Amneal Pharmaceuticals - Earnings Call - Q3 2020

Transcript

Speaker 0

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Speaker 1

Morning, and welcome to the Amneal Third Quarter twenty twenty Earnings Call. All participants will be in listen only mode. If you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad.

To withdraw your question, Please note this event is being recorded. I would now like to turn the conference over to Amneal's Chief Financial Officer, Tassos Conidares. Please go ahead.

Speaker 0

Thank you, Andrew. Good morning, and thank you for joining us for Amneal's third quarter twenty twenty earnings call. Earlier this morning, we issued a press release reporting our quarterly results. The press release as well as the slides that will be presented on this call are available on our website at www.mnl.com. We're conducting a live webcast of this call, a replay of which will be also available on our website after its conclusion.

Please note that today's call is copyrighted material of an email and cannot be rebroadcast without the company's expressed written consent. I would like to remind you that statements made during this call stating 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 this section entitled Cautionary Statements on forward looking statements in our press release and presentation, which applies to this call. Our future performance may differ due to numerous factors, many of which are listed in our most recent annual report on Form 10 ks and are revised and updated in our quarterly reports on Form 10 Q and and current reports on Form eight ks, which you can also find on our website or on the SEC's website at sec.gov.

We also discuss certain non GAAP measures. You will find important information on our use of these measures and our reconciliation to use GAAP in our earnings release. Included in the appendix of today's presentation, you will find U. GAAP financial statements that correspond to some of our non U. S.

GAAP measures we reference throughout the presentation. On the call this morning are Chirag and Chiru Patel, our Co CEOs Andy Boyer and Joe Dodisco, our Chief Commercial Officers for our Generics and Specialty segments as well as Steve Mazzano, General Counsel and Corporate Secretary. I will now turn the call over to Gerard. Good morning and thank you for joining us in the review of Amneal's third quarter results.

Speaker 2

We are pleased with the strong performance this quarter versus prior year with net revenue of $519,000,000 up 37%, adjusted EBITDA of $114,000,000 up 60% and adjusted EPS of

Speaker 0

$0.16

Speaker 2

up substantially versus $04 Our strong and consistent financial performance over the course of 2020 reflects the successful execution of our Amneal two point zero strategy. This could not have been possible without the resiliency and excellent work of our global team. We know their dedication and commitment to providing affordable and innovative medicines to patients is an integral part of navigating the COVID-nineteen pandemic this year. We all know how difficult the last few months have been due to COVID-nineteen. And unfortunately, we are clearly not out of the woods yet.

From our perspective, in Q3, we saw sequential pickup in demand and lower supply chain disruption compared to the second quarter. Having said that, we continue to be vigilant and actively preparing for the next wave of COVID-nineteen to ensure we meet the demands of our customers and avoid any material disruptions over the coming months. As we discussed in our first quarter twenty twenty call, this pandemic raised the issue of domestic preparedness and the need to fortify production of critical medicines based in The United States. Amneal is the largest U. S.

Generics company domicile in The United States and we believe our operational expertise and excellent quality track record uniquely positions us to be part of expanded domestic drug manufacturing strategy. Over the course of last few months, we have spent substantial amount of energy and resources to respond to these bipartisan effort and we look forward to working with legislators from both parties as well as industry to help protect the health and safety of our citizens. Ever since we rejoined as co CEOs last summer, we shared with you our intent to reinvigorate the R and D pipeline, successfully launch new products, bolster our base business, diversify our distribution channels and focus operational excellence to improve profitability. In Q3, we executed on all these objectives. Let me start with our Generics segment, where net revenue increased 17% compared to Q3 of twenty nineteen.

The double digit net revenue growth reflects the successful launch of eight of the 15 complex new products we target launching by August 2021, as well as the continued strong performance by Adurin and Superlifrate. We are building on our strong presence with a steady flow of new product launches, including Fluphenazine hydrochloride tablets for treatment of schizophrenia and generics Butrans Tans dermal system for pain management and shortly generics lidocaine patch. As we mentioned in the past, continuing to shift our mix of products to more complex or differentiated product is a strategic priority of ours. This is reflected by the substantial increase in our R and D pipeline focused on the non oral solid products. In addition to new product growth, we were pleased by the strength in our base business.

This growth reflects the relevancy of our broad commercial portfolio and customer focus by our commercial and supply chain organizations. Finally, we are constantly looking for ways to leverage our generic product portfolio and manufacturing capability in new channels such as over the counter. An example of such initiatives is the recent launch of the store brand equivalent of Walter Archerich's Pain Gel, which we introduced in partnership with PLD. Top line growth as well as keeping a close eye on operating efficiencies led to a substantial increase in generics adjusted gross margin to 37.4% compared to 29.8% in Q3 of twenty nineteen. As co CEOs along with our broader team, we are acutely focused on operational excellence, continuing to find ways to improve efficiency and optimize our expense base is a key component of our revenue two point zero strategy.

We have a robust list of company wide activities from gross to net deductions to purchasing to manufacturing and SG and A expenses, which will help drive generics adjusted gross margin above 40% over the course of time. Let me now turn over to our Specialty segment, where our business was stable compared with the prior year. We feel good about this performance considering the fact we came off a very strong second quarter and the headwind of COVID-nineteen is having on a physician office visits and new patient starts. Both Rytary and Unithroid continue to show strong growth with sales up approximately 1229% respectively and combined prescriptions volume up 6%. Moving on to Healthcare, which continues to generate strong top line growth.

Revenues increased to $89,500,000 from sixty four million dollars in the prior quarter. The Healthcare team has done a nice job growing the top line business despite a slowdown in new product introductions from third party suppliers due to COVID-nineteen and usually such new products carry higher margins. We continue to be excited about the long term opportunities in the growing government segment. With that, let me turn the call over to Chintu now.

Speaker 3

Good morning, everyone. Thank you, Chirag. Let me first start with our COVID-nineteen response and I echo my brother's sentiment. I'm truly proud of how our team members have responded and are working with our customers and suppliers to mitigate interruptions. Last quarter, we discussed that approximately $20,000,000 of customers' orders were not filled due to COVID-nineteen disruptions.

In the third quarter, unfulfilled orders declined to approximately $10,000,000 and I'm pleased to report that overall our manufacturing facilities are operating close to pre COVID-nineteen levels. We are building our inventory on hand and strengthening our global supply chain. As Shirag mentioned, since we rejoined last August, we have led a number of strategic initiatives to improve performance in a sustainable way, including rebuilding the R and D pipeline as well as operational excellence to improve efficiency across our supply chain. Let me spend a few minutes highlighting our generic segment and R and D pipeline. Every action we take is aligned to our quality first mindset and we continue a strong quality track record as demonstrated by successful inspections in 2020 and all prior years.

Our generic business continues to improve with strong sales and increasing margins. Our results reflect strong volume gains and increased manufacturing for Alluring, which enabled our commercial team to increase its market share to 23% compared to 15% in the second quarter. In addition, we are on track deliver 15 high value complex generic products by next August and plan to file close to 30 ANDAs this year, up from our prior expectations of 20% to 25 Our portfolio transition to complex generics continues and over 60 of these 30 ANDAs are non oral solid dose. Also our current pipeline of over 100 products is about 80% non oral solids and includes many complex products. Through our focused R and D efforts, which are made possible by our in house development manufacturing capability will be constantly refreshing and expanding our generics pipeline for many years to come.

In particular, we are very focused on generating meaningful growth in our injectable product line over the next eighteen to twenty four months to better meet demands of our hospital business. Turning to our specialty pipeline, we have a number of attractive product candidates that we plan to bring to market over the next few years. We are excited about the potential opportunities as they leverage both our R and D team and our commercial infrastructure. Let's start with IPX-two zero three, which is our next generation product for treatment of Parkinson's disease, which we expect will be a material improvement or dietary and existing therapies. PD is a degenerative disorder that affects dopamine producing neurons in the brain that affect movement.

Unfortunately, on managing the symptom such as tremors and dyskinesia. There are roughly one million Parkinson's patients in The United States and approximately sixty thousand new patients are diagnosed each year. Sixty percent of PD patients in The U. S. Are on some form of levodopa therapy and immediate release carbidopa levodopa is a first line therapy in PD.

Amneal currently markets extended release product that is targeted to more moderate to severe patients than generic immediate release. We see IPX-two zero three as addressing the same patient population as Rytary with improvements in terms of efficacy and patient convenience. Based on our Phase two clinical results, we expect that our Phase three clinical trial will demonstrate IPX-two zero three to have a superior profile in terms of good on time, which is the time in which a patient has symptomatic relief without troublesome dyskinesia. Such benefit may translate to one to two hours per day improvement in good on time while decreasing the daily dosing to three times versus the current four to six times per day. Such outcomes would be a material improvement in quality of life for PD patients and expand the addressable market for our product accordingly.

There are currently two Phase three clinical trials ongoing and we expect to see top line data in the second half of next year with commercial launch plan for 2023. A second near term pipeline opportunity in specialty is K-one 127, which is a five zero five(two) program for treatment of myasthenia gravis that we in licensed from Kashy Biosciences last year. MG is a rare autoimmune disease that causes extreme muscle weakness, double vision, droopy eyelid and difficulties with speech and swallowing. K127 developed through a proprietary drug delivery technology platform is an improved formulation of pyridostigmine, which is the most commonly prescribed first line therapy for MG. It's successful K127 could offer improved tolerability once daily dosing with rapid onset and twenty four hours symptomatic coverage.

This product profile would be a significant improvement over the current genetic formulation which is given three to four times a day. As a point reference, MD is a rare disease affecting thirty six thousand to sixty thousand patients in The United States. We see these as an attractive commercial opportunity based on the concentrated prescriber base and synergistic deployment with our neurology field team. We'll be starting the Phase three trial for K127 soon and assuming successful results of the trial, we plan to file this product with FDA in 2022. Beyond these exciting candidates, we are actively monitoring opportunities to make specialty a larger part of Amneal's business in the coming years.

This includes external partnerships as well as M and A targeting specific platforms that leverage our expertise and have a reasonable probability of success. In addition, we expect to increase the share of our internal R and D budgets directed to branded product development in a measured way. At last, I would like to acknowledge our suppliers, customers, and employees for their efforts during the COVID pandemic and thank them for their hard work and dedication during these challenging times. I will turn the call over to now to Tasos.

Speaker 0

$141,000,000 or 37% compared to Q3 twenty nineteen. Our After acquisition accounted for $90,000,000 of growth, which implies a quarterly organic net revenue growth of 14% for the rest of the business. Generics performed strongly, up 17% while our specialty segment was consistent to prior year quarter. This performance reflects solid execution in the challenging albeit improving market environment. COVID-nineteen disruption continues to be a headwind across selected products and while the value of patient visits is recovering, it is now back to normal levels and acute software utilization is lagging as well.

As Cinco mentioned, we're making very good progress in reducing lost sales due to COVID-nineteen supply chain disruptions and we're steadily improving our finished goods inventory position. Adjusted gross profit of $2.00 $6,000,000 was up $55,000,000 or 36% compared to Q3 twenty nineteen reflecting strong generic sales, Up and stable performance by specialty. Adjusted gross margin of 39.7% was in line with our expectations and essentially flat to the 40% in Q3 twenty nineteen. Excluding the Accur acquisition, adjusted gross margin in the current quarter will have been 45%, so approximately 500 basis points higher than prior year driven by the strength of generics. Adjusted EBITDA of $114,000,000 was up $43,000,000 or 60% compared to Q3 twenty nineteen reflecting strong generic growth, tight expense management and a $6,000,000 contribution by Abcam.

Adjusted diluted EPS of $0.16 were well ahead of the $04 we reported in Q3 twenty nineteen mainly driven by the adjusted EBITDA growth, lower interest expense offsetting higher after minority interest and taxes. The improvement in business trends and our financial management efforts have resulted in strong operating cash flow. By nature, operating cash flow fluctuates substantially at any given quarter and in this third quarter we generated $45,000,000 or $273,000,000 year to date. Our year to date performance is substantially ahead of the $53,000,000 we generated the first nine months of twenty nineteen. A strong financial performance is strengthening our balance sheet and improves our financial flexibility.

As of September 30, we had $284,000,000 in cash and cash equivalents as well as an additional $498,000,000 available through our ABL facility. As importantly, our net debt to EBITDA ratio continued to improve to 5.6x versus 7x at the end of twenty nineteen. Let me now turn to our segment of Generics, which reported net revenue of $342,000,000 a $51,000,000 increase or 17% from prior year quarter or $35,000,000 or 12% sequentially. I will highlight that this performance reflects three factors. First, the benefit of our strategy delivering strong Consequently, Aligner and SuperpowerFate, both of which were late last year, more than offset the declines in Levothyroxine and Clophenac Gel.

Second, the resiliency of our base business due to the effectiveness of our commercial initiatives and the relevancy of our broad portfolio of products. Third, less of a headwind than the prior quarter in terms of COVID-nineteen related pack orders and lingering negative effects on prescription trends in elective surgeries. Moving on to adjusted gross margin for the Generics segment, which was 37.4%, substantially higher than the 29.8% in Q3 twenty nineteen and thirty five point three percent in second quarter twenty twenty. The year to year gain reflects new product launches, a number of operational improvements and favorable product mix offsetting pricing pressures. Let me now turn to our Specialty segment and we're pleased with the resiliency of our commercial execution considering the negative impact of COVID-nineteen.

Net revenues of $88,000,000 were in line with Q3 twenty nineteen, a solid demand growth for right of way unit growth were offset by declines in our non promoted products. Similarly, adjusted gross margin for the Specialty segment was in line with Q3 at approximately 74%. Turning over to Upcare, which reported net revenues of $90,000,000 and adjusted gross margin of about 15%. While top line growth has been ahead of our expectations, COVID-nineteen and channel mix is a temporary headwind to UpCare's correctability. Furthermore, the fact that UpCare adds substantial revenue at lower margin creates a mathematical headwind to our overall gross margin percent.

This is clearly demonstrated in the third quarter where as I mentioned earlier, Apgar diluted our company gross margin by approximately 500 basis points. Its adverse mix will moderate or even disappear next year as Zapier will be in our base period results. Considering our performance over the course of the year, we believe it is prudent to update our full year 2020 guidance. Specifically, the new revenue range is 1,950,000,000.00 to $2,000,000,000 up from the prior guidance of 1,875,000,000.000 to 1,975,000,000.000 Gross margin, 41% to 42 compared to 44% to 46% mostly driven by AvKARE. Adjusted EBITDA, dollars $430,000,000 to $460,000,000 up from 400,000,000 to $450,000,000 Adjusted EPS, 0.55 to $0.65 up from zero four five dollars to $0.60 Operating cash flow 170,000,000 to $220,000,000 up from $150,000,000 to $200,000,000 And finally, CapEx of $60,000,000 to $70,000,000 no change to prior guidance.

Let me now add a little bit more color around our guidance. First, we need to be mindful we're in the middle of a pandemic and it's impossible to predict all the potential outcomes. Having said that, we have a growth portfolio and our manufacturing operations continue to improve. Second, we expect patient volumes will gradually move towards more normal levels. Third, while R and D and G and A expenses were somewhat tempered this year due to COVID-nineteen, we expect an increase in operating expenses as clinical sites are reopening.

With that, I'll turn the call back to Sirod.

Speaker 2

Thank you, Tasos. We are pleased to have made significant gains this year in executing our Amneal two point zero strategy despite the pressures of the COVID-nineteen pandemic. We look forward to continuing to drive operational excellence and reinvigorate our pipeline. I would like to now turn the call over to operator to take your questions. Thank you.

Speaker 1

The keys. If at any time your question has been addressed and you would like to withdraw your question, please press then 2. Please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question comes from David Amsellem of Piper Sandler.

Please go ahead.

Speaker 4

Hey, thanks. So just a couple. So first, I wanted to get your thoughts on your biosimilar business. And there's a couple of questions there. One is, how

Speaker 5

are you thinking

Speaker 4

about the pegfilgrastim and Avastin biosimilars in the context of an increasingly competitive marketplace? And specifically, what do you think pricing will behave like as more competition pours in these markets? Do you think you'll see erosion that's anything like what you see for small molecule generics? And then secondly, on Biossims, can you talk about other opportunities and when we could get more visibility on other opportunities that you're working on? Thanks.

Speaker 2

David, good morning. As we mentioned before, biosimilars, we have three key products to our file with FDA. One is to be filed soon. We are in the opinion we consider biosimilars as more of a complex generics. Market will behave as such as more competition comes, more people, more doctors feel comfortable prescribing biosimilars.

Intent from the Congress was to create competition and reduce pricing. That's exactly what's happening. So from the beginning, we have invested very carefully. And so far, we are only commenting on the three programs, not commenting on the additional opportunities we are working on. The erosion you mentioned like small molecule, no, that will not happen.

Small molecule, as you know, it's ridiculous. The erosions get up to ninety eight percent, ninety nine percent. I do not expect that. It is extremely hard manufacturing, lots of science, lots of investments. So it will more like behave between complex high value generics and what you see today in biosimilars.

Somewhere in between, that's where my guess will end up on biosimilar pricing.

Speaker 1

The next question comes from Gary of BMO Capital Markets. Please go ahead.

Speaker 6

Hi, guys. Good morning. First, a little bit of a follow-up to the last question. So what have been the dynamics with new launches that you're seeing? How much pricing pressure?

How difficult to negotiate managed care contracts? And maybe compare Eloyring and Succlophate with the Fluphenazine that was launched more recently, and then expectations for complex generics going forward. And then just, process on the gross margin guidance. I guess I was surprised that it came that much lower. So just talk a little bit more about the mix that's driving that.

I know a lot of it is AvKARE, but is there anything else baked in there? Thank you.

Speaker 2

Good morning. So on your questions on complex generics, they tend to be immediate pickup by the customers and conversion to generics, same as how the small molecules been working for years, it's immediate conversion to generics. So we don't see any difficulties negotiating with managed care as far as the complex generics. Biosimilars is a whole new ballgame for us and we are preparing to launch these products as they get approved. So we will we're learning how to we have the specialty group, we have the managed care group.

So we'll be negotiating with various stakeholders in biosimilars. I'll turn over to Tassos for

Speaker 0

Thank you. Hey, Gary. Good morning. Yes, there is nothing going on the gross margin other than the impact of WellCare. So let's kind of peel back the onion.

So as you know, we think about it in terms of those three segments. So let's take generics, which by the vast

Speaker 3

majority of our business, right?

Speaker 0

So year to date, as I mentioned, we are 38.4% margin. That's two forty basis points up from the same period last year. And with nine months under our belt, the overall generic margins for the year will be substantially higher than the 35% where we ended up last year. So we feel great about it, right? So the biggest part of our business is increasing revenues, increasing profitability.

The second largest part of our business, right, is specialty. So that margins there are going to be gross margins there are relatively flat. It's about 7574%, 75%, but there's a lot of stability there and there's a lot of durability, right? So we feel great about this. And then other piece that you have is Altair, which was as you know, it was a newly acquired business at the January.

So when the company gave guidance in February, it was a newly acquired business. That business has overperformed from a revenue perspective, just to be clear, has over performed on a revenue perspective, right? And just its profitability was not as high just because of COVID and slowed down of new product introductions from other companies, our products. So that created bigger than expected headwind, right, of how Edcare was going to impact our results. And this is what we are reflecting by getting the guidance 41%, 42%.

As I mentioned ahead, next year, Altura is in our base, right? Altura is in our base. So continue down the path from a generic standpoint of launching new products, right, continue to expand our business. Hopefully COVID-nineteen will be mostly behind us. Our utilization of our manufacturing plants should be better, stability on specialty, we should see an expanded gross margin.

Speaker 2

Margins. Sure. And also we are working to transfer many products to our U. S. Plants for AvKARE's business, which will add to the top line and especially on the gross margin.

Speaker 0

Got it. That answers your question?

Speaker 6

Yes. No, that's great. Thank you very much.

Speaker 2

Sure. Thank you.

Speaker 1

The next question comes from Greg Gilbert of Truist Securities.

Speaker 7

Thank you. Good morning. Chirag and Shintu, I was hoping you could share with us your thinking about the strategic importance of AvKARE longer term. Obviously, you've lived with the asset for some time now and as Tassos just said, it's performing well financially. So curious about the strategic importance of that asset longer term beyond simply being a sort of diversification angle.

And then, Joe, I was hoping you could comment on what's going on with Rytary in terms of face to face detailing versus other methods you've learned about over the past several months? What's the outlook for continued growth on that important brand? Thank you.

Speaker 2

Morning, Greg. This is Gerard. So let me on Healthcare, have two actually three avenues within the business. One is government business, which we are mostly excited about. We have multiple products from us and third parties being the largest U.

S. Domicile generics company. We have more products to offer to Emcare portfolio. Number of products still going off patent for the government business over the next five years. So we're substantially building our pipeline for government business.

So that we're very excited. Another part is unit dose, which is we launched our first product and have built up the capacity to launch eight more products in next year. Strategic importance, these are and third segment is direct to providers, which is a small segment, but and with lower margins, it sometimes is helpful to create to build our customer bonding and partnership because when they're in shortage, we're able to supply immediately, which is what we did during the COVID time. So it comes handy. The strategic importance is that we all three areas we're directly distributing to our customers, so which allows margin expansion for overall MAU as well as increase in sales with different alternative channels.

So we continue to be very excited about our healthcare.

Speaker 8

Thanks, Sharag, and thanks, Greg, for the question. Yes, I think we were pretty pleased with the performance of VYTORIA through the third quarter despite the COVID headwinds. Obviously, new patient starts have been the biggest challenge across all of pharma, especially in the at risk patient populations that aren't going back to their doctor for their regular visits. But refills remain strong. We got a decent amount of what we felt were new patient starts to keep some semblance of growth over the prior year.

But we've also seen even though scripts may be script growth may not be as high as revenue growth, we're seeing a higher number of pills per script in Rytary to spend. And I think that's indicative of more ninety day sales going out the door, which is overall good for refill rate on that brand. Now in terms of the efficacy of the sales force, a large part of the second quarter, they were sidelined due to the lockdowns. And we had to adapt as most companies in the industry did, and we became fairly effective in virtual promotion, holding virtual lunch and learns through Zoom. And I think going forward, as territories have opened up, we maintain a mix or a balance between between in person detailing and the ability to hold some of these events that we used to do in person virtually, which is why we've seen our SG and A costs come down a little bit.

But we feel good about Raytaro. We've got runway through 2025 with our settlements, and we're ready to return to growth in 2021.

Speaker 0

Thank you.

Speaker 1

The next question comes from Ami Badia of Leerink. Please go ahead.

Speaker 9

Hi, good morning. Thanks for taking the question. Two questions. Just for Chirag and Shintu, with the availability of you know, can you comment on the availability of opportunities that you can add to your CNS portfolio with the Zumig expiry next year? What's your commitment to adding some other assets to that portfolio?

And then specifically for Qintu, could you comment on the expectations on some of the new product opportunities over the next few months into August 2021? Specifically, if you can give us any additional color on the respiratory product and then also expectations for when you might be able to get Copaxone twenty and forty mg approved? Thanks.

Speaker 2

Thank you, Amin. This is Shiraz. So CNS opportunity, as we have mentioned, that's our top priority from the M and A perspective. We're looking at various products, companies and whatever fits with our neurology field cells. And as you know, the Rytary is our lead product.

We will add on to the movement disorder or particularly to PD category. So we've been active on that front. We are also building or getting pipeline in movement disorder overall, which would complement with our neurological results. K127 is an example, and we're looking to see if we can build out with external partnership, more product partnership. I'll turn turn it over to Chin to further new product launches.

Speaker 3

Yeah. Hi. Good morning, Amy. So we have as we have spoken before, we have very diverse portfolio and we are, you know, very confident about launching the remaining seven products in next nine to twelve months of our complex products. And those are mainly the non oral solid area.

We have good launches coming up in ophthalmic, in topicals, in transdermal. As far as the gletramer, we expect we are cautiously optimistic that there would be a 2021 launch. And regarding the respiratory product, at this time, we are not giving any more color than what we have done before, but it also seems like towards the '21 launch. But as we go to that closure, we'll be able to provide more detail.

Speaker 9

Thank you.

Speaker 1

The next question comes from Randall Cenicke of RBC Capital Markets. Please go ahead.

Speaker 10

Great. Thanks for taking my question. Two questions. First, the implied fourth quarter EBITDA based on guidance, is that a good run rate for next year? I think consensus implies step up.

So if you could just help us understand what some of the moving parts there to that are, that would be helpful. And then secondly, Shrug, on the topic of complex products, I wanted to ask you maybe a bigger picture question here. The drug landscape continues to evolve. And obviously, there's a lead time in terms of building the pipeline. At least one of your peers who also has a branded business has called out digital therapeutics as an opportunity, specifically adding technologies to traditional drugs.

Has Amneal looked at that? And are there other five zero five(two) opportunities or ways to differentiate that you see that you could pursue to build out your pipeline as we think about the next three to five years? Thanks.

Speaker 2

Thank you, Rankel. We'll get back to your first question later on. I'll pass that on to Tasos. Let me on your complex products and building out the portfolio, excellent question. As we have mentioned before, we have a see Amneal stands as we have a strong generics R and D, complex products, diverse base of therapeutic categories.

So we're well set on generics. We will be refreshing our pipeline every year. Now how do we grow Amneal? We have additionally than than generics. So one focus is biosimilars, which I mentioned it is it would be competitive.

It would be slow ramp up. Therefore, we are more excited on the specialty business. We have been we have two products, Unitilorit and Reiterate. We have K127 in pipeline, IPX-two zero three in pipeline. We're looking at a drug delivery technologies which can deliver more products in B2's categories.

And the way to look at it as you know the 5.5 B2's are basically taking the older molecules, one that I developed thirty years ago, twenty years ago, apply new technologies to make the have the lesser side effects as well as patient convenience. So that is what we are working on, and we see multiple opportunities. And it it is it's not a new thing. We're applying our knowledge and experience in this field to build out systematic pipeline, which we can introduce products every year throughout next five years, six years, seven years, and we see tremendous growth. And as we mature, we can take that drug delivery technologies and move into more of a prodrugs and other technology based products.

So this is where we are we have positioned Amneal and we'll be keep doing it. But keep in mind, we're not taking out eyes of the generics business. It is a stable business, growing business and we have multiple therapeutic areas where we can constantly add products every year over the next five years we have seen so far. I hope that answers your question on specialty and genetics.

Speaker 0

I'm sorry. Go ahead. Sorry.

Speaker 3

I just wanted to expand on technology and our complex. At Giacomplex, we have entire spectrum of diversified portfolio, and we have a in house developed technology also to address the need for the complex you like to bring to market because many products are customized technologies. Right? On a five zero five eight over second asset which we I talked about k one twenty seven is using a proprietary platform to deliver that product in a certain way. Then, Randall, there are many products.

They they're great molecule, but they were not developed properly to deliver right way in the human body to give them a good efficacy and and and the better profile. So we have a few technology platforms that under it's under evaluation and we'll expand on that and repurpose those product to bring that to market to provide great quality of life and better drug delivery through many means. So we are laser sharp focus on our five '0 five(two) by using a very unique platforms. Thank you, Tassos. Go ahead, please.

Speaker 0

Hey, Randall. Just a couple of thoughts. So we look at the EBITDA in Q3. We delivered 109,000,000 When you look at the implied full year guidance and what this means for Q4, that implies anywhere between 96,000,000 and 111,000,000 So essentially Q4 is in the ballpark of Q3. And Q4 is a strange quarter for everybody, right?

So we're in the middle of elections, you've got COVID, you've had cold seller inventories with the holidays and so forth. So typically Q4 just creates just more volatility. So our ability to perfectly project Q4 for every company just a challenge. But we feel good about how we think about Q4. As with regards to next year, we'll give you a guidance at the February,

Speaker 2

right? So we'll give

Speaker 0

you guidance at the February. At this point in time with us, so what we're focused on is sustainability and growth. That's what we're focused on. So we're not looking to be one quarter heroes or anything else. As a management team, we're looking for sustainability and growth.

And this is how we plan to approach next year, okay? And I think when look at the specialty area, I think we feel very good about the sustainability and the visibility of that business. Hopefully, we'll have some additional growth as COVID subsides next year. On the generic side, it's a race, right? It's a race.

This year we benefited of valuing and sucralfate. Next year, we're likely to have some competitors

Speaker 2

there, right?

Speaker 0

But there is a new pipeline, the spread of the pipeline. So our expectation and our hope is that those new products will be offsetting competition on the rest of the portfolio. And finally, as Siroc said, we're very focused on ensuring every investor dollar gets invested properly, right? So whether or not the gross to net deductions or whether or not the way we spend R and D and SG and A expenses and this year that has been a good guide for us. We're really focused on investing every dollar and continue to be as efficient as we can.

So hopefully, that gives you enough to think about next year.

Speaker 10

Tassos, can I just follow-up and ask you because I just don't want this to be a question lingering out of the with respect to the stock today? I mean if you annualize Q4, you're getting $400,000,000 ish in EBITDA. Consensus is close to $500,000,000 So do you guys have the pipeline confidence that we can see a decent step up as we think about 2021? I know you're not going to be specific in guidance right now, but just give us some sense of are you confident that the pipeline can support a big step up?

Speaker 0

Yes. So my view, Ben. And you know we cannot comment, not only we or anybody else, external consensus and numbers, right? So number one is if you look at this year, right, which was the first year of, let's call it, turnaround with the new management team with Siroc and Sindhu Kane in August, there was a substantial step up in EBITDA from $355,000,000 last year to about the midpoint of the range of about $445,000,000 right? So that was a 25% increase.

So we have seen a meaningful step up in the business. And everything I think you have heard how we are operating this year and how we're thinking about the year that focuses on sustainable growth next year and beyond. So I think that's as much as I can tell you at this point in time. And by raising this year by raising guidance, right, to give you the guidance this quarter, I'm not sure that implies things are getting worse. I think this implies things are getting better.

So I'll stop there.

Speaker 10

Okay. Thanks, guys.

Speaker 1

The next question comes from Dana Flanders of Guggenheim. Please go ahead.

Speaker 11

Great. Thank you for the questions. My first one is just on the base generic business. I think in your prepared remarks, you had mentioned capacity utilization is back close to pre COVID levels. And I know you've had a lot of success winning contracts this year.

As you look towards 2021, is that part of the lift for the generics business past this now? Or how much of a tailwind could additional kind of contract wins and base business maximization be for you heading into next year? And then just my second quick question on OTC. I know you had a store brand launch of V Gel with a partner about a month ago. Just curious if that's a channel you plan to get bigger in and if there's a strategy around that.

Thank

Speaker 2

you, Dana. So our base business, we have a large commercial portfolio. We have two fifty products, and we'll continue to find opportunities. We have one of the best customer service focused just in So all three large customers and many small customers, we have a very deep customer relationship.

And they're relying on our alternate supply infrastructure with U. S. And India and Ireland coming soon. So that allows us to keep working with our customers to add on. We'll keep finding new opportunities within two fifty products.

So base business is stable, and we expect to grow. Not counting the competition on obviously the new product launches like Alluring and Spalding that is expected. So we're very, very proud of what we have done on a base business and rightfully so. It's a large portfolio. Over the years we've built it, we have the capabilities, capacity, quality to supply and that's exactly what we are doing.

We are one of the most reliable supplier for them and high quality and great customer support and we are getting rewarded for that. On OTC, we've been we have multiple OTC, basically the ANDAs, which gets the Rx2 OTC switches with more than 10 products over the years. We never fully concentrated launching OTC by ourselves. We've been supplying through a partner PLD, which happens to be a very large OTC distributor in The United States. I believe they are second largest after Perrigo.

A private company, long term relationship we have over ten years with them, the Long Island based, excellent management team and founders. So we are expanding our the V Gel is we have a substantial market share already. We were the first one to introduce generics V Gel. So we will obviously will have higher percentages in market share for OTC market as well. And we're looking at multiple switches from Rx to OTC.

We believe FDA would more inclined to do that because of the patient convenience as well as cost. So very excited about that. We'll look into other opportunities as well within OTC. It's a good field and we have a great partner. So we'll keep expanding our portfolio in OTC.

Speaker 1

The next question comes from Nathan Rich of Goldman Sachs. Please go ahead.

Speaker 12

Good morning. Thanks for the questions. To start, I just wanted to follow-up on the topic of biosimilars. I know it's early, but I'd be curious to kind of get your kind of high level view on what your commercial strategy will be in these markets. Obviously, we're seeing kind of more options out there, more competition.

How are you guys thinking about pricing and kind of building market share as these approvals come?

Speaker 2

Amit, it's an excellent question. We are utilizing our specialty infrastructure led by Joe Tadisto. Looking at various alternatives, we have the existing relationship with large wholesalers who happen to be first three products we're launching is in oncology. So they happen to be leaders, and McKesson in oncology, and we enjoy years of great relationship. We want to find practical solutions.

We don't believe you need a print sales of hundreds of people to sell the same approved branded product again. That is waste of resources. As doctors get comfortable, I think what more is needed is customer support, physician education about biosimilars and that is where Joe is focusing more. Some more of a creative partnership with large already oncologic players such as McKesson or ABC would be also in play. We do want to start laying out the groundwork for what should be the biosimilars distribution.

Why does it have to follow the traditional model? How do we work with our managed care partners, the PBMs and that's all on the table. And I will stick with what I've said before. Biosimilars will become more competitive, but it has a lot of products. As you know, there's $200 plus billion of Biologics, which are branded and that is the best way to provide access and affordability in next now to next ten years.

So it's excellent business opportunity, but it's more fits in with the generics player, which fits in the players who are focused on the affordable providing affordable medicines. And that's exactly the mindset we are using to launch biosimilars. Hope that answers your question, Nathan.

Speaker 12

Yes, that's helpful. Thank you. If I could just ask a very quick follow-up to tackle some of the generics business. I think earlier in the prepared remarks, it sounds like volumes are maybe still a little bit below normal levels due to COVID. So I guess, question being, would you continue to expect to see that those volumes improve kind of as things normalize into the fourth quarter just as we think about sort of a steady state for the generic segments before considering new launches that might add to that?

Thank you.

Speaker 0

Yes. It's really hard to answer that, right? So from our perspective, we think it's as I mentioned before, I think Q4 looks somewhat like Q3, right? But you get half the country more than half the country exploding on COVID, right? Now we've been done pretty well in the last nine months, right?

We've done pretty well in the last nine months. So you have I think you have some puts and takes, right? So you have, for example, Eloyne that should do better. Now we have unclogged capacity a bit, so that should be doing better. But then we have other products, some of our injectable products that may be under pressure as people kind of stay out of the hospitals.

So I think there are some puts and takes, but we don't expect dramatic shift one way or the other versus Q3. That's how we think about this, Nathan.

Speaker 2

Yes. And next year, we have said that we from now to August year, are eight more high value products. The seven we already launched. Lidocaine is being launched soon. It's approved, Lidocaine patch.

So you can just think about that, that complex products and high value products add tremendous values. And this is in generics business, we've been added since 02/2002. Every year we must refresh our pipeline, I mean new commercial products, new product launches and it's exactly what Amneal has. And we have rebuilt this pipeline, added on more products and very excited and feel very comfortable that year over year, over five years, we have new product launches which can offset competition, which is always expected in generics for the what you launch the previous year, as well as stabilizing the base business and keep finding opportunities since we have a very large base business and it keeps growing. So that I hope that answers your question, Nathan.

Speaker 12

Yes. Thanks very much.

Speaker 1

See we're coming to the bottom of the hour. The last question comes from Balaji Prasad of Barclays. Please go ahead.

Speaker 5

Hi. Thanks for squeezing me in. Chad, good morning. I joined the call slightly late, so excuse me if this has been asked already. So two questions from me.

Firstly, on the biosimilars. We just wrapped up our generic and in the biosimilar industry symposium where lots of experts had the opinion multiple experts had opinion that there is a strong first mover advantage in biosimilars. So considering your positioning in on the last or or filgrastim, you'll be number five, number six. I want to

Speaker 0

speak your

Speaker 5

brains on how you think you'll be able to break through this first mover barrier and there are multiple movers out of here. Secondly, I want to get your thoughts also on injectables as to where you are currently in terms of your product build out and your outlook on the injectable side for next year? Thank you.

Speaker 2

Thank you, Balaji. Good morning. You're absolutely right. First, would have advantage in biosimilars and it will stay there for longer time. As market opens up, the second, third, fourth will have respective market share.

It is difficult being a fit, say, to find creative new channels and that's what we are trying to do. Government channels, the wholesalers channels, the captive channels, we do not expect to match the first mover definitely. And our future plans for biosimilars will be more focusing on can we be first in the first wave or second wave. I believe in biosimilars would be very difficult if you're in third and fourth wave. So that's exactly where we are focusing on.

On injectable, today we do approximately $150,000,000 of net sales. Portfolio is growing. Pipeline is growing. We're focusing on products which are more again complex in nature using Dan Mills R and D capabilities, more suspension based products, difficult products, required trials, and again bringing the first to market injectable products then to compete in volume and also looking at various other strategies in injectable. Very excited to grow that business over five years.

Speaker 5

Thanks, John.

Speaker 10

Thank you, Balaji.

Speaker 1

This concludes our question and answer session and today's annual third quarter twenty twenty earnings call. Thank you for attending today's presentation. You may now disconnect.