosimilar and Alinsys, a belazizumab biosimilar, which are wonderful achievements by team Amneal and our partners.

In addition, we expect approval for a third biosimilar pegfilgrastim in the next few weeks. As we have shared with you in the past, we are positioning Amneal to play a large, critical and long term role in the fast growing $28,000,000,000 U. S. Biosimilar market. We estimate the market size for these three products based on net revenue is approximately $4,000,000,000 of which about half is biosimilars.

Together, we see peak sales for these three U. S. Biosimilars of $200,000,000 This is the first time we are sharing a biosimilars revenue estimate for us. We are also looking for additional opportunities where we can be early to market as we build our portfolio through in licensing to start and vertical integration in time to become a meaningful player in biosimilars. In Air Care, our distribution business, we saw continued nice growth in Q1.

We expect sustainable growth driven by strong commercial and operational execution as we expand across multiple distribution channels. In international, we are leveraging our portfolio of complex generics, injectables, specialty and biosimilars medicines to meet local needs. We believe this strategy will add considerable revenues in time and be highly profitable as we utilize partners and our existing infrastructure. In China, are making good progress with our Forsun partnership and we look to be a commercial later this year or early next year. In the $25,000,000,000 branded generics India market, we have launched our label there and are expanding our end market presence.

Around the rest of the world, we are pursuing distribution agreements and look forward to share with you as we make progress. In specialty, we remain focused on driving strong commercial execution of our key branded products and advancing the pipeline. We expect continued full year growth from Rytary in Parkinson's and erythroid in hypothyroidism. As our pipeline delivers new branded products, including LiveSpa and DHE this year and IPX-two zero three next year, we see our specialty business expanding very meaningfully over the next several years. Before I pass it over to Chinthu, I would like to acknowledge Joe Tedisco, who is moving on from to be a CEO of a bio pharmaceutical company here in New Jersey.

I want to thank Joe for his awesome contribution to Amneal over eleven years and his strong leadership. He has built a great team and has contributed to Amneal in a great way. We wish him all the best. And with that, I'll hand it over to Chinder. Thank you, Chirag, and good morning, everyone.

First, my sincere thanks to 7,000 plus members of the Amneal family who work hard every day to make Healthy possible. We believe our relentless focus on excellence across operations, supply chain, quality and science driven innovation differentiates Amneal. Through our excellence programs, we are constantly reducing cost and improving efficiencies. In R and D, we are directing more spend towards high growth areas, particularly bio signals, specialty, injectable and complex generics. Let me now walk through the different aspect of our business.

In generics, we feel great about our pipeline and continued innovation in complex categories. So far in 2022, we have eight new launches. We expect 20 to 30 new launches this year and each year going forward. Just this past week, we received another CGT approval for Baxoratin gel. Amneal is the industry leader in CGT approvals.

Overall, we have 111 ANDAs pending across all dosage forms in generics and expect to file approximately 30 more ANDAs this year. In our pipeline of 101 products, 86% are non oral solids and most are expected to be first to market first to file or 55B2s. We continue to move towards an increasingly complex differentiated portfolio of over two fifty molecules that is driving sustainable growth. One of the key product launches in 2022 is Ritonavir, which is co administered with Paxlovid. We are excited to be one of the main U.

S. Supplier for this key COVID-nineteen treatment. Ritonavir is an already approved ANDA that our team has been working hard to fulfill substantial demand. In addition, we improved supply chain for AdrenaClick or epinephrine auto injector and expect more revenue in 2022. As we look to the rest of 2022 and into 2023, we see significant launches on the horizon that will start to materialize later this year and drive growth in 2023 and beyond.

We don't disclose many launches for competitive reasons, but let me share a few key upcoming ones among many others including in Ophthalmics and OTIX, generic BRAFFORDA and generic ZYPRODEX, in oral solids, Carbidolol ER and Masalamines, in injectable vasopressin, Liprolide, multi dose methylprednisolone acetate and Extenatide in LVB bags, dexmedetovidine, ropivacaine and magnesium sulfate. In detailed generics, we expect the depth of our pipeline and leading commercial presence to drive consistent financial performance. In ophthalmic optics, we have eight ANDA spending and 11 products in the pipeline. In inhalation nasal, there are four ANDA spending and seven more products under development. In injectable, we expect substantial growth as we expand our portfolio and add new capacity and capabilities.

As a reminder, in January, we acquired the Sol Biclofen franchise, which added lyo result to our institutional bag and additional commercial capabilities. Last November, we acquired Punishka Healthcare, which added state of the art manufacturing capabilities and doubled our capacity to 16 production lines in total. The integration is going very well and we are preparing for commercial production in 2023. This acquisition and expansion of other sites has enhanced Amneal's ability to do more R and D and supply commercial product from multiple sites. In terms of innovation in injectables, we expect five to 10 new launches in 2022 with four already this year.

We have 28 ANDA spending and another 61 pipeline products. They are in a variety of complex areas including drug device combination, peptides, long acting injectables, liposomers, LVP bags and five zero five(two) products. Overall, we are on track for over 40 new injectable launches from 2022 through 2025. As we have shared in the past, we believe the combination of our robust quality track record, increasing supply capacity and continued innovation positions us very well to scale our injectables business and be a sustainable long term supplier globally. We are very excited about the large and growing biosimilars market and how Amneal is well positioned for near and long term growth.

The recent approvals of our first two U. S. Biosimilars and one more approval expected later this month is a watershed mark for Amneal. We are planning for Q3 launch of Releuco and Allensis. We expect to be one of the few companies with three U.

S. Biosimilars on the market in the oncology space. We were pleased that Allemsis received a first cycle approval. This is a tremendous accomplishment by the team and demonstrates our core competencies in this space. Combined with our partners, we have substantial science, regulatory, manufacturing and commercial capabilities needed in biosimilars.

We believe the key to success are having the right development path, manufacturing capabilities and being vertically integrated over time from development to commercialization. We are actively working to enhance our key capabilities and expand our portfolio to drive growth organically and inorganically as we target to add new biosimilar launches in the years ahead. We are very enthusiastic about our future in biopharmaceuticals, particularly biosimilars as the opportunity is coming to fruition now for us. In international, we are advancing our strategies in China and India and the rest of the world. We see global expansion as another vector for long term sustainable growth.

In China, we currently have five products filed with 10 to 15 expected by the 2022 and twenty to thirty over time. In March, we were pleased to be one of the companies to receive a sublicense to manufacture and commercialize Paxlovid in 95 low and middle income countries. We are evaluating distribution strategies to drive access to this COVID-nineteen treatment. In specialty, we are expanding our branded portfolio and we see a number of growth drivers. Our current specialty pipeline represents $500,000,000 to $1,000,000,000 U.

S. Peak sales. First, we expect to launch Lovispa for spasticity in June. Next, we look to launch our DHE auto injector for migraine and cluster headaches later this year upon approval. For IPX-two zero three, we completed our pre NDA meeting with FDA.

At the American Academy of Neurology meeting in April, we presented two abstracts sharing top line clinical efficacy results and post hoc analysis showing one point five five hours more good on time per dose. We expect to submit our NDA in Q3 and pending FDA approval remain on track for launch in mid-twenty twenty three. We see 300,000,000 to 500,000,000 in U. S. Peak sales for IPX-two zero three On K127 for myasthenia gravis, we expect to file our NDA by 2022 and are pursuing other indications.

Also our other pipeline programs K114 and K128 are progressing well. We look to share more on our expanding specialty pipeline. We are adding new FAR5B2 programs that look to repurpose existing molecules, utilizing our drug delivery technology platforms Grande and Chronotek. We believe these technologies differentiates us in specialty. Overall, we are very excited about our specialty growth prospects and expect at least one new launch per year going forward.

To summarize, our strategy for accelerated growth is built upon our strong foundation of innovation, superb quality and operational excellence. Across the business, we remain laser focused on execution this year. I will now hand it over to Tasos.

Speaker 3

Thank you, Chengdu. Our first quarter financial performance was in line with our expectations. And thanks to the good work by all our colleagues, we are pleased to reaffirm our full year 2022 guidance for continued top and bottom line growth. For the first quarter, we reported total net revenue of $498,000,000 adjusted EBITDA of $100,000,000 and adjusted diluted EPS of $0.12 Our results include 5,000,000 of R and D milestone expenses, which we no longer exclude from our non GAAP results. The annual run rate of these expenses is 15,000,000 to $20,000,000 and represents external collaborations to advance our R and D pipeline.

This policy change has no economic or cash impact to our business. Q1 Generics net revenue of $318,000,000 grew $5,000,000 or 2%. Products launched in 2021 and 2022 contributed $14,000,000 of growth, offsetting the typical declines in the remaining portfolio. As we have said in the past, our focus in innovation and strong commercial execution is a key differentiating factor that enables our sustainable top line growth. Consequently, products launched prior to 2019 now account for about 65% of generic net revenue and declining fast.

This reduced reliance on older, more prone to competition products bodes well for continued growth and profitability. In Specialty, Q1 net revenue of $85,000,000 declined $11,000,000 or 11% and represents the low point of quarterly revenue for the year. This performance reflects Xomex loss of exclusivity as well as higher than typical quarterly reimbursement costs related to Rydery. We continue to be excited by the total prescription growth of Rytary and UnitROID up 613% respectively as well as the upcoming launches of Lisbispa and DHT Auto Injecta. Our after net revenue of $95,000,000 grew 10,000,000 or 12% reflecting strong customer acquisition success in the non federal distribution channel.

Q1 twenty twenty two adjusted gross margin of 43.5% was in line with prior quarter and reflects three dynamics. First, generics gross margin of 42%, a 300 basis points improvement from prior quarter. Second, after gross margin of 15%, a 500 basis points decline from prior quarter due to mix of business. And finally, 15,000,000 of costs related to timing of our manufacturing production schedule. The last item is a timing issue and will improve in future quarters providing substantial additional gross margin and profitability.

Q1 adjusted EBITDA of $100,000,000 was actually a few million higher than the expectations we shared with you during our February earnings call. As I mentioned earlier, it also includes $5,000,000 related to our reporting policy change and $15,000,000 of manufacturing overhead allocation. From an operating cash flow perspective, we generated $120,000,000 of cash, which will continue to deploy in driving sustainable long term growth. Consequently, in the first quarter, we invested $131,000,000 to fully fund the previously announced acquisitions of Sol, Kashiv and Finista Healthcare. Looking ahead and consistent with our discussion in our February earnings call, we expect substantial acceleration of top and bottom line growth over the course of this year.

This growth will be driven by four factors. First, multiple new product introductions such as Ritonavir, Lavvispran, Larenso and our new biosimilars. Second, strong underlying demand of key growth brands such as Adrenaclip, Zafemi, Rytary and Unithroid. Third, favorable fixed overhead manufacturing absorption and finally, stability in our operating expenses.

Speaker 2

The property

Speaker 3

above the old times are well understood and within our control, gives us confidence in delivering the 2022 financial guidance. Let me hand the call back to Shiwag now.

Speaker 2

Thank you, Dasos. In summary, we are on track for another great year in 2022. We see momentum across our business, including our first U. S. Biosimilar approvals.

We see these growth drivers building and accelerating our company performance this year, next year and beyond. I'll now open the call to questions.

Speaker 0

Thank you. Our first question for today comes from Gary Nachman of BMO Capital Markets. Gary, your line is now open. Sorry, Gary, you might be muted. Sorry, Gary.

I'm still not receiving any audio. Could you hear me? Apologies. If you'd like to ask a question,

Speaker 1

Operator, next question.

Speaker 0

Our next question comes from Mikayla Francescina from Barclays. Mikayla, your line is now open.

Speaker 4

Hi, I'm Mikayla from Barclays on for Balaji Prasad. Just wondering by when can you realize your U. S. Peak sales guidance of $200,000,000 plus for your three biosimilars? And when thinking about your biosimilars, how do you plan to get vertically integrated and over what timeframe?

Speaker 2

Michella, thank you and good morning. So the peak sales, as you know, we are working with getting our reimbursement in place, which should be in place by 01/01/2023. Commercial infrastructure is in place, so we expect contributions this year, adding up to more contribution in 2023 and peak sales, I would say somewhere between 2023, 2024, we should be able to achieve that. And you had a second question on vertical integration. So as we are committed in a biosimilar for long term, as we have previously stated that our strategy is dual.

One is to in license from key partners, trusted partners and build our own capabilities. So we are exploring different options and should be able to be vertically integrated by end of this year or beginning of next year.

Speaker 4

Thank you.

Speaker 0

Thank you. Our next question comes from David Amsellem from Piper Sandler. David, your line is now open.

Speaker 5

Hey, thanks. I joined late, I apologize if I missed this. But on the margins, I know you talked about the being a bigger part of the mix. I just had a bigger picture question about the role of AvKARE in the organization. And to the extent that you have periods where it's a bigger part of the mix and there's some margin compression, do you see that as problematic?

I'm just trying to get a better sense of where AvKARE fits and is the margin profile given where you're taking the business, I guess, acceptable. So that's number one. Number two is on biosimilars. I think you laid out some assumptions about peak sales. So I wanted to get your thoughts on just your view on share, volume share and ultimately how you're seeing overall penetration in the filgrastim, tegfilgrastim and bevacizumab markets playing out of biosimilars and what your underlying assumptions are regarding pricing erosion, share and your penetration, that would be really helpful.

Thank you.

Speaker 2

David, good morning. So I'll start with the big picture on healthcare. Healthcare is an excellent cash flow business for us and also allows us to put more products in federal healthcare market, which is VA DoD. As you know, we are one of the top two there. So margin could fluctuate in that business.

There are three businesses within healthcare. One is the federal government, which is steady in margins. And then they have unit dose business, which is growing. And the third business is pure distribution business for City Of Philadelphia and they have added a few more cities. So it's a great business.

It will fluctuate between 15% to 20% of gross margin and we'll keep adding the top line. So we should be focused on top line as well. Anything else on healthcare, Tasi?

Speaker 3

No, think you were spot on. It's a sustainable business. It is growing both top line and bottom line. David is correct. The overall margin of that business is less so than the rest of our business, but we're really focused on total absolute dollars.

Speaker 2

Return there. Yes.

Speaker 3

And whether or not one quarter out carries in this situation 15% gross margin versus 18%, that's where it's going to fluctuate and doesn't really move the needle that much from a total company perspective. So the key driver there is specialty, which continues to be almost 80% and our generics, which as you know, over the last three years, we've grown it from mid-30s to substantially more than 40%. So that will be it.

Speaker 2

Yes. And second question thank you, Tasos. On biosimilars, the excellent part is the commercial team is in place led by Hosher Singh and excellent team with a couple other people added from ABC and Pfizer and the Swan team, which added 21 people in institutional sales plus contracting sales force as we have always done a great job in commercialization, we will do a great job in commercialization here as well. And we we have understood the market. So the as you know, it's a quasi branded products.

We've got to get the reimbursement code in place. We'll do so. The laduzumab, we are competing with Amgen and Pfizer and obviously the innovator and we would try and maximize our market share to about 15% to 20%. We're more focusing on oncology clinics, integrated regional systems. So many avenues to get there as well.

We will have the 340B pass through status, which is always helpful. And then for the G CSF, we have the pass through status as well, Phil Graston. And it's

Speaker 5

a little

Speaker 2

bit more competitive with the three active players, but we'll try to with our 340B unique position, we may be able to get again 15% to 20% market share or more. And for Pag Pilgrastim would be a little bit more competitive since there are five active players. So we will try to penetrate different channels and it should be very helpful to have bevacizumab with bacfilgrastim. So that would be a nice launch as well. So all three very excited and the future of biosimilars, we are very excited as well.

Speaker 5

Okay. That's helpful. And just if I may follow-up. Just to be clear on the shared economics, you just remind me that the margin profile of the Biosens, I mean, that's not going to be net margins that are going to be higher than your corporate operating margins, right? Is that a fair way to think about it?

Speaker 2

Yes. So would be bevacizumab would be higher because it's a bigger market and PAG and G would be in line with corporate margins.

Speaker 5

Got it. Okay. Thank you.

Speaker 0

Thank you. Our final question for today comes from Gary Nachman from BMO Capital Markets. Gary, your line is now open.

Speaker 6

Okay, great. Sorry, missed you guys before just jumping around a couple of calls. I don't know if you touched on this. I obviously jumped on late. But could you talk about how you expect gross margins to trend for the remainder of this year and sort of what additional initiatives you're taking to improve the gross margin further beyond this year?

Just what sort of levers you think you have at this point? How much more there is to do on that front? Then with respect to the specialty, yes, just one more with respect to the specialty business, just how comfortable you are with the commercial infrastructure, and how much more you want to leverage that in terms of bringing new products in and is that going to become a much bigger part of your business do you think over the next few years? Or will it be relatively modest when you think of the overall company?

Speaker 3

Hey, Gary, I'll take the first one. Good morning. So as you know, our Q1 gross margin was 43%. We're looking to increase for the rest of the year. My gut feel is we'll finish the full year probably about 45%, which is in line where we were last year.

That's number one. Now if you think about the growth drivers, how do we go from Q1 of 43% to, let's say, rest of the year of about 45%, there are a couple of things. Number one is the first piece is just our internal manufacturing production plan. So better fixed overhead absorption and we're in control of that. It just reflects the demand in our manufacturing operations, so high confidence on getting that benefit.

Second is NPLs, new product launches. So as we had shared with you a few months ago, this year, we expect new product launches to be more on the back end of the year than the front end. And as you know, by nature of the complexity of those products, they have substantial greater gross margin than the rest of the portfolio. And then the third is when you look at our specialty business, as I said in Q1, that's the low point in terms of revenue, right away unit rolling are expected to accelerate the growth and those products have higher gross margins. So those are the three levers.

Speaker 2

Thank you, Tasos. And Gary, on specialty, as you know, we had committed we acquired Impacts back in 2018 that formed our specialty platform. So excellent commercial capabilities already in place for Parkinson's for women's disorders as well as endocrinology. So very excited to have a great team in place, relationship for MarketAx is in place, marketing teams are in place. And penetration, as you can see, will continue to grow proprietary by 6% to 8% every year, units growing by 10% to 12% and we have excellent organic pipeline.

We got Livespa being launched on June 1. We have BHE or auto injector based on the outcome at our partner's site from the FDA, should be launched this year. IPX-two zero three next year with a much higher peak sales because of the product profile and results what we have seen. K-one 127, myasthenia gravispro product, which we're filing this year, we also have government programs for that as well. And that is also expected to launch in 2024.

And then we have two additional and these we acquired from Kashyun Specialty, K114, K128 along with K127 and we're adding a couple more pipeline assets in specialty. We have a separate team focusing on specialty R and D. We have two technology platforms and which have been well tested over last ten years. So with that, today our business is about $400,000,000 in specialty. This organic pipeline will add substantial revenue to it and we are open for certain tuck in deals for adding within these two specialty.

And we are constantly evaluating those opportunities and I think more are being available with this biotech pool in the market and other conditions which are driving companies like us in a bit of a driver's seat because of the constant cash flow from our generics business, injectable business, specialty business allows us to sustain our growth and keep adding these assets. So very excited. If you ask me a goal on numbers, yes, we like to get to $1,000,000,000 in specialty cells. How long it will take? Maybe a few more years, but excellent growth drivers.

You're absolutely right that part of the business is becoming very significant and much higher contribution than the generics.

Speaker 6

That's very helpful. Thank you.

Speaker 0

Thank you. We have no further questions for today. So I'll hand back to Shairag Patel for any closing remarks.

Speaker 2

Well, thank you, everyone. I know it was a good morning. So many people could not join, but everybody will join. Thank you very much and have a great day.

Speaker 0

Thank you for joining today's call. You may now disconnect.