Amneal Pharmaceuticals - Earnings Call - Q4 2020
February 26, 2021
Transcript
Speaker 0
Good morning, and welcome to the Amneal Pharmaceuticals Fourth Quarter and Full Year twenty twenty Earnings Conference Call. All participants will be in listen only mode. Should 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.
Please note this event is being recorded. I would now like to turn the conference over to Tasos Comedares, Executive Vice President and Chief Financial Officer. Please go ahead.
Speaker 1
Good morning, and thank you for joining EndNeal's fourth quarter and full year twenty twenty earnings call. Earlier this morning, we issued a press release reporting our financial results. The press release as well as the slides that will be presented on this call are available on our Web site at www.emmiel.com. We are conducting a live webcast of this call, a replay of which will also be available on our Web site after its conclusion. Please note that today's call is copyrighted material of Emil 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 the information that is now available to us. We encourage you to review the section titled cautionary statements and 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 on our quarterly reports on Form 10 Q and current reports on Form eight ks, which you can also find on our website or on the SEC's website at sec.gov. Also discuss certain non GAAP measures.
You will find important information on our use of these measures and our reconciliations to U. S. GAAP in our earnings release. Included in the appendix of today's presentation, you will find U. S.
GAAP financial metrics that correspond to some of our U. S. Non GAAP measures we reference throughout the presentation. Are Gerard and Chintu Patel, our co CEOs Andy Boyer and John Fadisco, our chief commercial officers of our generics and specialties segment as well as Stephen Zahn, our general counsel and corporate secretary. I will now turn the call over to Gerard.
Speaker 2
Thank you. Good morning, and thank you for joining us in the review of Penn's fourth quarter and full year twenty twenty results. We are pleased with our strong finish in the fourth quarter with net revenue of 510 and up 28% versus prior year and adjusted EBITDA of 107,000,000, up 33%, and adjusted EPS of 3¢, up substantially versus 8¢. Our strong consistent financial performance over the course of 2020 met our guidance metric and reflects the successful execution of our strategy. Despite the impact of COVID this performance could not have been possible without the resiliency and dedication of our global team whose commitment to meeting the needs of our patients has pulled us to drive continued growth of the public health crisis.
We are just getting started. We feel very optimistic about our in the months and years ahead as we enter 2021 with solid momentum and a clear vision for Avenue 2. It's been a year and a half since Shintu and I returned as co CEOs with a plan to reinvigorate our generics business, strengthen our specialty franchise, diversify our distribution channels, and enhance operational execution. Since then, we have made significant progress to strategically position Amneal, both operationally and financially, for the next phase of growth. I would now like to take a few minutes to recap our evolution over the last year and outline our longer term annual two point o strategy.
Let me start with our generics business, which delivered approximately 1,300,000,000.0 in net revenues in 02/2020. In the past eighteen months, we have significantly strengthened our generics portfolio, and we are confident in our ability to drive long term sustainable growth for three main reasons. First, we will continue to leverage our broad commercial presence
Speaker 3
and growing portfolio of approximately 250 commercial products to increase our market share.
Speaker 2
Our success in 2020 was due to strong performance in both our base business and new product launches, which are increasingly complex and have higher barriers to entry. Recent noteworthy launches include our generic versions of Lovarian, Carapate, Truveda, Zovida, Xlidodump patch, also Avra patch, Prolexin, etcetera. As we look forward to 2021 and beyond, we remain extremely excited about our pipeline. Second, this is an innovation driven business, and we have already taken many steps to transition our R and D engine focus on complex product development, such as injectable, ophthalmics, and inhalants. This transition has been a years long effort, and it has only recently begun to bear fruit in our commercial portfolio.
Put another way, the investment we have already made across r and
Speaker 3
d
Speaker 2
and manufacturing will generate substantial growth over the next few years, and we have no intention of slowing down. Our talented r and d employees throughout The US, Ireland, and India make this possible, and our expected acquisition of Kashyy Specialty Pharma will further boost this already dynamic team. Chintu will touch on our IND momentarily. Third, we are actively working on growing our business in ex US geographies. As you know, today's our sales are generated almost exclusively in The United States.
But we have a fantastic portfolio of approved ANDAs and significant pipeline behind that. We have begun the process of leveraging these assets to commercialize generics internationally through partnerships. China, for example, is a massive market, and we are acutely aware of the opportunity it represents. Through a partnership with Pursuit Pharma, we have already filed four products with the Chinese FDA and plan to file up to 10 more in 02/2021. We expect our China business to be commercial in 02/2023, and this is just one of the multiple strategies to out license our generics in New Zealand office.
More to come here over the coming quarters. Let me now turn over turn to our specialty business, which delivered approximately 356,000,000 in net revenue in 02/2020. We are pleased with the prescription growth of our key promoted brands of Factory and Uniphoid. We believe these brands address substantial unmet needs, and we continue to invest in ensuring their long term potential. At the same time, we are strategically building a deep r and d pipeline of projects focused on leveraging our commercial expertise and infrastructure in neurology and endocrinology.
In the short term, we remain very excited about about our two CNS programs, I p x two zero three and k one two seven. I p x two zero three is on track for phase three top line readout in the third quarter of this year, and k one two seven is advancing well in the clinic. And the announced pending acquisition of Kashi Specialty Pharma will provide us with two additional specialty programs, k one one four and k one two eight, which doubles our pipeline to four programs with launch potential in the next five years. While too early to project a new revenue over the threshold for investing in new specialty programs is please, 100,000,000. Fine.
We feel very good about our improved financial flexibility. As a comparison, at the end of 02/2019, the company's net debt to EBITDA was 7.3 x. I'm pleased to report that we finished 2020 at 5.3 x net debt to adjusted EBITDA. A two percent reduction over twelve months our improved financial flexibility enables us to continue to look for accretive M and A transactions, which will leverage our commercial expertise, improve our growth profile, and help us to build our specialty franchise. We are actively monitoring opportunities to make this segment a larger part of Andy's business in the coming years, and we are evaluating multiple structures, including both partnerships and m and a.
Let me now move to distribution business, which closed 2020 with 294,000,000 in net revenue. We are pleased how the business performed as its first year as an independent subsidiary of Amneal despite headwinds from COVID nineteen. Looking ahead to 02/2021, our primary focus remains expanding our market share within Alcare's VA and DOD channels and expanding our unit dose business. Over the next five years, we expect a large addressable market of branded products growing generics, and we believe Alcare is well positioned to win. Let me briefly touch on our effort to support domestic pharmaceutical production in this country.
As we know, COVID highlighted the importance of local manufacturing and preparedness in strengthening the supply chain of essential medicines in The United States. Our operational expertise and quality record uniquely position us to be part of an expanded domestic drug manufacturing strategy to further grow these savings while providing Americans assurance that their essential medicines will be there when they need them. With that, let me turn the call over to Chintu, who will provide more color around our growth strategy.
Speaker 4
Good morning, everyone. Thank you, Chirag. To echo my brother's sentiment, let me first acknowledge our talented and dedicated employees across every site and function. Together, they are working tirelessly to deliver smart business continuity strategies and a relentless commitment to employee health and wellness. We are especially grateful for our frontline teams whose determination and creativity ensures an ongoing supply of quality medicine to our customers and patients.
Together, our team delivered strong results and progress in 2020. We continue to revitalize our generics, r and d, and commercial business, grow our specialty franchise and pipeline, and improve our margins and cash flow. As Chirag noted, these were the strategies we set upon our return to the company in late two thousand and nineteen, and our execution has positioned us for continued growth and success in 2021 and beyond. Our commitment to support manufacturing and quality standards remain unwavering. Our manufacturing facilities are operating at a high capacity, which is improving our gross margins.
We also continue to uphold the highest standards of good manufacturing practices and integrity, which have been hallmarks of our company since its founding nineteen years ago. Our global r and d team is solidifying the foundation for sustainable long term growth. Our generic pipeline now includes nine different drug delivery platforms. We are uniquely positioned to develop and commercialize complex dosage forms in house, and our integrated supply chain helps us bring complex products to market faster, more reliably, and more cost efficiently. Let me send spend a few minutes on our progress with generics r and d.
Our generics business continues to improve across our top and bottom lines. In late two thousand and nineteen, we promised to launch at least 15 high value complex generics within two years. We are on track to achieve this goal by August 2021. And we and we will not stop there. We also expect to launch at least six to seven high value products on a yearly basis going forward.
We ended 2020 with 29 new NDA filings, and we expect to file at least 30 products in 2021, of which 80% will be nonoral solid dosage forms. As you can see, there is a clear momentum in our core business, and a fantastic example of that is the small of our generic equivalent of ortho Avra patch, which we announced this morning and will compete with Mylan's Dulane, the only other oil driver equivalent on the market. We will have CGT exclusivity for six months on this product, and it is further evidence of our portfolio transformation to complex products. And this is only one of several strong launches since the start of 2021. In just last two months, we have also launched generic Zytiga and three lower strength of generic Truvada.
We are focused on generating meaningful growth in our sterile products over the next next eighteen to twenty four months, which will better meet the demands of our rapidly growing institutional and complex generics retail business. Over the next five years, we expect to launch at least 50 sterile products, including but not limited to microspheres, liposomal, peptides, auto injectors, ophthalmics, optics. And our inhalation platform continues to make great strides. We have one inhalation product currently filed with several under development, and we are targeting approximately three launches in this area through 2025. As we continue developing and commercializing complex generics, we'll be sure to explore ex US opportunities for these products, which can be very significant via partnership model.
On biosimilar, we believe this will be a meaningful segment of growth for Amneal over time. While we are still in the early innings, we believe the biosimilar market will behave more like the complex generics market over time, playing into any strength of high quality manufacturing and nimble execution. We are actively evaluating lower risk partnership models that utilize scientific innovation and a cost efficient development and commercialization strategies. We also remain focused on being first or second to market across all therapeutic areas in the second wave of biosimilars. I would like to take the opportunity now to walk through the growth opportunities that the Kashu specialty pharma deal represents.
Starting with generics, Kashu has been one of our most successful r and d partner. Acquiring KSP will provide us with a specialized and experienced team of 75 scientists and a pipeline of potential first to file opportunities in categories such as JERD device combination, Hottman extrusions, and other modified release forms. The deal will also boost our operations network by adding an r and d and complex manufacturing center of excellence in Bridgewater, New Jersey. Moving to specialty, we are excited about Kashif's proprietary technology in a drug delivery. Let's start with Grande, which is the technology behind k one one four and k one two seven.
Grande is the gastric retentive drug delivery technology suitable for up to 20 of compounds that are typically absorbed in the upper GI tract. Through this technology through this technology, retention in the stomach last eighteen to twenty four hours compared to eight to ten hours of most commercialized drugs with similar relief. The potential application for this technology, which has safely been tested in over 300 human subjects, is substantial. K one twenty seven is expected to allow for once daily dosing of pyrostigmine for myasthenia gravis, and k one one four is expected to provide twenty four hours sustained delivery of t three for hypothyroidism. Both are significant commercial opportunities, but these are just the tip of the iceberg.
K one twenty eight, which is Kashyyld's extended release trihexifenadil candidate for Thyloria, allows for long acting controlled release of drug. These are only the products that we have disclosed so far. Kashy also has a set of early stage products that are incredibly promising. For instance, their Chronotek platform is an advanced automotive oral delivery technology that provides timed, customized, and pulsatile drug release to match the timing of disease symptoms. The addition of these technologies will create a capable and sustainable organic growth engine for Amnib specialty.
We also expect to increase the share of our internal r and d budget directed to branded product development in a measured and a responsible way. Both k one one four and k one two eight align perfectly with our existing therapeutic focus areas in neurology and endocrinology. So the cost to commercialize will naturally be lower and synergistic with our platform. Also, these are five five b two program, so they naturally require lower development cost and carry lower approval risk versus novel molecule development. Our passion is patient centric, and we believe these technologies have the potential to meaningfully improve existing products and improve quality of life for patients.
Following the expected close of our acquisition of KSP, we'll be positioned to launch at least one specialty product per year starting in 2023. Across our company, we are pleased with our 2020 performance and results. Our collective efforts have also sparked remarkable momentum for continued growth in 2021 and for years to come. Together, we remain motivated and driven by our single purpose, to make healthy possible. I will turn the call over now to Tastos.
Speaker 1
Thank you, Chengdu. And let me start with our fourth quarter financials, then move to the full year 2020 and finally discuss our 2021 guidance. Net revenue for the fourth quarter was $510,000,000 up $113,000,000 or 28% compared to Q4 twenty nineteen. UpCare accounted for $82,000,000 while the combined generics and specialty business grew $31,000,000 or 8%. Generics net revenue of $342,000,000 was up 42,000,000 or 14% compared to Q4 twenty nineteen.
Majority of growth was driven by products launched in 2020 as well as Elohim and Sucralfate, while solid growth in the rest of our portfolio offset declines in Levothyroxine and Diclofenac. Specialty net revenue of $85,000,000 was down $12,000,000 or 12% and essentially flat on a sequential basis. This performance reflects three factors: first, consistent double digit growth of our promoted brands, Rytary and Unithroid second, a large non recurring return of a discontinued product from a single customer and finally, lower MBRM due to COVID-nineteen. Adjusted gross margin of 40.6% was in line with our expectations. Generics were at 38% compared to 33% in Q4 of twenty nineteen, while the adjusted gross margin for Up Care and Specialty was 1774% respectively, consistent with our overall 2020 average performance.
Adjusted EBITDA of $107,000,000 was up $27,000,000 or 33% compared to Q4 twenty nineteen, reflecting strong generic growth and tight expense management. Adjusted diluted EPS of $0.14 was well ahead of the $08 reported in Q4 twenty nineteen, mainly driven by the adjusted EBITDA growth and lower interest expense. Let me now summarize our full year 2020 performance. Total net revenue was almost $2,000,000,000 up $367,000,000 or 23% versus 2019. Generics were $1,345,000,000 up $34,000,000 or 3%.
This growth reflects the twenty twenty new product launches entering into Cryopate offsetting levels of thioxides and the Clozapine competition and broad market share gains offset the Oxymorphone Re plus and COVID-nineteen headwinds we discussed in prior quarters. Specialty 2020 net revenue was $356,000,000 up $38,000,000 or 12%. Oxymorphone added $28,000,000 while double digit growth of Rytary and unit throwing offset declines in the nonpromoted brands as well as COVID-nineteen related disruptions. Archer 2020 net revenue was $294,000,000 driven by both the R and S distribution and government segments. Adjusted gross margin for 2020 was 41.6%, in line with our expectations.
This reflects a two eighty basis points expansion for generics of 38.3%, mainly due to new product launches. Specialty of 74.2, stable throughout 2020 and finally, Up Care at 17.5% in line with full year average. Adjusted EBITDA of 2020 was $456,000,000 up $101,000,000 or 28% compared to 2019. On a stand alone basis, UpCare contributed $46,000,000 Adjusted diluted EPS for 2020 was $0.63 well ahead of our $0.35 report in 2019. From a cash perspective, we generated a record level of operating cash flow of $379,000,000 Excluding the $100,000,000 tax refund we discussed in the second quarter, we delivered $269,000,000 compared to $2,000,000 in 2019.
This performance was ahead of our guidance range of 170,000,000 to $220,000,000 partly due to favorable timing of collections and processing of expenses by key certain customers. As a result of our strong performance, Emerald is in a much stronger financial position to date. As a point of reference, our customer hand in December 2020 was $347,000,000 compared to $153,000,000 in December 2019. And as Uruguay mentioned, our net debt to adjusted EBITDA improved to 5.3x compared to 7x a year earlier. And finally, we're generating substantial amount of cash.
Let me now turn to our 2021 guidance where we expect another year of growth. First, we expect net revenues in the range of 2,100,000,000.0 to $2,200,000,000 Generics growth will accelerate from the 3% in 2020 as new product launches continue, legacy issues are behind us and less COVID-nineteen related disruptions. In specialty, right to right unit growth will offset the exclusivity loss of ZOMIG as the business begins to ready itself for future new product launches. Healthcare is expected to grow double digits by leveraging long term contracts and less COVID-nineteen disruptions. Second, we expect adjusted EBITDA in the range of 500,000,000 to $540,000,000 Our growth expectations are balanced and include full year benefits of product launches already taking place, new twenty twenty one launches and operating expense efficiency actions.
Our guidance also includes investments in R and D to drive long term value, higher SG and A to increase our commercial footprint in neurology and endocrinology and higher expenses in general as economic activity picks up throughout 2021. Third, we expect adjusted EPS in the range of $0.70 to $0.85 at the current statutory federal tax rates, reflecting strong adjusted EBITDA growth. Fourth, we expect CapEx in the range of 60,000,000 to $70,000,000 as we continue to invest in new technologies to support our strategy of expanding our complex new product offerings. Finally, we expect operating cash flow in the range of two twenty million to $250,000,000 which reflects the fourth quarter twenty twenty timing benefits I discussed earlier. You may have noticed, we did not provide specific gross margin guidance.
This is due to the fact our three segments give such diverse profiles that the shift in the mix of business can give a substantial impact. Nevertheless, we expect gross margin expansion in 2021 that will be led by our generic business, and we also expect stability with specialty and out care. With that, let me turn it over to Siran.
Speaker 2
Thank you, Dasos. We are pleased with the strong performance delivered over the last year and are confident we are well positioned to drive growth in 2021 and beyond with our annual two point o strategy. I would now like to turn the call over to the operator to take your questions. Thank you.
Speaker 0
We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press then 2. The first question comes from David Amsellem of Piper Sandler.
Please go ahead.
Speaker 5
Hey, thanks. Just a couple. So wanted to first get some additional color on the top line guidance. And particularly, can you talk about how you're thinking about approval and and contribution from complex generics? Obviously, you had the news today on the patch, so so that's in there.
But, you know, what else is in is baked into the top line and EBITDA? I mean, do you have risk adjusted contribution from, say, a Copaxone generic, which you've talked about in the past, or Durazol? So just help us understand what's in there. And then secondly, on on the biosimilars, I know you talked about the free, the the pepfilgrastim, filgrastim, bevacizumab. But are are you prepared to talk about additional products that you're investing in?
Just talk about what we might see in the coming year in terms of additional opportunities. Thanks.
Speaker 2
Well, thank you, David. Let me start first, and then I'll turn it over to Tasos for more details. So your first question
Speaker 6
is on NPLs. As you know,
Speaker 2
generics NPLs, we do not list them out for competitive reasons. Our track record speaks for itself. We did our best this time to give you more color in slide number eight and nine of the presentation. So if you look at those, it gives you the pending pipelines for each major categories where we have been very successful, which now includes nine categories. So if you go to slide eight, you got inserts, implants, the ring, original ring, all those we introduced on the top already.
And at the bottom, it tells you what's in the pipeline. Patches, we have gotten pretty much five patches approved, and it was a remarkable achievement to get the the Zeppelin patch approved. It's a it's a it comes right from our new New England, New Jersey facility. So we have seen the pipeline there. Topicals, we still have good products in in oral liquids and topicals.
Nasal spray, we still have in all these infrastructures are in New Jersey manufacturing sites. The injectables. So now that's the big growth area as well. This year, we'll launch few, but in coming years, as Chintu mentioned, we got multiple products. So subsector of GX, which we would say injectables, are only last year, we did 112,000,000.
We have huge growth potential in coming years, including we just invested in large volume parenteral products as well. And other sterile products like ophthalmics are coming as well. We expect the first launch of our inhalation products from our our Irish plant, and we have typically few OST products. And page nine shows you what's pending at FDA, and we further broke down, which we consider the exclusive FDM, the single source, high value, launch on approval, and then bunch of paragraph four. So it's it's a very nicely architected pipeline to give six, seven high value launches every year.
We still expect another six, seven this year, and next year, even more. And our active product, the pipeline of 93 products, only 80% are I mean, 80% products are non oral solvents. So, hopefully, that answers your question. I did not give you specific products, but I gave you enough to give you the color on our and new product launches. I'll answer the biosimilar question first, and then Daxos can add a bit more.
So and it's a broad question, and I know I'll get this question repeatedly. What is our strategy? So as we have built ourselves as an affordable medicine company over the years, we looked at biosimilars as part of that. So within GX, we have nine categories. We started in 02/1213 investing in a complex generics products and all the platforms, and they're all in house.
Biosimilars, we're doing the same. We start we're starting out slow. We believe it's more of a complex generics market. It will behave like that. The payers will have a lot of say on it based on the the hospital based products.
You gotta deal with with them, the the the buy and bill model. You would have to deal with clinics. So, eventually, based on which payer influence it will have, it will become more complex genetics. We all know that it will have competition. Sometimes three, sometimes four, five, six.
Unlike complex genetics, if you are third, fourth, fifth, you will have a much lower market share than the first two. So our goal going forward after these three products is to cost efficient way, double up the products. We've been working with FDA on it. So that's our offer clinical trials, have commercial strategies which doesn't break our bank because it's competitive marketplace. And the next just like we built the complex genetics, the next set of biosimilars and we're here to play in this for ten years.
So we don't even look at quarter or one year. We will build this, and we will be the leading players in coming years. So we're more focusing on how can we first or second on the next next wave of our own biosimilars. And, eventually, we are looking at building our manufacturing facility in The United States because that's where there were key advantages. We're a high quality manufacturer, and it will matter a whole lot as we progress through the biosimilars.
As you know, market is really good over the next ten, fifteen years. Tasha, do want to ahead?
Speaker 1
Yeah. No. This was great.
Speaker 7
Hey, David. Good morning.
Speaker 1
Just a Good morning. A couple of thoughts. We feel great about the top line. That's number number one. So let's talk a little bit about generics, which is a little bit like running on a treadmill.
Right? Because all of us know the continued price pressures. However, I think over the last eighteen months, Andy's team has done a great job gaining market share and leveraging their commercial skills and leveraging the strong pipeline we have built. So as a result, we are not just simply looking to replenish revenue and solely rely on new product introductions. Right?
So the base business that's gonna do very well, very high resilience, number one. Number two, in the latter part, if you saw the generics growth rate in q four, it was up 14%. So a big part of it is the benefit of the new product introductions that have already taken place. Right? Already taken place in the second half of last year, and now those are are feeding are feeding in into the top line revenues.
Right? And then number three, you know, we continue to innovate. Right? So Chengdu and his team of 900 scientists have not stopped generating new NDAs and getting approvals. Zulane was a was a great success this morning.
So the twenty twenty one new product launches will continue to drive growth in the generic space, which is why we expect growth rate in generics to accelerate from the 3% of this year. That that's that's point number one. Point number two, Arceva has done a great job, growing at double digit growth rates on the top line. Now we talked about the EBITDA on the bottom line is not as high, but a lot of it was just kinda COVID COVID nineteen implications. So we expect another double digit growth for AvKARE in 2021.
And finally, our specialty business. So specialty business is in a bit of a transition. Right? Right to ring unit products are gonna grow double digits the same way they grew in 2020, and we're also making investments in that space in terms of expanding our field force and our commercial footprint, as I mentioned.
Speaker 8
At the same time,
Speaker 1
you know, Zomig was was is gonna go off pattern. You know, we have a thoughtful strategy in terms of capturing the majority of the generic market share, so that's gonna offset some of the headwind. But at the same time, the business is gonna grow. It's not gonna grow at 12% in 2020, which is why it but it's gonna grow, and it's also in transition as as the team is getting ready for new product launches such as IPX two zero three, k one twenty seven over the next cup couple of next few years. And then finally, right, you know, we expect I know some folks are wondering, hey.
You know, how do you think about the COVID nineteen assumption? You know, listen. Last year was in thick of things, and we end up increasing both top line and bottom line guidance. Our expectation this year is COVID nineteen issues will persist. Right?
We're not anticipating magically going away. At the same time, though, we expect less of an impact. If you remember last year, in q two and q three alone, I spoke about $30,000,000 of top line orders we will not fulfill because of the spreads in of the of the supply chain. She will have Chen with his team has done a great job rebuilding our pipeline. So we're expecting headwinds, not quite as much as 2020.
So a little lengthy, but hopefully that addressed your question.
Speaker 5
It's helpful. Thanks, guys.
Speaker 0
The next question comes from Gary Nachman of BMO Capital Markets. Please go ahead.
Speaker 7
Hi. Good morning. First, Kashyyv is a very good source of pipeline for you. Are there a lot of other small companies you've identified to potentially do deals with? As as you look to expand in specialty, would that just be in the current areas, neurology and endocrinology, or would you consider going beyond that?
And then ex US, aside from expanding in China, which you highlighted, where else would you go, in terms of other regions? And just talk about the pace of that expansion, how aggressive you're gonna be to diversify, the business geographically? Thank you.
Speaker 2
Thank you, Gary. So KSP is excellent pipeline in the drug delivery platform, which allows us to grow in our current two areas, which is neurology and endocrinology. We are targeting the products where and then the older molecules where we can use our drug delivery technologies to improve vastly the old unmet needs over thirty years, twenty years ignored by big pharma because these are not big revenue products. It would become somewhere between 100 to $300,000,000. So we could look into other specialty if we find more opportunities through our drug delivery technologies.
But right now, we're solely focused on neurology and endocrinology, and we would add commercial assets as well as pipeline assets. We are we want to make specialty a much larger portion of our new business going forward. And as we launch these products on even on specialty, we would be out licensing it globally ex US, the specialty product as well. The second question on China. China is very attractive because, as you know, Fosun has a vested interest in Amneal.
They have a significant position, equity position in Amneal. So we have trusted partner in China, and they're in top three in China, which allows us to we have worked on it over two years now or since we came back, identified a great pipeline. And I'm pleased to see the forecast currently on China. So in 02/2023, it looks better, than United States for certain generics molecule. We expect to have a meaningful, presence in China and continue on to building, our partnership and portfolio.
The second market will be National Europe, and it will be just for our high value products within our pipeline, like inhalation, certain injectable products, technology driven products. So we're not looking to to have hundreds of ANDAs out in the international market. It's very targeted because, as you know, it's crowded. So we just want to take our best assets and increase the additional revenue to our US based revenues. Thank you.
Speaker 7
Okay. There was one other just on Kashiv. Are there a lot of other deals like that that you've identified potentially?
Speaker 2
It's right now, we are more on a focus on the commercial. So we have we we have good targets on commercial, and we're actively pursuing. Then we will look into pipeline, and we that's our passion. So the it it's both r and d and commercial. But right now, commercial for a few few quarters.
Speaker 7
Okay. Got it. Thank you.
Speaker 0
The next question comes from Elliot Wilbur of Raymond James. Please go ahead.
Speaker 9
Thanks and good morning. Congratulations on the OrthoEvra GX approval. I'll make sure I'm pronouncing it right. Is it Zaphamy? Curious as to what your capacity is to supply that market, what you think you contain in terms of market share?
And also, interestingly, it's been a market that's been growing at 15% to 20% year on year. And I'm wondering if you think there's potential for that to actually accelerate now with a second product in the market. Then I just want to follow-up. I know you've given us quite a bit of detail in terms of potential launch cadence and some of the constitution of the products over the balance of the year. But previously, you said you were cautiously optimistic you'd see a generic COPAXONE in 2021 and also a respiratory product.
I'm wondering if that's still the case. And then just a quick follow-up question for Tassos on gross margin dynamics in the generic business. I know that you've been kind of working towards that 30% or that 40% mark you know, aren't quite there yet. But in thinking about that number going forward, are we at a point where new product dynamics are really the sort of the driver of incremental improvement in that metric? And how can we think about that number longer term?
Still seems like there's a lot of room for upward movement in gross margin metrics. But, you know, I'm not sure ultimately if this you think this business can be a a 45% margin business or maybe even something better if we think out three to five years. Thanks.
Speaker 2
Thank you, Elliot. So your first question on Zepamine, also Abra, our manufacturing capabilities. As you know, we always say that all these complex manufacturing, we do not build out There is the CapEx will not justify as we always expect competition to come in. So in this case, we're starting out at around 35% going to 50% in few months.
So it's a good capacity, and that's how we have allocated our CapEx there. And we as we have always seen when we launch Sugralfrate, Carafrate market grew, So we expect the market to grow when generics options are available. Your second question on Copaxone and respiratory products, we are optimistic this year to be launched both. And your third question, I just want to historically point out that we because of our efficiencies and the new product launches, we always enjoy higher gross gross margin. And in most of the products, 90% plus, we make by ourselves.
So we do not share in a in profits with other departments. So we expect the gross margins to grow, but Tassos will give you more color.
Speaker 1
Yeah. Hey, Elliot. Good morning. So a couple of thoughts. Generics gross margin.
Listen. I I think the business did great this year. Right? So we have for the year full year gross margin of third about 38%, 38.3% actually versus, you know, 35% last year. So there was almost a 300 basis points improvement in one year.
And we're only just start scratching the surface in terms of new product introductions. And as you know, new products for us, it is substantially higher margin than the 38%, right, which gives us the confidence to say that we continue to go after generic gross margin in excess of 40%. Right? Whether or we will get to the excess of 40% plus in 2021, not quite sure, but the trajectory is definitely positive, number one. And number two, as you're asking to, you know, remind me, the legacy annual gross margin was substantially in excess of 40%.
So long term, you know, we're chasing excess of 40%, whether or it's 45 or so, you know, that that's probably a good a good target over time. That that's number one. Number two is one of the key drivers of of gross margin improvement is actually twofold. Number one is new product introductions. As I mentioned before, they have a an average gross margin substantially more than 70%.
Well, I'm sorry, Substantially more than the 40%, number one. But, also, there is substantial amount of cost efficiencies we continue to go after. But the cost of goods line is about a billion dollars. Right? So we're actively looking for efficiencies whether or not it's pushing our purchasing teams, right, to improve our purchasing power, whether or not it's bring in house, right, manufacturing products manufactured by third party.
So I think that continues to represent a good opportunity for us over time. And then and then finally, as you know, you know, AdCare gross margins, I think we believe there is room for improvement there. And then specialty, I think we're looking for stability for next year. And over time, right, as the new pipeline plays out, I think we're looking to expand those margins as well. Did that work for you, Elliot?
Speaker 9
Yes. Perfect. Thank you.
Speaker 0
The next question comes from Ami Fadia of SVB Leerink. Please go ahead.
Speaker 7
Hi. This is, Ethan Lee on for Ami. Thanks for, taking my questions. Maybe, two if I can. Just on, NuvaRing, you know, curious how you're thinking about the durability of this product in 2021 given, you know, some there's additional generic entrants.
And then Caraface, you know, do you expect another generic this year? And then maybe just, you know, more bigger picture. You know, we're in the early days of the new so US presidential administration. I'm just curious if there's been any updated views or discussions around initiatives on domestic manufacturing for essential medicines and how you guys could participate in this. Thank you.
Speaker 2
Well, thank you very much. On New Warring, as you know, Teva launched their products, so we already have a competition. We may get another competitor as well. As a reminder, we our market share was 20%. Now we grew to 30%.
So volume is offsetting the pricing pressure, and we still see as a durable good product. It's complex. So this year, contribution is great. And going forward forward, it will be a good contribution as as always complex products provide. Catapult, we haven't heard any com competitors.
And if it comes to, it's a large market, and it will be a meaningful contributor this year. And your question on the Biden administration, they already gave a hundred days review for pharmaceutical manufacturing supply chain, and specifically focusing on essential medicine and what we make in America and what we don't. And the the hundred days review will reveal that we don't make much here due to the competitive pressure everybody has in the especially in the last four years, more manufacture. Remember in 02/1617, we used to total as the industry used to make 60,000,000,000, unit bills in that oil solid in The United States with some 100 plus facility. I bet that number is much lower.
I would say less than probably 20,000,000,000 in The United States. So that's just one example. Biologics, we don't make much here as well. So we need to have 35, 40% of capacity and capabilities to in case of any emergencies, whether it's pandemic, whether so I'm not against the global supply chain. That is going to happen.
It it is needed. We buy ourselves at a global supply chain. But why not have at least 35 to 40% capabilities and capacity right here in our own country? And that's what Biden administration is is reviewing. Also, the the congress is utmost interested, both sides of aisle, to making this happen and the states.
Many states are stepping up to have manufacturing and this high end capabilities, and universities are supporting the initiatives. And why not? Right? It's as simple as the generics, biosimilars products. Why don't we make them in The United States?
Speaker 7
Great. Thank you.
Speaker 0
The next question comes from Greg Gilbert of Truist. Please go ahead.
Speaker 10
Hi, good morning. Can you offer us an enrollment update for 02/2003? And when do you expect to file the NDA? Secondly, I have a question on generic VASOSTRICT. I'm curious if immunogenicity or other technical questions might make that a difficult approval to to get soon.
I assume it's a when, not an if, but maybe you could share your thoughts on the approvability and the hurdles there. And lastly, on AvKARE, Chirag, you talked about how that's going. How does that play into your strategy longer term? Should we think about it as just something that kind of chugs along as it's going and participates in growth of the industry? Or does it play a bigger role in your longer term strategy?
And are there other ways to leverage it? Thank you.
Speaker 1
Thank you, Greg. Go ahead, Joe.
Speaker 6
Sure. I'll just touch on FX two zero three, Greg. We're not gonna comment on specific patient numbers, but we are on track to have top line results by the fourth quarter of this year. There is a safety follow-up, and we do expect to be in position to file the NDA by the middle of 'twenty two.
Speaker 2
Yep. Chin, do you want to write anything?
Speaker 10
Generic No.
Speaker 4
Yeah. We expect to file in '22 and on razopressin, we are awaiting further FDA comments. We haven't heard anything on immunogenicity or any other roadblocks, but we have a in-depth understanding of peptides and other biosimilars and other areas of expertise in house. So I think we are equipped there to strictly answer and see a response that comes from FDA. And on a biosimilar, this is a broad template for us long term, and we'll be focused on science and manufacturing capability to evolve further into biosimilar.
And as as Chirag mentioned, we will focus on first or second company to come out. In the second, we were biosimilar, and this is a long haul for next five to ten years. But these markets are most market to have.
Speaker 2
And, Greg, on your question for AvKARE. So AvKARE, we bought we brought them as part of VAN NEO is because of two main reason. One is that set business with VA DOD. We we like that segment, and there are multiple products coming off patent for VA DOD, so we expect that to grow. And second is unit dose business, which is at its nascent stages.
We are launching eight plus unit dose in liquid from our branch in New Jersey facility. So that that should grow on a unit dose. And the third one is how do we get closer to one step closer to customers. We may use AdCare platform, which we are not ready to talk about it, on how it will play, but we're always looking to get one step closer to customer.
Speaker 7
Okay. Thank you.
Speaker 2
Thanks.
Speaker 0
The next question comes from Balaji Prasad of Barclays. Please go ahead.
Speaker 3
Hi. Good morning, everyone. Thanks for the questions. A lot of them have been answered. Just on Artoevra, Eva.
So I saw that you have a CGT designation giving you one eighty days exclusivity, but seeing that Mylan's been alone in this market for the past six years, it's fair to assume that there's no other competitor on day one eighty one or anytime in the near future. That is one. Two, on biosimilars, you're doing a lot of color, Chirag. But, also, one of your peers on the biosimilar side recently signaled a strategic reversal in this segment. And what does this imply for you in terms of the opportunities?
How does it influence future thoughts around investments into the space? That'll be helpful. Thanks.
Speaker 2
Thank you, Balaji. So also, Everard, the competition would be very limited in time this year, and we'll leave it there. For now, it's extremely complicated, complex product. On a biosimilars, the the competitor is right. It is you can't invest $150,000,000 per product.
It it this return will not be there. It it it has to be the strategy that we have taken. It's cost efficient development and cost efficient commercialization. What is the meaning having 150, 200 people, to do sales for the same product, biosimilar, their generics product? So we believe it's just gonna play more like complex generics in coming years.
And the player, the company that invest in manufacturing, in science, is integrated, not sharing two margins. High quality manufacturing will matter a whole lot here. And I believe domestic manufacturing will make a big case as well. And you have your broader portfolio of five, ten, fifteen, twenty products, and those are the company who it it's it's right in what we do. It's it's in our nation's, in our DNA as a affordable medicine company leading in The United States.
Speaker 3
Oh, thanks for that.
Speaker 2
How it will play out. Thank you, Balaji.
Speaker 3
Just one follow-up maybe on that. If the cost of investments are significantly lower and should be lower, do you anticipate more competition or more companies exploring or entering the field, let's say, in two, three years from now?
Speaker 2
I think, Balaji Balaji similar to complex generics like transtermoles, and, you know, it's more complex even than all these these microsphere injectables and so peptide I mean, the peptide. The the biology's manufacturing is not an easy task. It's it's a lot is involved there. So, yeah, there'll be competition, but who can consistently supply is going to be the key high quality product.
Speaker 0
And due to time constraints, the last question questioner will be Dana Flanders with Guggenheim. Please go ahead.
Speaker 8
Great. Thank you for squeezing me in. I just had two quick ones. Maybe just first on the generics based business. Just wondering if you could comment how you see it positioned from a diversification standpoint.
I know there are always upside and downside risks to guidance. But to me, at least, it seems like just from a revenue and gross profit perspective, you're just much better diversified than a few years ago. And then just my second quick question on R and D spend. Just as you increase investment and focus on the branded business, what does that mean for total R and
Speaker 7
D spend over time?
Speaker 8
Should we think of some upside bias to that number? Or do you shift some value from kind of lower or shift some spend from lower value generics over to brands? Thank you.
Speaker 2
Thank you, Dana. Good to hear from you. The first one is the generic business. You're right. The few years ago, we were highly concentrated on few products.
Since we have launched many complex products now, It's highly diversified, and the key thing is we keep launching, six, seven more complex products every year. So refreshing the pipeline and also finding opportunities within base business as we have more capacity for transdermals, topicals, liquid, or injectables. So all the subsectors of GX, we are expanding to offset the continuous pressure, which is lower than previous years on a base business. On r and d, as as you know, it's it's five zero five b two r and ds, and we will be allocating more and more dollars to specialty than than genetics. But we we will stay around $1.60, $1.70 for now.
As we grow, we will invest smartly, in more. But, again, it's five five b two, so they're not NC kind of, expenses. So I hope that answers your question.
Speaker 8
Great. Thank you.
Speaker 2
Thanks.
Speaker 0
This concludes our question and answer session and the Amneal Pharmaceuticals fourth quarter and full year twenty twenty earnings call. Thank you for attending today's presentation. You may now disconnect.