Amphastar Pharmaceuticals Inc

NASDAQ:AMPH

Earnings Call Transcript 2021-Q3

[Operator]

Greetings and welcome to the Amphastar Pharmaceuticals Incorporated Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]

Please note that certain statements made during the call regarding matters that are not historical facts, including, but not limited to management’s outlook or predictions for future periods are forward-looking statements. These statements are based solely on information that is now available to us. We encourage you to review the Section entitled forward-looking statements in the press release we issued today and the presentation on the company’s website.

Also, please refer to our SEC filings, which can be found on our website and the SEC’s website for a discussion of numerous factors that may impact our future performance. We will also discuss certain non-GAAP measures. Important information on our use of these measures and reconciliations to US GAAP may be found on our earnings release. Please note, that this conference call is being recorded.

Our speakers today are; Mr. Bill Peters, CFO; Mr. Dan Dischner, Vice President of Corporate Communications; and Mr. Tony Marrs, Senior Vice President of Regulatory Affairs and Clinical Operations.

I will now turn the conference over to your host, Mr. Dan Dischner, Vice President of Corporate Communications. Dan, you may begin.

[Dan Dischner, Vice President, Corporate Communications]

Thank you, Paul. I’d like to thank everybody for joining us this afternoon. As you have seen, Amphastar recently reported our financial results, and I am pleased to announce that the upward momentum from last quarters’ strong execution was sustainable and carried over into the third quarter. With that said, we saw another great quarter of top line and bottom line growth, as we will remain generally insulated from the typical challenges facing our sector in the pharmaceutical space.

Again, this is another validating quarter, highlighting the importance of Amphastar’s core strengths as our vision, strategy and vertical integrated platforms continue to deliver on our growing commercial proficiencies. After my portion, I will turn the call over to our CFO and Executive Vice President of Finance, Bill Peters, who’ll provide an update on the company’s financials. After Bill’s remarks, we’ll move on to the Q&A portion of the call, where Tony Marrs, Senior Vice President of Regulatory Affairs and Clinical Operations, Bill and myself will answer any questions.

I want to begin with our commercial results, where the third quarter saw net revenues just over $112 million, which is a 10% increase from last quarter, and an impressive 34% increase on an annualized basis. Amphastar has seen remarkable growth on a quarterly basis, and annualized in revenue, gross profit, net income and earnings per share.

I want to emphasize that Amphastar has a bright 2022 ahead based on this trajectory, while R&D expenses enhance our base business in setting up a foundation for more successful future quarters performances from an operations perspective, equally important is our vision with specific regards to our pipeline strategy, coupled with our vertical integrated platform continues to be a proven – by our more recently launched products.

Since the beginning of 2021, we have observed that our glucagon, Primatene Mist and epinephrine products have been key revenue drivers. We continue to believe that these three products will be significant growth drivers for the remainder of the year, due to their recent performance.

Regarding our glucagon product. Sales of the product were $12.1 million in the third quarter. We’re very pleased with the performance of this product and the ability to capture market share since its launch in February of this year. With that said, we believe glucagon is still positioned to have a positive trajectory for the remainder of the year.

On the topic of Primatene Mist, sales maintain a positive trend, seeing a 38% increase compared to Q3 in 2020. As trends continue, Primatene Mist’s annualized sales will likely exceed our goal of $65 million this year as our continued nationwide TV, digital and radio marketing efforts, coupled with our physician sampling program have proven effective.

On epinephrine, sales of both the prefilled syringe and the multi dose vial presentations grew to $13.9 million due to our ability to capitalize on opportunities when they are presented. As we have said before, Amphastar can consistently supply the product when our competitors cannot. This is mainly due to our investment in our recently added state-of-the-art production line. We anticipate similar opportunities continuing into 2022.

On another note, our careful planning and supply management has allowed our commercial portfolio sales to remain strong regardless of the impact felt from COVID-19. However, the impact from COVID was not without its limitations, especially in regards to the clinical site impact.

On the clinical front, our clinical and other third-party vendors continue to face various COVID-related restraints that are out of our control. Therefore, we anticipate refiling for intranasal naloxone in Q1 of 2022. The same can be said for our intranasal epinephrine, which is now expected a filing in 2023. As for our filed ANDAs, AMP-002 and AMP-006, both remain on track to have a GDUFA date for the first quarter of 2022. If a preapproval – inspection is necessary for either product, the GDUFA date may be postponed for two months.

For our – teriparatide’s ANDA, our first 10 products, we have had continued dialogue with the agency. It is still on a first cycle review, which is now anticipated to have a GDUFA date in the second quarter of 2022. Concerning our Paragraph IV filings, AMP-008, our first inhalation ANDA is anticipated to be filed in the fourth quarter of this year. We continue to believe we have a strong non-infringement position. Likewise, we feel the same with AMP-009, another Paragraph IV filing that is currently being litigated.

With regard to our products in our diabetes portfolio, specifically our insulin program, we believe that though that through the advanced technologies we have developed, we can create a more standardized process in developing these types of products to have a robust diabetes portfolio. To accomplish this, we have developed a framework based on FDA guidance and our extensive complex molecule experience.

In closing, I would like to reiterate that we continue to make significant progress in our commercial portfolios’ revenue growth trajectory, with a further emphasis on our pipeline. Amphastar sees our future progress towards interchangeable biosimilar and proprietary products. We are confident we can achieve these goals as our long-term vision, proven strategy and vertically integrated platform serve as complementary forces in building momentum towards its future as we head off into 2022 with a great start.

I will turn the call to Bill to discuss the third quarter’s financial results.

[Bill Peters, Chief Financial Officer]

Thank you, Dan. Sales for the third quarter increased 34% to $112.2 million from at $83.4 million in the previous year’s period. Glucagon, which we launched in the first quarter once again led to growth, with sales of $12.2 million. Primatene Mist saw sales growth of 28% to $16.6 million from $13 million in the third quarter of last year, with strong sales to all of our current customers.

Epinephrine sales increased to $13.9 million on strong sales of both the multi dose vial and the prefilled syringe, the latter of which saw a surge in demand due to competitor shortages. We have been consistently able to meet the demand caused by competitive drug shortages quarter-after-quarter, which is why we increased the capacity in our IMS facility.

Enoxaparin sales decreased to $8 million, primarily due to increased competition, which led to reduce volumes and lower average selling prices. Other finished pharmaceutical products saw a sales increase of $5.6 million driven by increases in Medroxyprogesterone, Cortrosyn and Amphadase.

Our Insulin API business had sales of $3.2 million, up from $2.1 million last year primarily due to the timing of orders. Cost of revenues increased to $61 million from $46.9 million. Gross margins improved to 46% of revenues from 44% as newer higher margin products, such as glucagon, Primatene Mist and epinephrine multi dose vials more than offset the lower pricing for enoxaparin.

Selling, distribution and marketing expenses increased 29% to $4.7 million from $3.7 million, due to increased advertising and distribution costs, including television commercials for Primatene Mist. General and administrative spending decreased 7% to $10.9 million from $11.7 million due to lower legal expenses.

Research and development expenditures decreased 39% to $10.8 million from $17.6 million as lower clinical trial expenses and a decrease of R&D costs in China due to the restructuring of our subsidiary, Amphastar Nanjing Pharmaceuticals or ANP, and the deconsolidation of its subsidiary, Hanxin.

Our non-operating income line includes a one-time gain on the divestiture of 80% of ANP’s subsidiary, Hanxin. The strong results this quarter show the significant operating leverage available to the company as we grow sales faster than our expenses. The company reported net income attributable to Amphastar’s shareholders of $29.5 million or $0.59 per share in the third quarter, a significant increase from $3.9 million or $0.08 per share in the third quarter of 2020.

The company reported an adjusted net income of $23 million or $0.46 per share, compared to an adjusted net income of $7.6 million or $0.15 per share in the third quarter of last year. Adjusted earnings exclude amortization, equity compensation, impairments of long-lived assets and one-time events, including the gain on the divestiture of 80% of our interests in Hanxin.

In the third quarter, we had cash flow from operations of approximately $2.6 million. And we used a portion of our cash to buy back approximately $6.1 million of stock. As mentioned on the last conference call, we completed a syndicated debt offering in the third quarter, borrowing $70 million and increasing our lines of credit to $70 million. In the process, we lowered our interest rates significantly, and it paid off approximately $36 million of higher interest rate debt.

I will now turn the call back over to Dan.

[Dan Dischner, Vice President, Corporate Communications]

Thanks, Bill. If we can now turn to the Q&A section of our presentation.

[Operator]

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from Jacob Hughes with Wells Fargo Securities. Please proceed with your question.

[Jacob Hughes, Wells Fargo Securities]

Hey, guys, thanks for taking my questions. I’ve just a couple. On our Primatene Mist I think the sales in the quarter were flattish quarter-over-quarter. You know is there anything to call the quarter? And how should we think about that for the fourth quarter? And will you be providing a new target since we’re basically already at greater than $65 million?

[Bill Peters, Chief Financial Officer]

Yeah, so the sales were just up a little bit or pretty relatively flat from the second quarter. But we did see you know strong growth year-over-year which we took as a very good sign. And we started off, I’ll say, the fourth quarter pretty strong as well. So while we’re not going to give any formal guidance at this time about our different sales target, at this point, we do feel very confident that we will be above the $65 million mark this year. And we might address further targets probably on our March call.

[Jacob Hughes, Wells Fargo Securities]

Okay, got it. And then on the shortages that you called out for epinephrine and you know other finished pharmaceutical products. Do you expect – is that going to be a similar benefit to the fourth quarter or have those been resolved now?

[Bill Peters, Chief Financial Officer]

So the epinephrine specifically, we see that trend continuing into next year that has not been resolved and we still see very strong demand for that product today. So, our competition doesn’t seem like they’re going to get it from what they’ve indicated to drug shortage at FDA doesn’t look like they will be back on track until next year.

Some of the other products that they’ve been – you know some have been resolved, some haven’t been. But I think the real important point here is what you know, Dan and I both mentioned, which is you know, we increased – we spent a lot of money to increase the capacity of our facility at IMS. And by doing that, we’re now able to capture and take care of the demand for those things when they do occur. And you know and honestly, I’ve been here at this company for over seven years, I think pretty much every quarter, there’s been some sort of supply issue from one competitor or another and now we have the ability to take advantage of that. So I think we really delivered on that this quarter.

[Jacob Hughes, Wells Fargo Securities]

And then lastly just saw on the pipeline. I saw the new disclosure in the slide deck is for AMP018. Is there anything you can say about that program?

[Bill Peters, Chief Financial Officer]

That’s the new one we’ve just recently added to the deck. And where it’s one that has been in development here for a little while. We’ve just added it to the deck just as further disclosure. And as time moves along, we’ll give further development – further information about that one. But that we’re just – today we’re just instigating that that’s one of the products that’s out there in development and part of that unfiled injectable of $6.5 billion of IQVIA sales.

[Jacob Hughes, Wells Fargo Securities]

Got it. Thanks very much.

[Operator]

Thank you. Our next question comes from Elliot Wilbur with Raymond James. Please proceed with your question.

[Elliot Wilbur, Raymond James]

Thanks, good afternoon. Just a follow-up question on Primatene Mist trends and just looking at the chart in the deck, I mean, it looks like unit sales continued to trend higher even though you saw flattish sequential performance in terms of revenue, just wondering you know what the impact may have been on obviously, not pricing, but I don’t know if there was an increase in couponing or sampling? Then I want to get a sense from you in terms of your sampling program, just a sense of how effective you believe that’s been and whether there’s any anecdotes you can share in terms of whether or not you’ve been able to initiate starts on the product in patients that are new to the asset haven’t really utilized it before.

[Bill Peters, Chief Financial Officer]

Yeah. So first of all, I will say that you know while we don’t have hard data on the sampling program, we think it’s a really effective way to get some people who have mild cases of asthma on the product when they go to their their doctor, their doctor can give them you know just a free sample of the product and then go out and try it afterwards.

So as far as coupons go, we actually are not doing any couponing. So none of the sales growth was led by that or the unit growth. And thanks for mentioning the updated slide on the deck you know, as you know that that trend there shows continued steady growth in sales of the product. So we’re very happy about that trend.

[Elliot Wilbur, Raymond James]

Okay. And then a question for you, Bill. Can you just walk us through the change in the R&D line? Obviously, a significant number, tried to figure out is the run rate this quarter sort of a good representation of new baseline spend? How will things change in terms of cash flow implications or you know your rights to products and development by some of the subs that have been deconsolidated? Now, just not sure I understand the – fully the implications of the change in that line?

[Bill Peters, Chief Financial Officer]

Yeah, good question. So we did – back when we announced this reorganization, we had mentioned that we’d get about a $0.03 a year savings this year, and I think it was $0.10 – $0.12 next year savings on the income line, a big part of that was the lower R&D cost as we moved some of the projects that we weren’t – that weren’t really for us out of our R&D line, so that that’s part of the trend.

The other trend is, we did lower the headcount at our AMP facility slightly as well. So there’s a little bit less expense out of that. And part of it, the third thing is really timing and that goes back to what Dan had mentioned in his part of the script, which was the timing of certain clinical trials. We’ve had some delays there on some of the R&D projects. So the clinical trial expenses, one that can be variable and large at time. So that number you see this quarter is more of a floor and you should only expect up you know increased expenses from that line as more of the clinical trials move forward.

[Operator]

Thank you. Our next question comes from Serge Belanger with Needham & Company. Please proceed with your question.

[Serge Belanger, Needham & Company]

Hi, good afternoon. A couple for me on Primatene also. First, do you expect any winter season seasonality? And then secondly, product is now in all the major Big Box stores. So where you foresee the next leg of growth here? Is it just more penetration within these segments or there’s additional segments to penetrate?

[Bill Peters, Chief Financial Officer]

Yeah, with Primatene Mist seasonality is still a little hard to determine. You know typically Q4 is a good year – is a good quarter for it. And so we’ll be monitoring that situation. As far as growth for Primatene. Yeah, we hit, we were – we’re in all the major retail commercial.

I think the next big growth is, as we develop our marketing strategy and in brand recognition and getting the product, letting people know that the product is back on the market. And we expand into maybe a younger gen you know demographic with some of the more concentrated marketing efforts that our team has planned. So, I think that’s where we could see some growth moving forward.

[Serge Belanger, Needham & Company]

And then similarly on glucagon, you expect that product to continue growing? Is this a question of expanding that the market size of the product or just continuing to grow your market share?

[Bill Peters, Chief Financial Officer]

Yes. So the – we don’t see the market share or changing much for this, because we already have significant market share. When you take a look at the IQVIA data, we already have a large majority of that market for the – this injectable version. We see the overall glucagon market growing for a couple of reasons. And one is that, we believe with a generic alternative out there, which we now provide. We think that there’ll be more people that are likely to get a script filled, given the fact that it was an expensive product in the past. So we see this as a growing market, but we see our market share probably remaining about where it is.

[Operator]

Thank you. Our next question is from Tim Chiang with Northland Capital. Please proceed with your question.

[Tim Chiang, Northland Capital]

Hi, thanks. Bill, could you just talk about the – just you sort of highlighted the financial leverage and it seemed to be pretty apparent, given the fact that your operating margins were north of 20% this quarter? Do you see that sustaining into the fourth quarter as well, these type of operating margins?

[Bill Peters, Chief Financial Officer]

Yes, so right now we do see sales kind of trending the same way they were in the third quarter. So again, another quarter of very strong sales. We think our gross margins will be pretty similar and our SG&A lines will be relatively similar. The R&D line is the one line that can be a little bit more variable as I mentioned, you know we had a little bit of delays in some of the clinical trials. So this clinical trial expense was a little bit low in the third quarter. So, in all likelihood, that goes up a little bit in the fourth quarter from where we are today.

[Tim Chiang, Northland Capital]

I see. And maybe just a follow-up on the pipeline. I think you guys did update that pipeline slide in AMP-015, I think that’s one of your bigger ticket items. I guess you’ve set a GDUFA data what the second quarter of 2022, is that right?

[Bill Peters, Chief Financial Officer]

Correct.

[Dan Dischner, Vice President, Corporate Communications]

Yeah, yeah that’s correct. They haven’t – this is not a CRL, this is just as a complex product that we work on. This is just an interesting time, which is the agency through our communication and as we progress with them, they’ve extended that action date until that quarter.

[Tim Chiang, Northland Capital]

I mean, can you comment a little bit just on capacity for that product? I mean, do you think you’ll have ample capacity to meet supply assuming you get approval sometime in the second quarter next year?

[Dan Dischner, Vice President, Corporate Communications]

I think it’s part of our planning. So we have invested in the capacity. So I think it’s, you know, Bill, do you want to say anything else?

[Bill Peters, Chief Financial Officer]

Yeah, yeah we do it’s not a very big unit volume item. It’s a relatively high-priced item. So the capacity – we have the capacity here at our Amphastar headquarters to make that product and still the market share that we believe that we’ll be able to get to. So, we don’t see that as being an issue.

[Dan Dischner, Vice President, Corporate Communications]

And Tim, to reiterate that, it’s a separate line. It’s a dedicated, because it is a pen product. So from encroaching in some of our other products, it would be just this product on that line.

[Operator]

Thank you. Our next question comes from David Steinberg with Jefferies. Please proceed with your question.

[David Steinberg, Jefferies]

Thanks and good afternoon and I apologize if you’ve already addressed this, sorry couple of calls going on simultaneously. The first one is on 002. Do you – could you remind us that the potential size of this product? How long the brand has been off patent without any generic competition? And when you do get on the market you know, do you foresee any competition near-term? And then secondly on M&A. it seems like in the last few quarterly calls, you know your interest level has waned? You obviously have a lot on your plate pipeline-wise, are you actively looking at any candidates? Or just you have so much going on, there’s no need to buy anything? And if you are looking, have prices come in at all? Are they still relatively high in your view? Thanks.

[Bill Peters, Chief Financial Officer]

About the size of the 002 market, it’s about a $300 million IQVIA sales market and that has been off patent for a very long time. So it’s not something that we would expect anybody else to get approval on in the near future. And just to reiterate, we do have that GFUDA date coming up early next year. So we’re looking forward to that. And your second question was –

[Dan Dischner, Vice President, Corporate Communications]

On M&A.

[Bill Peters, Chief Financial Officer]

Yeah, M&A. So on the M&A, Dan, you want to take that?

[Dan Dischner, Vice President, Corporate Communications]

Yeah, I mean, it’s fine. We are very – as we’ve mentioned before, we’re very focused on what we have going on here. We have a very robust pipeline. And we’re very focused on executing on our pipeline. But that said, I think there’s always you know we have a very solid balance sheet and if the right opportunity presented itself to us, it’s something that we would pay attention to. So, that – in that regard, that really hasn’t changed much.

[David Steinberg, Jefferies]

And just to follow-up to Bill, you indicated that sales were over $300 million has been off patent for years, you expect no competition. So if you work out the math on that. That should become your biggest product over time. Is that a reasonable way to think about it?

[Bill Peters, Chief Financial Officer]

I think I would hold off on making that extrapolation. I see how your math gets you there. I’m not really sure that we do – it does become our biggest product over time. Right now I think that’s going to remain Primatene Mist. So I’ll just leave it at that for now.

[Operator]

Thank you. Our next question comes in Elliot Wilbur with Raymond James. Please proceed with your question.

[Elliot Wilbur, Raymond James]

Just a couple of quick follow-ups. You know I guess with respect to the shortage products, did any of those benefit from off contract pricing terms in the quarter? And then just a quick follow-up on naloxone? And just how are you guys seeing that market today? Obviously there have been a couple recent approvals of injectables in the [indiscernible] category, just sort of wondering how you’re now thinking about that opportunity in light of incremental competition in the market?

[Bill Peters, Chief Financial Officer]

Let’s see. So –

[Dan Dischner, Vice President, Corporate Communications]

I’ll start with naloxone and then we can go to the shortage on the contract pricing term, Bill can answer that one. On naloxone, you know that we keep seeing that product that – that program or the market for that growing. So we believe that there are still room for us. We have experience in this market. You know, I think there is – it is getting crowded, you’re right. But I do think as the market continues to grow, there’s still room for our product.

Then as – then with the shortage off contract pricing or on the drug shortage, the off contract pricing.

[Bill Peters, Chief Financial Officer]

Yes. So the off contract, most of the products that were on shortage and related to shortage that we had sales on, did not have that benefit. So they’re straight normal pricing, because they were multi-sourced products. So there wasn’t really any issue with that.

[Operator]

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

[Dan Dischner, Vice President, Corporate Communications]

Okay. Well, thank you, Paul and thank you, everybody for joining us today. We were you know very pleased to be able to have a great quarter this quarter. And we look forward to the momentum carrying on for the remainder of the year. And we look forward to talking with you all again very shortly.

[Operator]

This concludes today’s conference. You may now disconnect your lines. Thank you for your participation.

[Dan Dischner, Vice President, Corporate Communications]

Thank you.